Charts: AOL and EURCHF

I'm taking Trader-X's advice and not looking to trade much this week, although I'll still be keeping one eye on the markets tomorrow and maybe Friday.  During this pre-holiday week, I've found that many of the stocks that I put on my watchlist are getting quite choppy after the first couple hours.

I've learned through the hard way via a review of my trading journal that trading in choppy conditions are one of the biggest ways for me to generate losses.  However, I did see a setup in AOL today that was actually pretty clean, but I missed it and did not trade it.

I also keep one eye on the forex markets, and when an interesting situation lines up, I'll act on it.  And something did come up this morning in the EURCHF pair as you will see below.

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AOL - buy above 8th 5 min bar - Fibs over opening range (25 min), 5ema, 100ema, vwap
[Did not trade-missed it]

Drawing the Fibs over the 25 minute opening range, this setup was a shallow pullback to the retracement zone setup (i.e. didn't reach the 38% retracement), but what made this interesting was that there was a vwap line cross over the 5ema (vlco) on the 5th bar (a bullish crossover), and in addition, the 3 bar retracement prior to the setup bar was orderly with minimal wicks (solid bodies).

Note: Drawing the Fibs consistently over the first 15 minute opening range (a method I've used in the past) would have also produced a compelling "Beyond the Fib Extension" type setup.

So when that 8th green bar came up, it sure did look nice, and it hit the FE within 10 minutes.  The reward/risk ratio was at least 3.5/1 - not bad for choppy day.

AOL 5min - 8/31/2011

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EURCHF - sell below 7:00 15 min bar - 5ema, 100ema

Not sure why, but I seem to be able to give the Forex trades a lot more liberal stop, and be totally fine just letting it go.  The EURCHF in particular is quite volatile for the little margin that is required, so you would think that I would be much more cautious when trading this pair.

Perhaps the reason I can let these trades ride is due to the method I use for the forex, which is slightly different than for stocks.  One key factor is that I go into these trades with the intention of holding as a swing trade.  I'll have to research this further to see if I can apply the same mentality for day trading stocks.

The EURCHF was of interest first and foremost because the daily charts looked compelling for a short.  The reasons are listed on the chart below:

EURCHF Daily - 8/31/2011

One key point to note is that I usually wait for a strong move in one direction on the 15 min chart, breaking key support or resistance levels, before considering an entry.  I want to avoid trading in choppy conditions.

The 15 minute chart below has been annotated with my thoughts on why and where I entered this trade.  Prior to this particular trade, the 5ema crossed over the 100ema earlier on the chart, and the separation between the 2 moving averages was growing larger.  This indicated that the stock was breaking away and possibly starting a strong trend.

EURCHF 15min - 8/31/2011

I exited the first half with 100 pips profit, and I'm still holding my 2nd half.  I'll let it go until it signals a clear reversal.  A few weeks ago, this pair nearly hit parity (1.000).  I have my doubts that it will go down that far that fast this time around, but I won't complain if it does!