A perfect trading opportunity came out of nowhere

Out of the blue, a low-risk trading opportunity arose in the euro market. John C Burford reveals how he played it.

On Wednesday, I decided to trade the EUR/USD, having believed on Monday that there were no low-risk opportunities. How wrong I was on Monday!

Here was the position on Wednesday morning:

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.
150603-MWT-03

The perfect trade entry was given when the market broke up through my centre tramline. But just before that, I found another low-risk entry in the 1.09 region, as I explained.

In textbook fashion, the market promptly zoomed up to meet my third tramline, T3. Remember, this tramline is resistance and represents a target where short-term traders could take at least partial profits according to my split-bet strategy.

Advertisement
Advertisement - Article continues below

That little exercise produced a one-day profit of around 250 pips.

But was there more in the tank?

What was the backstory (and did it matter)?

But has the euro collapsed as traders fear that Greece's position within the eurozone is in jeopardy?

Not at all. And that simple fact should make those who take headlines at face value think twice.

In fact, some of the best market moves occur when the news appears very bearish and the market rallies (and vice versa) in a seemingly perverse fashion. I love trading these situations!

The fundamental reason for these counter-intuitive moves is that the market has lined up on one side (the bearish euro side) and that makes the path of least resistance up. That's herding in action and canny traders can take advantage by trading against the herd.

Advertisement
Advertisement - Article continues below

Ashort squeeze validated my tramline time to pull the trigger!

Lo and behold, with an additional squeezing of the shorts, T4 was hit precisely on the nose yesterday. Isn't that pretty?

15-6-5-MWT-2

When the market was trading at the 1.09 level on Tuesday, I could draw in my tramline pair using only a few simple rules.

Then, when the upper tramline was broken, I immediately drew in T3 and set that as my first target. When that target was hit later on Tuesday, I could take partial profits of 250 pips, retaining the other part open (and moving protective stop to break-even, just in case).

When T4 was hit, I took the the final profit of around 400 pips, making a total win of 650 pips. Even on a small bet of £4 per pip, that little two-day campaign netted a cool £2,600 win.

If you did that, you would be out of the market and unconcerned what it did next and looking for the next low-risk opportunity.

In fact, if you find just a few of these set-ups a month, you would be in the professional trader class.

Advertisement
Advertisement - Article continues below

My trade was profitable but it wasn't the only way to play the euro

Let's say you had taken partial profit at T3, kept the remainder and not exited at T4. You would be looking at a valid Elliott-wave count, as I have shown above. My Elliott waves suggest that a new high for the move lies ahead.

The big short squeeze is your wave 3 it is long and strong, after all and the dip yesterday off T4 resistance was wave 4. Now you are looking for a new high above T4 in wave 5. Naturally, you would be looking at taking final profits as close to the wave 5 high as possible.

There is a very large momentum divergence building, which is a warning that the downturn could occur at any time.

One strategy to prevent a massive loss of unrealised profit would be to move your sell stop to the price level where you exited the first time. That would lock in 250 pips profit and a total of 500 pips still a very acceptable result.

Enough on the euro for now!

I'm sure you have noted that I have not covered the Dow for some time. That is because there have been few trading opportunities, but I sense that this will be changing very soon. I expect to be able to cover the Dow next week, so do tune in.

Advertisement

Recommended

Visit/trading/spread-betting/600782/boeings-share-price-plummets-heres-how-to-play-it
Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Visit/519524/how-my-2019-spreadbetting-tips-fared
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Visit/519285/bettingon-politics-some-safe-labour-bets
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019
Visit/518916/ds-smith-will-deliver
Spread betting

DS Smith will deliver: here's how to play the share price

Packaging group DS Smith is profiting from the online retail boom. Matthew Partridge explains how traders can play the share price.
3 Dec 2019

Most Popular

Visit/investments/stockmarkets/600878/coronavirus-pandemic-financial-markets
Stockmarkets

A global coronavirus pandemic seems inevitable – are markets still too complacent?

Coronavirus is going global. It’s only a matter of time before it’s classed as a pandemic. John Stepek looks at the markets’ reaction, and explains ho…
24 Feb 2020
Visit/investments/property/buy-to-let/600849/come-back-buy-to-letters-all-is-forgiven
Buy to let

Come back buy-to-letters, all is forgiven

The government is winning its war against small private buy-to-let landlords. But who benefits?
23 Feb 2020
Visit/economy/600875/money-minute-24-february-house-prices-unemployment-and-corporate-results
Economy

Money Minute 24 February: house prices, unemployment and corporate results

Money Minute: previewing the week's most important economic and financial goings on, including the latest house price, and unemployment figures, and …
24 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019