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Trade Nov 4, 2004 EUR/CHF

11/10/2010

Ok, time to quit talking about myself and start talking about a few trades so I can figure out how to play this game a little better.

This is a trade I took last week shorting the EUR/CHF.

First, a little background information.  I have looked into and tried way too many trading styles.  In some ways, they all work.  In other ways, they are all a bunch of voodoo, but as long as $ comes who cares.  Later on in another rant I’ll go on about different trading styles, some pros and cons, and why I do and don’t like them.  This will help clarify in my mind how I trade and and maybe open my eyes to other possibilities.  One caveat, you will occasionally see RSI, Stochastics or MACD on the bottom of my chart.  I have mixed feelings about these lagging indicators.  Maybe I keep them there for sentimental reasons more than use because “you need these things to trade”.  In reality, they can be useful in determining trend or potential reversal.  However, I find they more often than not muddle things up and give conflicting signals.  For example, the recent topping in the EUR/USD was foreshadowed by negative divergence in the daily RSI, a crossover in the MACD, and was an ending wave “V” for Elliott people.  These are easy to point to after the fact, but how do you trade them?  When you’re in the middle of the market, they’re a lot harder to see. I think indicators aren’t a bad way to get an overall impression about what might be going on, but they are a lousy way to trade.

So, what do I use?  I use a few moving averages, Fibonacci – both price and time (even if I can’t spell it), and a few different time frames depending on what I’m doing.  I like a top down approach, starting with daily charts.  From there, I will place fibos at what look like appropriate levels, draw trend lines and also draw thicker in lines on the 55, 100, & 200 SMA areas that I can see as potential support and resistance areas in lower timeframes.  I will do this again with the 1 hr timeframe, then drill down to the 5 or 15 minute to enter and exit trades.  (usually)

So, lets check out the EUR/CHF daily chart:

At the time of the trade, we were in a clear downtrend, price was playing with the .786 retracement and we’re below the 200 hr ma. (Though I don’t like the placement of this fibo that much but combined with the 200 sma it’s ok)

I looked at this pair first because price and the 5 period sma on the hour were both below the 55 sma. I entered short based on a 15 minute chart where price and the 5 sma were below the 200 sma. I placed the stop above the relative high, around 1.3777 (not above the recent high at 1.3834. I set the trade in the afternoon. In the morning I was stopped out. On the 15 min chart, the price spiked up then and moved sharply below the other MA’s. I placed a new fibo from the prior spike high and the relative low. I determined my stop was too close and should have been above the .786 ret. I re-shorted.

I closed out at the first retracement – appx +160 pips of the downtrend (and kicked myself hard – as @tradercisco will attest to). I knew at the time I should stay in the trade until a solid break of the 200 sma on the 5 min chart – but one or the other of all traders’ greatest enemies took over. I should have added at the retracement and taken advantage of the next 100 pips if not the next 250 pips. Oh well.

I promise I won’t be quite so wordy next time, but being the first post with a trade, I hope I’m forgiven.

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