Today, I will continue following my euro trade because I was still faced with the problem of when and where to take my profits. Since my last email, I decided to act.
Last Friday, I described how I had taken my latest long position just prior to the Yellen rally where my trade was instantly in profit. This was the hourly chart then:
I have a very convincing five up pattern which implies the rally had probably exhausted, or nearly so. And with the large momentum divergence into the wave 5 high, it appeared the buying pressure was rapidly subsiding I decided to take partial profits if I saw a rally back to near the wave 5 high at around the 114 area.
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Taking partial profits is one of the useful techniques I use in my split bet' strategy. In it, I bet in multiples of £2 per pip, and take half off when one target has been met.
Here is the chart I captured yesterday showing the new high above my old wave 5 high:
That new high prompted me to rethink my five waves (see later chart). But that extra push enabled me to take a profit on part of my position using my very useful split bet' strategy.
That was where I took a 200 pip profit on half of my position. With the remaining half, I decided to raise my protective stop to the yellow zone at around the 113.50 level. This is where the previous low was made on Friday and where my lower tramline was set.
I reckoned that if the market could break that level, the rally was probably over and a new downtrend could begin and justify reversing my stance to bearish. So that level was critical for the near term.
But whatever happened, my overall trade would be a winner I had made 200 pips on one half and was set to make at least 150 pips on the other half, making a total of 350 pips minimum. That makes it a very worthwhile trade.
Here is the position this morning:
Here are my new labels on the rally with the latest high at 114.40 my new wave 5. Note that the new wave 3 sports a very credible five up, which is a feature I always like to see.
So now the market is testing my lower tramline again and if it breaks into the yellow zone, I will be out of my remaining position and then have the option of going short.
But as always, there is an alternative outlook. If the market holds around here and pushes up past the 114 level into the pink zone, that would set up this possibility:
My original five up could be an A wave to be followed by a dip to a B wave low and then a big rally in a C wave to take the market above the A wave high.
But do you know what? I will have banked at least 350 pips and this scenario will not bother me. I may miss the move (or not), but better to miss it than take a loss. My original trade was a high probability/low risk setup. Will I find another?
With the EUR/USD market in no clear trend and hasn't been for months I am content to play the swings. Here is the longer-range outlook I showed last time:
Here is the same chart zoomed in a little updated to this morning:
At the 114 high, wave C equals a Fibonacci 62% of wave A, which is a typical wave relationship. And the momentum divergence has become even stronger.
So the odds are stacking up to strongly suggest the rally is probably over. How will you play it?
John is is a British-born lapsed PhD physicist, who previously worked for Nasa on the Mars exploration team. He is a former commodity trading advisor with the US Commodities Futures Trading Commission, and worked in a boutique futures house in California in the 1980s.
He was a partner in one of the first futures newsletter advisory services, based in Washington DC, specialising in pork bellies and currencies. John is primarily a chart-reading trader, having cut his trading teeth in the days before PCs.
As well as his work in the financial world, he has launched, run and sold several 'real' businesses producing 'real' products.
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