EURUSD Day Trades – January 2

It was a few hours into the London session before a strong trend began. That is way I prefer not to range trade in the EURUSD. There is a high likelihood that the range won’t last very long, and what many traders view as ranges are just consolidations in a longer-term term trend (not always, but normally).

Over the next couple hours, moving toward the US session, there were some excellent rhythmic trending moves. These are moves which are great for day trading using a trend following strategy.

Figure 1.  EURUSD 1-Minute Chart


Strong moves to the downside, and weaker pullbacks indicate being short or buying puts is the only way to trade during this couple hours. Using a fusion of the envelope trend following strategy and the mini-channel breakout strategy worked well to isolate entry points, since early in the day we had already seen the price was showing a tendency to over-run the 0.012% envelopes (often 0.01% is used on the 1 minute chart as well, just depends on how the price is acting early in the London session).

Using a fixed target of 6 or 7 pips, which is a 2:1 reward-to-risk ratio if using a 3 or 3.5 pip stop, would have resulted in 3 winning trades, with potential for much larger profits if using a Fibonacci extension target.

As the US session begins, using the same strategy (fusion of strategies), there was one losing trade. I used a 3.5 pip stop and the stop would have been hit on a move higher.

There was the possibility to get out early on a strong reversal bar higher (see: How to Read the EURUSD, for ways to manage trades), but given the overall downtrend the trade still had a good chance of working out, so I opted to give it room instead of exiting early. Traders need to get over the fear of losing and trading anxiety.

After this though there are no other trending opportunities (at least for the next couple hours), as the price moves back and forth within a choppy range, no longer respecting our entry criteria. Although, this range was quit wide, so it was possible to make a few trades within it, I just opted not to since I prefer trading strong trends and not small ones within ranges.

Figure 2. EURUSD 1-Minute Chart


After the losing trade the price makes a short-term high, on an aggressive move. It isn’t strong enough to reach where we took the prior short though (can see arrow in upper left corner), so going long isn’t a high probability play yet, and when the price falls it can’t move much below the prior low. Therefore, a couple rectangles are drawn to show the price is potentially starting to move in a range (at that point we don’t know, but it is worth marking on the chart). The price continues to respect these areas for the next couple hours. I call these Important Support and Resistance areas, and they are far more useful for trading purposes than what most traders consider to be support or resistance levels. See Defining and Trading Around Important Support and Resistance for why I don’t place trades near these levels, and also get a couple trade ideas for when the price bounces off these levels.

Have a prosperous New Year.