Expected a quiet day today amidst holiday trading, but it ended up being anything but. An early rally triggered multiple stop loss order above former highs on the longer-term term charts, creating a strong rip higher followed by a slower but equally spectacular drop.
Throughout the London and early-US session there were a number of excellent opportunities which could have been captured using strategies outlined in prior articles.
Following an aggressive move higher during the London session there was a small pullback which took the form of a tight downward channel.
The strategy, as outlined in Trading the “Mini-Channel Breakout”, is very simple. After an aggressive move, if a small channel forms moving in the opposite direction, wait for a breakout of the channel (in the same direction as the prior strong move) and then enter.
A Fibonacci extension tool is applied to provide some profit targets. Usually the 100 Fibonacci level would be the target, but if the price is moving very aggressively then an exit can be taken at the first sign of a pullback. This would have resulted in getting out near the 161.8 to 138.2 level as the price started to come back down.
Figure 1. EURUSD Mini-Channel Breakout Trade – 1 Minute Chart
Basic Trend Trades
Following the surge shown in figure 1 the price declined, and every time it tried to push higher, sellers stepped in to quickly take it to a new (short-term) lower-low. This indicated that the rally was likely over and the price would either continue lower or consolidate moving in more of a sideways direction. In either case, it was reasonable to consider short trades.
Using a method first outlined in EURUSD Day Trades – October 7 and October 8 a short trade soon presented itself. Going short at the upper band (0.01% exponential envelope) with a 3.5 pip stop and a profit target of 6 pips (or using a Fibonacci extension tool as discussed prior), this short trade also worked out well. I usually just take profit at the fixed target, but with no evidence of the price moving higher just yet, the trade could have been held for a larger gain.
Figure 2. EURUSD Trend Trade (“scalping”) – 1 Minute Chart
Throughout the rest of the London and early US session there were no aggressive moves higher (relatively speaking), which meant if trades were taken they should have been on the short-side.
Using the same strategy as outlined above, there were multiple shorting opportunities which would have been profitable. Toward the right-hand side of Figure 3 (below) there was one trade which would have likely stopped out most traders out (using the 3.5 pip fixed stop), unless the trader waited for a better entry above the upper band because the price did eventually drop again.
Figure 3. More Potential EURUSD Trend Trades – 1 Minute Chart
After the likely loser the price starts “riding” the band, and is no longer bouncing off it like it was earlier in the session. If the price isn’t bouncing off the band then the strategy shouldn’t be used, as some other strategy–likely based off tendency and price action–will be more effective. Also, this strategy is best used during the London and early US session. As the London close approaches this strategy becomes less effective.