A small trade
was executed on the EURO CAD last week as part of the strong bearish breakout
from the Daily and Weekly Consolidations that had started the previous week.
This was done using the methodology outlined in my previous article which
involves using the 4 Hour and 30 Minute Charts for entries after the Daily
Chart has given a signal for the start of a trend.
With these strong
bearish signals indicating the start of a new breakout trend, the 4H Chart then
provided the first strong entry setup in the form of a Descending Pennant.
Eventually, the 1,2490 Support of this Pennant was broken by a 30 Minute Candle to indicate the start of the
breakout. With the Stop Loss placed above the high of a Counter Trend Line
(CTL) that was also broken, the trade was entered at 1.2480 with an initial
Limit set to the long-term target of 1.2000.
30 MINUTE CHART - ENTRY
This 1,2000 target was more enticing to
me than ´settling´ for the 100 pip target of 1.2380 which is part of my
strategy. However, I humbled my self and returned to my rules and decided to
exit early instead. By that time however, the market had pulled back slightly
above the 100-Pip area, but I was still able to exit for a 64-Pip profit. This reflected
the dilemma I continue have between short-term and long-term trading.
30 MINUTE CHART-EXIT
As is expected
with Consolidation breakouts, the market pulled back temporarily as it tested
the Support on several occasions. This Support then became Resistance as the market U-Turned to
resume the trend. However, some traders who opted to monitor the chart as this
pull back was taking place may have got anxious about the safety of their Stop
Loss and the validity of their trade.
30 MINUTE CHART- TEST OF SUPPORT
They would then
have either exited the trade to reduce the potential loss or breathed a
grateful sigh of relief at the sight of bearish candles once more going in
their favour. Because such a situation can be very stressful on a trader with
real money at stake, I always recommend closing the charts once the trade is
executed. If you have already decided on how much you are willing to lose on a
trade, you should hold firmly to it since this is the only way in which your
trade will be successfully completed.
Similar to the
concepts of Long-Run and Short-Run Average Cost Curves in Economics, there were
a few short-run entry points along the way that offered additional profits for
traders. Instead of holding a single position at the start of the trend, one
could have added individual lots at each U-turn on the 30 Minute Chart and
exited at the 100-Pip area for a larger cumulative gain. Alternately, you could
have decided to trade each of these entries separately and exited when each
30 MINUTE CHART
The first was the entry executed for this trade as described above while the 2nd possible entry also took the form of a CTL break after testing the Support of the Pennant. The 3rd entry was in the form of a Consolidation. The key to
trading these entries is that once CTLs and Consolidations are broken
convincingly, it is a strong indication that the trend will continue. With your
Stop Loss placed comfortably above the respective highs, your positions would be protected until your
target is hit.
THE WEEK AHEAD
This currency is
likely to continue the downtrend in the days and weeks ahead but with temporary
pullbacks along the way. Such a pullback in the form of another strong 4H Setup
could be formed soon, since they normally take place after 3 or 4 waves/entries
on the 30 Minute Chart.
to watch will be the EURO USD which has not convincingly begun its break below
the major Support at 1,2300. This means that if we do not get strong bearish
breakout signals within the next few days, we could yet see a sharp reversal
above that Support to start a new uptrend inside the Pennant of the Monthly