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EURUSD DST Long – 3 Mar

Account Risk: 1%
Long: 2x 1.0515 & 2x order 1.0505
Stop: 1.0475 (40 pips & 30 pips)
Tgt 1: 1.0556, 4H 50MA (41 pips, 1x RR)
Tgt 2: 1.0655, 4H 200MA (140 pips, 3.36x RR)
Tgt 3: 1.0975, D 200MA (410 pips, 10.25x RR)
Mindset: Optimistic

Update #1 – First Target hit – 6 Mar
Update #2 – Wait and see – 8 Mar
Update #3 – Final Target hit – 10 Mar

I’m about to start building work on the house and so my time is seriously stretched at the moment. It’s not the ideal situation for trading – late nights, lots going on and generally feeling tired. I need to be aware of my stress levels and mindset over the next few weeks. I may have to take a break if my routine isn’t consistent enough.

Anyway, for now the situation is manageable. I saw a EURUSD trade set-up I’d been monitoring on the 4H chart. This trade has been my first opportunity to test out my new position sizing approach. The idea is to scale in to positions at a better price within, and at the edges of, the bands.

General approach is to enter the market with half the position and try and get a fill on the other half at a better price using a market order.

Here’s the set-up on the EURUSD.

4H Chart – set-up chart

EURUSD 4H Chart – 3 Mar

The price action is showing a 4H double divergence. When you add in the daily chart, things get a bit more interesting.

Daily Chart

EURUSD Daily Chart – 3 Mar

We’ve already tested the 100MA and we’re currently on the 61.8% fib retracement (2nd test). Price is also testing the weekly lower band.

Monthly Chart

I wanted to include this too, we are on an ultra-long term trendline of support today (lower blue line).

EURUSD Monthly Chart – 3 Mar

But what caught my eye on this chart was the trend channel break-away. This was a pattern a recall learning ages ago – I have no stats to prove that it works or doesn’t – but the trader I learnt it from said it was a particular favourite of theirs.

Price is in a down-trend channel (red line) but then accelerates away, steepening the trend (dark red line). Price can often retrace that move just as quickly back to the original trend line.

Hopefully the chart mark-up makes sense.

Nothing I can actionably trade, but interesting nonetheless. If my full position is triggered I might be tempted to hold on to the last position for a while.

Executing the trade

With my new approach to position sizing, my charts are very busy! But here’s the trade – I’ve manually opened the first 2 units. I’m using an order for the remaining 2 units.

EURUSD 4H Trade Chart – 3 Mar

Targets are spread across as follows.

1x @ 4H 50MA. This will be the first target to hopefully limit my downside. It’s my alternative to moving my stop.
2x @ 4H 200MA. I thought about the 500 but they are so close I think it is fair to shoot for the 200. The 100 has been tested a few times, so I’m aiming for more pips.
1x @ D 200MA. the 100MA was recently tested on the daily chart, so I’d like to run the last position to the Daily 200MA.

With the orders, stops and limits, my ETX chart looks terrible! I’m glad I’m using two different chart packages so I can keep things clean.

EURUSD 4H ETX Chart – 3 Mar

Update 1 – First Target hit – 3 Mar

Account Risk: 0.4%
Long: 2x 1.0515
Stop: 1.0475 (40 pips)
Tgt 1: Hit @ 1.0556, 4H 50MA (41 pips, 1x RR)
Tgt 2: 1.0655, 4H 200MA (140 pips, 3.36x RR)
Mindset: Not good, not bad

The second half of my position didn’t get triggered before price has moved higher. I’ve been surprised how quickly price has moved. I hit my first target within hours of placing the trade. Feel fortunate to have caught that wave.

For now, I’ve cancelled the remaining long orders and will watch price action.

My final target is still the 200MA. I saw we hit the 500MA this morning and price dropped back sharply. Maybe I’ve been too greedy to go for the 200MA? Time will tell – it’ll probably hit the 200MA at the exact same price level !

EURUSD 4H Chart – 6 Mar

I’d say the trade is break-even, since hitting my target, but I’m paying rolling charges so it might not be when I’m threw!

Update 2 – Wait and see – 8 Mar

I can’t claim not to be a frustrated with this trade, I was quite close to getting my exit but price has drifted away now.

EURUSD 4H Chart – 8 Mar

Following the bounce and the fast move up I thought we might be into a trend change. However since hitting the 500MA price has just slowly ebbed away. I’m starting to think I’d been too greedy going for the 200 over the lower 500MA.

Hard to say, I wonder if we will move down to retest the lows and set up another divergence?! If we did that would be great for another long. Given the news events over the next two days I’m really not sure how to trade this if it does set up. The ECB meeting is today and includes rate decisions (one of the biggest factors of a price move) and forward guidance on the interest rate will move this currency.

The NFP figures are out on Friday too and the ADP figures (which forecast the NFP figures) were a big beat. So price movements could be huge.

I’ve really not decided what to do yet.

Update 3 – Final Target hit – 10 Mar

EURUSD 4H Chart – 10 Mar

My final target has been hit, feel pretty lucky about it now, after my call with Charlie last night he agreed going for the 200 over the 500 was probably too ambitious 🙂

Anyway, I feel pretty lucky about this, price got up there real quick and I my limit order closed me out of the trade. The only frustration was that it wasn’t a full position like intended, just a half size. Makes me wonder if trying to scale into a position is worth it, it would marginally reduce loses but ultimately it would reduce the winners if only half the position gets triggered (hmmmm?)

I’m starting to think that trying to get better entries is probably not worth it. Question for Charlie!

Here’s the final trade.

Account Risk: 0.4%
Long: 2x 1.0515
Stop: 1.0475 (40 pips)
T1 Hit: 1.0556, 4H 50MA (41 pips, 1x RR)
T2 Hit: 1.0635, 4H 200MA (120 pips, 3x RR)

Now this position has closed I can add to my GBPUSD without maxing out my USD exposure, so I’ve added a final position. I wonder if I’m too early on the £ trade as the Fed rate decision is due Weds evening. Hopefully we can get some breathing space on the GBPUSD to handle any shock reactions to the market.

Position sizing

The time is too early o’clock, on a weekday morning, and I’m sitting down with my boy watching Numberblocks. (It’s a pretty good show for 1yr olds – you should check it out if you’ve got a little one who likes to get up early to watch TV!!)

The idea of the show is to teach kids numbers by combining and pulling apart blocks in various ways. It’s a nice visual way to teach sums.

Anyway, it dawned on me that this is exactly how I have been visualising my trades. By breaking down my trades into smaller units I can – ideally – average in at a better price, slightly increase the position size (whilst maintaining the same level of risk) and be more flexible with my exits.

It also allows me to participate in a trade in the event it just runs. I’ll only have half the position on, but I’ll be participating. Here’s how I see the entries and exits working.

Sizing trade entries

Here’s a typical entry example (shorting the market).

Entering a trade in a number of units

To summarise, the entry is broken down into two parts:

As soon as the setup is confirmed, place half the trade at the open of the next candlestick
Wait for a better price to place the remainder of the trade. This could be the band, an MA, a % amount retracement of the previous bar, etc etc.

The idea is to break down the trade into a number of smaller units so you have flexibility to go for multiple targets.

Closing the trade

The trade will close in one of three ways:

A total stop out. 1% of the account is lost
A partial stop out. 0.75% (or less) of the account is lost
Winner winner chicken dinner.

Here’s an ideal example of how I might close my trade.

Exiting the trade in parts to be more flexible

The point is that by entering the trade with many units, you have the flexibility to pick several targets or even trail stop positions to try and catch a run.

This is where the MBT methodology comes in to get a feel for how the trade should be exited.

AUDNZD Short – 2 Mar

Account Risk: 0.4%
Short: 1.0740
Stop: 1.0792 (52 pips)
Target: 1.0565 4H 200MA & (likely) Daily 50MA (175 pips, 3.36x RR).
Mindset: OK – A little unsure, expecting a loser soon after my recent run of winners.

Update #1 – Just checking in – 3 Mar
Update #2 – Stopped out – 3 Mar

Saw this short set up during my morning scan. I actually quite like the trade because there are some good correlations on several timeframes and other aussie markets (AUDUSD and GBPAUD) are supporting the story that the aussie is looking weak.

I really want to get a DST set up on the GBPAUD so I’ve only gone for half my planned risk on this trade. This is so my total exposure to the aussie is within 1% account risk.

Here’s the trade:

4H Chart – the set up chart

AUDNZD 4H Chart – 2 Mar

Price has moved marginally higher and closed back inside the bands. (Although price has since gone outside the bands when I took the screenshot!) There’s also a marginal divergence playing out.

However the story of this trade is really on the higher timeframes.

Daily Chart

AUDNZD Daily Chart – 2 Mar

It’s this chart that really got me interested. Price has run into prior resistance, the 500MA and is showing a divergence from the last high on Oct 2016.

I also like the distance of the 500MA and 200MA from each other. When back-testing I often saw scenarios where price would ping-pong between bigger MAs (typical the 50 & 100 or 100 & 200).

Ultimately I’m looking for this chart to go higher to the weekly 200MA (see below) and the golden cross is currently in the making so I’m hoping we’ll get a fall to my target and a nice DST set up so I can get long!

Weekly Chart

AUDNZD Weekly Chart – 2 Mar

The chart shows the 200MA prior near miss, I’m looking for price to test the lower band before moving higher.

Outlook for now

I can see a lot of potential in this trade but I can also see this really kicking me in the balls! The momentum up to this point has been strong and the weekly chart does look good for a run to the 200MA.

It’s a wait and see affair. BTW never did get that long on the GBPAUD, price just flew away. Maybe in a few day’s time we’ll get another opportunity.

I feel like the pound is bottoming out and getting ready to make a resurgence.

Update – just checking in – 3 Mar

As part of my routine, I tend to any open positions at lunchtime. Being optional Friday at work (where everyone seems to work from home) – I also took a bit of time to reanalyse my trade and target. At the moment price is against me but I still see a decent amount of potential in this trade. (I need to be careful here though – I’m worried I’m getting too one-sided in my view.)

Here’s the current price action on the 4H chart. Green line is my entry, red my stop.

AUDNZD 4H Chart – 3 Mar

There’s potential here for a short-term, marginal divergence, to set up on this timeframe. I still won’t increase my position as I’m looking at other markets (long on the GBPAUD for example) but if the divergence does set up and I decide not to trade the GBPAUD, I would consider it.

At one stage the trade was with me by ~50 pips and touched the 50MA; so if we do get a divergence coming in, it would give me more confidence that we would hit my 200MA target. This is particularly true when you see the two prior touches of the 100MA and the proximity of the 50 and 100MA.

Incidentally, the divergence is not there on my ETX broker charts. Something that has confused me before (getting in too early on GBPCAD) but the very recent price action shows a spinning top and shooting star.

AUDNZD 4H ETX Chart – 3 Mar

However the AUDUSD looks to be bottoming and the AUDJPY is looking strong. So it’s a coin flip in my mind.

We’ll have to wait and see – but it’ll be interesting to see how this turns out. I’m feeling level enough to see this go either way.

Update – Stopped out – 3 Mar

Just got stopped out, Friday PM – no great shakes – the divergence is still there on the daily chart so might set up again.

AUDNZD 4H Chart – 6 Mar. Stopped out for a 0.4% loss

In hindsight looking at the aussie and the kiwi against other currencies they are both quite weak at the moment. so I was shorting one weak currency against another, so maybe I should’ve been happy to take the 50MA target.

Again I would’ve liked to have split my position down to scale out of the trade at the 50MA first target and then shoot for my original target 200MA, but I need to grow my account some more to trade like that.

Finally the GBPAUD hasn’t come to the level I need it to, however I can see a divergence setting up on the GBPUSD 4H chart which looks like it could be a good entry.

My daily scans are showing that we have a few set ups in the making on the £. To me the £ is looking like it’s ready to move higher. Same for the €. I wonder if the circus is moving out and the triggering article 50 will be seen as a good thing and we’ll start worrying about stock markets and the US economy? The budget is also this Weds 8th Mar – so may mark a turning point.

GBPCAD Short – 1 Mar 2017

Account Risk: 0.4%
Short: 1x @ 1.6469
Stop: 1.06529 (50 pips). Above 500MA
Target: 1.6374 (95 pips, 1.6x RR). 4H 50 & 100MA.
Mindset: Unsure, I jumped into the trade.

Saw the divergence setting up on the GBPCAD in my morning scan. I do my scans from a FXCM data feed which doesn’t correspond with my ETX bar open/close times. I had a divergence setting up on the FXCM feed, but no close inside the bands yet. My ETX chart showed a close inside the bands – but I didn’t notice the MACD wasn’t diverging on this chart until after I’d placed the trade. So technically I shouldn’t have taken this trade.

Here’s the trade …

GBPCAD 4H Chart – 01 Mar

I did spot a couple of other things that supported my case to get short. Price was at the top of a daily wedge pattern and the 4H 500MA was overhead acting as a resistance point.

GBPCAD Daily Chart – 01 Mar

However, there’s a weekly bullish double divergence in play which indicates I’m going against the direction I should be looking to trade.

GBPCAD Weekly Chart – 01 Mar

Once I realised my mistake, I thought about cancelling the trade, but decided to leave it and see how it worked out, even if it wasn’t a true divergence it was still interesting to see what happened.

Note: One thing that surprised me when placing the trade was the spread (5 pips) – I’m used to EURUSD and GBPUSD (1 pip) – so the stop and target both had added space for the 5 pip spread.

Update: Target hit – 01 Mar 2017

I feel very fortunate about this trade, my limit order hit just after lunchtime for almost 100 pips. Some news came out in my favour and drove price down. I feel lucky about this. The chart doesn’t show the divergence I was looking for and I think it was a mistake and I got away with.

During back-testing I’ve said to myself to take the marginal divergence trades – even if they are not strictly meeting the criteria. However if I had lost this trade I would’ve been berating myself. So I’m grateful it worked in my favour.

Next time I’ll wait for a close on the timeframe I’m studying and then move to the ETX timeframes. Also I will try and maintain the spirit of being open to opportunities and not being a perfectionist about trades.

Final GBPCAD 4H Chart – 01 Mar