Saturday, March 3, 2012

UPDATE: $EURUSD swing short & the neglected indicator

Here's an update on the EURUSD short I entered on 2/24 at 1.3448:
  • Original stop was 1.3510
  • Original 1st target area was 1.3100, and 2nd target was 1.2800
 Updates since entry:
  • On Friday, it hit nearly 4.50:1, reward/risk
  • Stop was lowered to 1.3360 (above Thursday's high), locking in some profits
  • Revised targets: 1st target area 1.3170-1.3150, 2nd target 1.2800-1.2775
  • However, the trend still appears to be up, with a upward trendline support around 1.3150
The neglected indicator - time

I wasn't very aware of why I felt the timing was right to enter the EURUSD short, other than the resistance areas mentioned.  But after digging into my subconscious a bit more, the answer was clear: time. Most of the analysis you see is generally based on price or some derivative of price, as well as volume.  But I don't usually see as many people calling out confluences specifically in cycles and/or time.

This study of time and cycles isn't an area of study that I have pursued much, although I still recall the book I read in the early '90s called Geometry of Markets by Bryce Gilmore.  Not the easiest book to read, but one of the first books that taught me in depth on Fibonacci ratios.  Way back in those days, the 127% and 78.6% levels were still considered a big secret!

Through the years, I've noticed that there's a certain rhythm, cadence, or flow, that each market has under various conditions.  It's like someone you have known for a while, you get to know how they are when they're normal or angry, predict their next action or words, as well as be able to tell when something's bugging them.  Sometimes, you can't necessarily put your finger on it, but we humans can become quite perceptive when something's slightly out of whack with someone.

Same applies to watching the markets and getting to know its personality.  So at the time the EURUSD started to hit the recent resistance levels around 1.3450 last week, I noticed the following tendencies with regards to time for some of the recent moves:
  • I went long on 1/13/2012 about 30 pips from the low, and that move lasted about 9 trading days.  I exited a day too late, but still caught 436 pips of that move.
  • When I was evaluating the most recent short entry as it was hitting a confluence of resistance levels, I realized that it was about 7 trading days since the swing low -- close enough.
  • By nature, I'm usually early to enter a trade and am totally fine taking some heat.  So I knew the next 3-4 trading days after entry might be a bit tough.
  • And yes, Renato had his Diamond Setups overnight "Asia and London Levels" with higher resistance around the 1.3470ish area for that day.  He says his overnight levels are generally for daytrades, but if you have a longer perspective I will admit it's very valuable for entry zones.  I truly believe the overnight levels alone are worth the price of his service.
  • After the fact, I went in and applied some cycles, and it looks like the EURUSD generally likes cycles based on a factor of 4 trading days.  You'll see the waves generally move over 4/8/12 trading least for now.
EURUSD daily chart 3/3/2012
My current inclination is to possibly take profits if it gets down to the 1.3150 area, since that will be the 4th day of a pullback, with support from the uptrend line and support levels.  But, time will tell.  Yes, pun intended.  :)

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