How do I trade?
As many of you already know I favor long term trading catching longer term swings with fundamentals. I have been out of the euro since end of September from last year due to all the uncertainties around the euro-zone. We had the Brexit that directly affected the euro, we had elections in several countries where Anti-Eu parties where growing power. We had a bullish rising dollar with euro heading towards a possible parity and if we had seen different political outcomes the euro could have go well below parity.
Today after a dovish FED and the hiking odds lowered with the FED focusing on the balance sheet and yield curve, the euro finally made a clear break above the 1.17 level and looks like it will close for the first time since the last 31 months.
If we look at the monthly chart and draw a Fibonacci retracement from the yearly highs seen in 2014 just before ECB President Mario Draghi started cutting rates and the yearly lows seen in December we hit the 38.2% Fib level.
This is a very strong level and currently the eurusd has regained a positive sentiment. Sentiment is an important index, its where the money is flowing, its based on volumes, on banks, on analysts, on fundamentals, on futures and a few more things. Fundamentally a currency can be strong but if the sentiment is weak we can expect some corrections. Now we have a strong euro and a weak dollar and we reached this strong Fib level that we can assume as a strong Pivot point. It can go easily another 500pips up testing the 50% Fib and it can also easily correct down 500pips testing the 23.8% Fib.
Now I have my expected trading range for the following months. I do not seek clear quick entry and exit signals. I want to identify a working range for my type of trading. Based on this speculative range backed by all the previous factors, macro, fundamental, sentiment, 1.18 as a strong psychological level where the ECB will not be happy as it will hurt periferic euro countries that are slowly recovering, I only need to find a right plan to trade inside this range. Buy low sell high seems logical, but if you do high risk, overleveraging you will soon panic and join the 95% club of forex losers.
Scaling in and out or pyramiding should solve many mistakes of over leveraging. It needs some practice and also some ability to speculate. If I believe rates will drop with the dollar to low and euro in the need for some take profiting after such high levels I might start selling. Due to be on a pivot level I would start with one third of my available “ammo”, leaving me free “ammo” to add in case I am wrong and keeps going up testing higher levels before Draghi takes his bazooka from the closet. Below 1.15 200pips below my speculative Pivot I can now either Take Profit my sells, or just scale out from it and catch more pips closer to my bottom range. I can now also start scaling in buys while I have sells running or have only buys with all sells closed. As the days go by I will reevaluate and reanalyze my speculative range and pivot, market structures…
(Note: Learn how to identify and set structure levels with Pierre Abdulahad. An amazing technical trader and friend that provides many great videos, tutorials and a weekly technical analysis of several majors and crosses)
…technical levels and also closely monitor macro news and central banks forward guidance. Any divergence or convergence will change the sentiment and range. Simply remember and look back where we where in October 2016. We where bearish on a speculative range of 1.02–1.12. Remember to favor the main big trend and don’t scale in to big the opposite side of your Pivot. Remember no one can predict 100% the future and you will fail many times. One event will change everything fast, imagine Italy was manipulating data and is now defaulting, euro instead of heading towards 1.20 could drop to parity again. Money management and risk management are the key parts of my trading. I need a range and the right position size.
FOCUS YOUR ENERGY ON WHAT YOU CAN CONTROL INSTEAD OF WHAT YOU CAN’T CONTROL
Learn about EFFECTIVE LEVERAGE. This is what you can control, manage only the leverage you are able to handle. Big positions lead to big losses and fear. Everything starts fueled by greed! Control your greed, stay disciplined and patient. Have a plan for any possible outcome, rates going 500pips up or 500pips down! Its a 50/50 chance but with a plan you increase your odds. Read carefully the following article.
Set your threshold levels and stop losses according to your risk appetite and protect your capital. Draw Down is almost a constant and a necessary evil when trading long term. Carry trading can also be helpful and is also one of the strategies I like to use.
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High Risk Warning: Foreign Exchange, Futures, and Options trading has large potential rewards, but also large potential risks. The high degree of leverage can work against you as well as for you. You must be aware of the risks of investing in forex, futures, and options and be willing to accept them in order to trade in these markets. Forex trading involves substantial risk of loss and is not suitable for all investors. Please do not trade with borrowed money or money you cannot afford to lose. Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. We will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. Please remember that the past performance of any trading system or methodology is not necessarily indicative of future results.
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