I beat the herd with two huge currency campaigns

Being right is only half the battle, says John C Burford. You also have to know when to enter and exit your trades with precision.

Last Friday ("I called the euro's plunge more than a week ago"), I was relating my trading campaigns in USD/CAD and EUR/USD. The latter market is one of my favourite vehicles for swing trading, but the loonie (Canadian dollar) is one I trade only rarely. But I saw a great opportunity in the charts this week, which stirred my trading juices.

It is often said that entering a trade is much easier than exiting one. If you exit a winning trade well before its maximum potential has been reached, your confidence takes a major hit. Selling your long gold position at $1,130 just before it zooms up to $1,200 is confidence-destroying.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

I want to show you two recent examples of the method I use to take swing profits at opportune times.

How I made 690 pips in two weeks

Fibonacci 50% level

Advertisement
Advertisement - Article continues below

,

15-10-23-MWT-2

I believed the rally was not yet over and I had a higher target in mind perhaps to the Fibonacci 62% or even higher level. My view was based on the strength of the C wave which failed to produce a momentum divergence with the A wave. That told me the rally could have enough strength to push over the resistance at the Fibonacci 50% level. That is where there would naturally be a host of protective buy stops placed there by the shorts and could provide the fuel to rocket the market higher.

The market did rally above the Fibonacci 50% level and even zoomed past the 62% level and that is when I pulled the trigger on part of my long position at the 1.3240 level for another banked profit of 290 pips. I had a lovely tramline pair working and there was a momentum divergence, suggesting the rally was likely running out of steam. It was time to tighten my stops.

15-10-30-MWT-2

With this information, I moved the protective sell stop on the remainder of my position to just under the lower tramline (pink zone). If this line was breached, the decline could be severe and so it proved.

The Fed non-news of Thursday was the event that drove the market below the lower tramline, and past my sell stop where I banked another 200 pips profit.

15-10-30-MWT-3

Note that the market recovered to kiss the tramline and is now falling away in a scalded-cat bounce as I write. That kiss was also a terrific shorting opportunity.

Advertisement
Advertisement - Article continues below

My little two-week campaign netted me a tidy 690 pips profit on the three trades. That is the power of my split-bet strategy.

I've made 900 pips on the euro, and I'm not done yet

But the decline wasn't quite over, and the market went on to the next support level at the 1.09 print. This was the picture yesterday:

15-10-30-MWT-4

The market hit support at the Fibonacci 62% level (wave 1). Odds now favoured a rally in wave 2. Below is my roadmap on the hourly chart. The move off the 1.15 high was in a clear textbook five down with a momentum divergence at the 1.09 low. That was all the evidence I needed to take another slice of profit amounting to 550 pips (from my 1.1450 entry):

15-10-30-MWT-5

So now I held a third of my original position, had banked a 900-pip profit, and was looking to re-short on the rally.

This is a successful campaign, and one of the reasons is that I was trading against prevailing sentiment. At the 1.15 high, sentiment towards the euro was running bullish (always a good time to sell it!). Then, Mario Draghi announced plans to step up quantitative easing (QE) and to lower policy rates.

That put downward pressure on the euro, of course, and resulted in the 6%plunge. Now, the herd has accepted the European Central Bank will do anything to lower the value of the euro to stimulate exports. With bullish sentiment towards the euro now at very low levels, the herd has acted and will be caught out by a euro rally!

Advertisement
Advertisement - Article continues below

It is the seemingly perverse behaviour of the markets that offers knowledgeable traders great opportunities like this.

Total profit on the two campaigns is 1,590 pips and I have a winning EUR/USD trade still working. Nice.

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/economy/uk-economy/600837/rishi-sunak-new-chancellor-spending-splurge
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020
Visit/economy/600814/money-minute-friday-14-february-the-latest-from-rbs-britains-state-owned-bank
Economy

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020
Visit/investments/property/600826/living-on-a-houseboat-the-pros-and-cons-of-a-floating-home
Property

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019