I don’t talk much about this pair as there is so much info out there but I do trade it quite a lot. Following on from RMS Traders comments yesterday about when to hit the button, I wanted to show a near perfect example of what I am looking for in a high probability trade set-up.
A nice quiet Asian session in a tight consolidation condition keeping near the Previous Weeks Low. The probability, and that’s what we are basing our trading decision on, is very high for a continued decline in the Euro. We can identify a weak rise in price at the beginning of the European session, but our trading plan has already been made to only short the Euro.
Entry point A is a fading entry point, getting in short after a false break with the SL placed above the breakouts swing high price at around 30pips. Entry B has confirmed price moving back into the range and with this small pullback we could get in here with our SL just outside the range.
Remember, where you position your Stop is where you are declaring your trade void, the point where it’s no longer worth staying with your original plan. Our plan is to short so any movement of price higher beyond the range is out of bounds. Best cut the loss short, and re-plan the trade rather than hang on and hope.
Entry C is a clear cut entry at the break of the low, again we could place our Stop in a valid position keeping our risk of 30pips the same. Entry D is a classic breakout entry on the first pullback after the initial break and here the SL would again be placed where you are happy to quit the trade, somewhere inside the range.
Once we have gotten into the trade which has shown promise with great opening momentum (a good sign) we must try and manage the trade and our emotions to maximize the pip count. I always work in pips and not $’s, for me it’s just psychologically easier to lose 30pips than $300.
The temptation is of course to tighten up the SL so as not to lose those precious pips. It’s a fear driven reaction but one that needs to be balanced with the understanding of how the market moves and to leave enough room for the price to breathe. Occasionally we lose out on pips but the for the majority of trades it is advisable to leave SL space for your profits to run on. This becomes easier with experience and confidence in the strategy.
You can follow George Richards at his blog http://forexdawn2010.blogspot.com
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