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