There are 7 levels to work with on eur/usd for trading intraday for today, Monday March 24th 2014.
Entry/Target Levels
UL-3 3844
UL-2 3822
UL-1 3803
Key 3795
LL-1 3780
LL-2 3760
LL-3 3738
Go with the Flow
The key level is 3795. If price is above this level you’ll want to consider directional moves to the upside. If below this level, to the downside. These are the safe bets. Depending on how price gets to one or more of these levels and what it does when it gets there, you could consider moves reversing back toward this key level, but these have a lower probability of reaching any of the target levels provided and require greater discretionary expertise in entry and exit. So for the safer, higher probability trades, only trade away from this key level, not toward it.
This is a Plan – Not a Forecast
I have no idea what eur/usd will do today. All I have it a plan for what to do if it does this, or that, or something else. None of these levels may get hit or the price may move several orders of magnitude further then the furthest levels given. Live with it. You get to make an almost risk free profit on the way or you get to avoid risking anything by sitting out. Get greedy with what you have the greatest confidence in and don’t try and bag the whole run – that’s just ego.
Assumptions
I am making a considerable number of assumptions with regard to trading experience and expertise. One of the most important is a basic comprehension of momentum. If the price steams up to and through a level – that’s a good sign. Hang on or get in. If the price makes its way at a leisurely but regular pace toward a level then shows uncommitted range (open/close well of the high/low) then wait for confirmation before entry or if in a trade, consider taking part or all of your position off. Like any area of potential support/resistance, you take note of how the price structure develops around it. Strong and hard, with little uncommitted range – good; tentative and testing, wait for confirmation or re-test. This is why limit orders are not such a good idea. Hitting the level is one thing; but HOW did it hit the level?
The other assumption I’ve made as I get my head round trading the market from a retail forex perspective is that just like a pro, you’ll prefer to miss a winning trade than take a losing one. I’m probably on shaky ground with that one, but it’s there all the same.
Consider Long
If price moves up beyond UL-1 with momentum or demonstrates support there, you’d want to consider going long with a stop on the key level. When price is midway between UL-1 and UL-2 move your stop to UL-1. When it hits UL-2 take all or a large portion of your trade off and move your stop up to UL-1 minus spread times two or three. If you have anything left on the table, when price is midway between UL-2 and UL-3 move your stop to UL-2. When/if price moves to UL-3 exit the remainder if momentum is coming off, if it is not bring in your stop tight in behind the low of the last positive price development point - higher high and ratchet the stop on the highest low. Caveat: Use your common-sense. If momentum shows a dramatic slowdown and you get failure of price development (a lower high is a concern, but not a major problem unless you have a lower low too) take some or all of your position off and wait to see how price develops. Note: The probability of a move to UL-2 is much higher than a move to UL-3 from UL-2. There’s no shame in deciding not to take a lower probability bet.
Consider Short
If price moves down below LL-1 with momentum or demonstrates resistance there, you’d want to consider going short with a stop on the key level. When price is midway between LL-1 and LL-2 move your stop to LL-1. When it hits LL-2 take all or a large portion of your trade off and move your stop down to LL-1 plus spread times two or three. If you have anything left on the table when price is midway between LL-2 and LL-3 move your stop to LL-2. When/if price moves to LL-3 exit the remainder if momentum is coming off, if it is not bring in your stop tight in above the high of the last positive price development point - lower low and ratchet the stop on the lowest high. Caveat: Use your common-sense. If momentum shows a dramatic slowdown and you get failure of price development (a higher low is a concern, but not a major problem unless you have a higher high too) take some or all of your position off and wait to see how price develops. Note: The probability of a move to LL-2 is much higher than a move to LL-3 from LL-2. There’s no shame in deciding not to take a lower probability bet.
Clarity, Repetition, Clarity
I’ve boiler-plated that last paragraph from the one before. A plan needs to be clear and spelt out in detail for every eventuality. There is no such thing as being too specific. Assume you’re writing the plan for someone else. If eur/usd is tanking, don’t assume they’ve read the caveats for going long which apply equally to going short or that they will be motivated to do so under fast moving conditions. Everyone has a plan ‘til they get punched in the mouth. Your plan has to allow for being punched in the mouth too. Leave nothing to chance.
Trade Management
When and if price makes an interim level (LL-2/UL-2) or when momentum stalls you can consider taking part or all of the position off. Depending on how many lots you’re on for I’d recommend taking in the region of 7-8/10 off and moving your stop up to that level plus/minus spread times two or three unless you’ve got clear indication of continued momentum in which case stick with the previously specified stop placement suggestions. I have posted elsewhere that these levels seem concrete because they’re given as one specific value, but as with all things they represent a band of finite width around that level.
Consider the Possibility of taking both Long and Short
The price may hit both UL AND LL levels in this one trading day. Should you favour one direction over the other? No. Clearly the Long will offer you significantly better reward/risk, but a good opportunity is a good opportunity – everything else is relative.
Not Trading
And for anyone frozen like a rabbit in the headlights who doesn’t trade eur/usd today out of fear or because it doesn’t move above UL-1 or below LL-1, don’t worry, you’ll be financially better off than around 90% of those that do.
Final note
What if these levels are hit to the pip, will Pieter become even more unbearably arrogant? Yes, of course. What if none of the levels are hit? You don’t trade. What if one or more are hit but not the next target level? I’ve covered that. What if the entry gets triggered but momentum falls away? I’ve covered that. Is there anything in this plan you haven’t covered? No, I don’t think so. Does this mean Pieter will even more unbearably arrogant regardless of what happens on eur/usd today? Yes, of course.
If you’re not putting together something like this for yourself each and every day for each and every instrument you will consider trading, you’re selling yourself short. You’ll be at the mercy of indicators as they twitch and switch or impulses both of the market and of your own.
My professional trading focuses around longer timeframes and a quite different class of assets where the fundamental aspects are significantly more important than technical ones. But even so, I won’t go into any battle without a plan of some sort. Even in this plan for eur/usd based almost entirely on technical factors on an asset I don’t trade, if I chose to tomorrow, I would in principle feel totally comfortable doing so as it is sufficiently thorough and comprehensive to cover any eventuality. I would not in practice however as the reward/risk is marginal.
This post is for informational & instructional purposes only. Do not trade it. Unless you want to.
