EURUSD Day Trades – October 10

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EUR/USD Day Trades – October 10

Since I don’t usually trade until near the European/US overlap period, before any trades are made each morning I look back to see how the price was acting through the first few hours of the European session. That information helps me decide how I will trade the day. If it is choppy with hard to define trends I likely won’t trade at all. If there is trending movement, I want to be part of it.

Recently I have been working on a day trading strategy involving envelopes, the basics of which were outlined here in Forex Day Trades – October 07, and additional details will be provided in this and future posts.

Know the Trading Environment

This morning the envelopes, which are usually set to 0.01% on the EUR/USD 1-minute chart, were being constantly overrun earlier in the session. The trends were there and tradable, but the bands needed to be expanded a bit. Today I set them to 0.012%. While the increase in envelope width is very small, it equates to about a one to two pip difference. On longs that means I pick up the EURUSD at a slightly lower price, and shorts are taken at a slightly higher price. With the deeper retracements that occurred today, adjusting these was beneficial; if I hadn’t I would have been stopped out on the 1-minute chart trade.

I also did a 5-minute chart trade, but the standard 0.015% envelopes were working fine today.

1-Minute Chart Trade Example

EURUSD 1-Minute Chart

The trend is up and therefore looking pullbacks to the lower band. I had a buy order waiting at the lower band, and was filled on the bar with the arrow below it. A stop of 3.5 pips is always put out with the entry. Once the price began to move higher, the stop was adjusted to just below the recent low–reducing the risk to 3 pips.

Targets are based on Fibonacci extensions. Using our Fibonacci extension tool on the last wave up, it projects our profit targets for the current wave. Under most circumstances it’s either the 61.8% or 100% levels we use. I took profit near the former high at the 61.8% level for 4.5 pips. If you held to the 100% level your profit would have been 8.2 pips.

5-Minute Chart Example

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If you trade on the 1-minute your spread needs to be very small, preferably using an ECN trading account. With the 5-minute chart the moves are a bit bigger so you can use a traditional account, but the spread still should be quite small.

EUR/USD 5-Minute Chart

Here was a trade where the trend had been down, followed by a nice rally off the low which makes a higher high. This gives us an indication that the trend may be shifting to the upside again. A buy order is waiting at the lower band with a 5 pip stop. The stop is reduced to 2 pips once the price moves higher.

I prefer taking profits near the former high, so I exited at the 61.8% level for 9.8 pips. Those that would have waited for the 100% level would have gotten 16.6 pips.

There is subjectively involved in this strategy. Being able to see when a trend is occurring and when it may be reversing is crucial. Indicators are not magic. Except for this strategy I rarely use indicators, since they have a tendency to take your eye off the one thing that really matters – price movements. If trading a 1-minute chart, flip back to a 5-minute chart everyone once in a while to see the overall trend. Most of your trades should be occurring in alignment with the trend on the 1-minute and 5-minute chart. Also, between 10 and 15 GMT is the ideal time to trade this strategy (that’s 1300 to 1800 on my charts above).

How to Read the EUR/USD – October 16 EUR/USD Day Trades

Paying attention to price action doesn’t just occur before a trade, price action is also very closely monitored while a trade is underway.

We take trades because our strategy indicates to do so based on current market conditions, and a stop loss and profit target are placed to limit risk as well as capitalize on those conditions. But conditions change.

When starting out it is beneficial to let the price hit either your stop or profit target. This forces you to become detached emotionally from the trade, let the market move without trying to impose your will on it, as well as fine-tune your strategy. Once discipline has been developed, as well as a heightened ability to read the market, there is no reason to let your stop get hit if you see that conditions have turned against you.

One of my trades today provided an example of this.

Figure 1. EUR/USD Failed Trade

The EUR/USD was in a strong uptrend through the European session. After the US market opened (pale yellow on the chart) there was another run to the upside. Unlike prior runs to the upside, this push higher had a pause in it; not anything which would cause me to skip the next trade, but I did note it.

The pullback was also quite sharp, and I took a trade just below the lower envelopes (for information on the basic strategy see: EUR/USD Day Trades-October 10 and prior trade journal articles). The price continued to drop a bit further and then consolidated, which is fine.

The price then began to rally. But it barely made it past the upper band, and out of the consolidation area before it got hit by strong selling. I exited just above my entry point for basically a flat trade, which turned out to be a good decision as my stop would have been hit moments later.

Piecing it Together

Deciding whether to let a trade hit your stop or profit target, or instead manage it manually like I did on this trade shouldn’t be taken lightly. There are times when getting stopped out is worth the risk, and other times when a condition change makes the reward potential unattractive relative to the risk.

In my trade above, the trend had been in effect since the start of the European session, without a significant pullback in several hours. Knowing that a reversal is “eventually” going to occur is never a reason to avoid a trade, but it should be noted and then included with other evidence which appears.

The price also rallied toward the former high, but before making it there witnessed strong selling. This created a lower high, and indicated the up trend may be in trouble. The swiftness of the selling, combined with the lower high and maturity of the trend indicated it was better to exit the trade than hold out for my target to be hit. Based on the new information provided by the market it was unlikely that my target would get hit before my stop.

Had this trade occurred earlier in a trend, I likely would have let the trade hit my stop or target. The price rarely just surges in our direction to hit our target, pullbacks occur the way. Early in the trend, holding through a few market gyrations is worth the risk as early in the trend the target still has a high probability of getting hit.

Therefore the “maturity” of the trend is an important factor in whether I actively manage a trade once I am in it. I define a mature trend as more than 5-waves since the last significant correction. The EUR/USD has a tendency to run for 7-waves on the 1-minute chart before a significant reversal.

This particular trend had already had 11 waves. This alone isn’t a reason to avoid a trade, especially since the EUR/USD was still showing strength when the trade was taken. But this late in a trend a more significant reversal becomes more and more imminent, so being aware of that is important.

Figure 2 shows the waves in the EUR/USD on a 1-minute chart (note: not all waves labelled).

Figure 2. EUR/USD Labeled Waves on 1-Minute Chart

The arrow near the top of the trend marks my entry, and the exit is also marked. From this vantage point we can see the market was struggling to keep pushing higher. Seeing this in real-time is what takes practice. A trader must also be able to accept that market movements are not totally predictable, and that the price could have surged higher as soon as I exited my long.

Most new trades will benefit from learning to read the market in real-time, scrutinizing price movements, but being detached enough to let the price hit their stop or profit target. This creates discipline. More advanced traders can look to actively manage certain trades, as doing so in the right way will likely increase the percentage of trades won.

EUR/USD News (Euro US Dollar)

EUR/USD extends slump after NFP shows massive job loss

EUR/USD is trading below 1.08, down on the day. The Non-Farm Payrolls report has shown a loss of 701,000 jobs, worse than expected. The ISM Non-Manufacturing PMI surprised to the upside with 52.5 points.

Latest EURUSD News

Forex Today: Dollar the strongest as risk aversion rules

EUR/USD steadies near 1.0800, erases more than 300 pips weekly

EUR/USD: Heading firmly lower

Technical Overview

EUR/USD has lost more than 50% of the gain from 1.0640 to 1.1150, raising the chances that the rise was the correction and that new lows are on the cards. The currency pair is trading below the 50, 100, and 200 Simple Moving Averages, and the Relative Strength Index is above 30 – outside oversold conditions.

Support awaits at 1.0820, Thursday’s low, followed by 1.0750, which was a stepping stone on the way up. The 2020 trough of 1.0640 is critical support.

Resistance awaits at 1.09, which provided support earlier this week, and it is followed by 1.0970, which held it down around the same time. The next levels to watch are 1.1050 and 1.1090.

Fundamental Overview

Around half of global COVID-19 deaths are concentrated in Italy, Spain, and France – and that is only one of the factors erasing over 50% of late March’s gains.

1) Worrying coronavirus figures in Europe

While Italy has seen as a flattening of the curve – fewer deaths and new cases under control – Spain is setting records in mortalities on an almost daily basis. France, which counts only losses of lives in hospitals, is also seeing rising numbers. The three countries have 29,650 out of 53,146 global deaths.

Updates figures from Spain are due out in the European morning, followed by France and Italy.

2) No coronabonds

Leaders in the old continent remain at loggerheads over the economic relief for the crisis. The three countries and others are demanding “coronabonds” – issuing joint European debt. Germany is leading the opposite camp. Ursula von der Leyen, President of the European Commission, is looking for a compromise alongside the Eurogroup – European finance ministers.

However, without an immediate solution to the fast-evolving problem, the euro has room to the downside. Sapin reported a leap of 300,000 in jobless claims, allowing the first look into the economic carnage of coronavirus. Markit’s final Service Purchasing Managers’ Indexes will likely confirm the weakness.

3) When the US sneezes, the world catches a cold

Crossing the Atlantic, US Unemployment Claims also paint a grim picture. Requests for benefits have more than doubled to 6.648 in the week ending March 28 – beyond the worst estimates. Moreover, figures could have been even higher as some states struggled to process the flood of claims. The current level of applications represents an unemployment rate of roughly 10%.

The US dollar gained ground in response to the figures and remains the currency of choice in times of trouble. If the US struggles, the rest of the world suffers, and the dollar is demand.

The focus now shifts to the first coronavirus-impacted Non-Farm Payrolls report – yet it lags jobless claims by around two weeks. March’s labor market surveys were taken on the week including March 12. While it is unlikely to show the devastating destruction of jobs, a loss of 100,000 positions is on the cards. The figures could be a win-win for the dollar.

  • Nonfarm Payrolls Preview: Is the dollar’s fate sealed?
  • US Non-Farm Payrolls March preview: If it’s terrible, it’s expected, if it’s not, April will be

The ISM Non-Manufacturing PMI is due out after the NFP, but may still move markets. Services sectors all over the world have struggled more than the manufacturing sectors. Economists expect a sharp drop below 50 – reflecting contraction.

See: Non-Manufacturing PMI Preview: The disaster may be delayed. until April

What about the coronavirus situation in the US? It remains dire, with nearly a quarter of the million infections gripping the world’s largest economy. Nevertheless, the rapid spread of the disease in America may prove as another boost for the safe-haven greenback.

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