This latest
trade in my high risk, high probability trading strategy involved a short on
the
EURO CAD which recently started
to break from its Range pattern on the Daily Chart. This break was also in sync with
the bearish candlestick formation on the Weekly Chart the week before, as the
breakout from the Weekly Chart’s Pennant continued to indicate further losses
for the Euro. Once again, the trade involved using the signals and patterns of Candlestick
Formations, Trend Lines and Consolidation to indicate market direction on the
larger charts followed by entry on the smaller time frames of the 4 Hour
and 30 Minute Charts. The trade was also supported by recent short-term
economic data for Europe and the
United States which were released the same
morning of the trade on August 14.



 

TRADING STRATEGY



The strategy involves trading a combination of high probability signals and patterns across time frames that indicate the start of a strong breakout. The risk
involved per trade continues to be 15% for a 2.5 Risk-Reward ratio, with 100
Pips set as the profit target to be hit within the 2-day holding period limit.
The key to these trades to justify this 15% risk is that the signals and setups are in sync and are strong enough to support a
breakout of at least 100 Pips.



 



SIGNALS ON THE LARGER TIME FRAMES



 Looking at the
Daily Chart below, we can see that the candles had already pulled back to test
the Support of the Range after the initial breakout a few days earlier. This
test was expected to give way to a U-turn to form another bearish signal to
continue the breakout short.



 



DAILY CHART



 



  



Supporting that
scenario on the Daily Chart was the recent bearish candlestick formation on the
Weekly, which indicated the continuation of the breakout from the large
Descending Pennant.



 



WEEKLY CHART



  



Since both
charts were pointing to further gains for the Canadian Dollar against the Euro
over the next few days, a setup to trade in this direction was later
indentified on the smaller time frames. 
This came in the form of a Counter Trend Line on the 4 Hour Chart that
was expected to be broken after the test of the Daily Chart’s Support was
completed.



 



ENTRY SETUP &
SIGNALS ON THE SMALLER TIME FRAMES



 

4H CHART






As we can see
from this chart, there was also a pair of Double Tops at the Support level (becoming
Resistance) to indicate that the expected U-turn on the Daily Chart was about
to take place. This was seen more clearly on the 30 Minute Chart where these
strong Double Tops led to the break of the Inner Uptrend Line to start the move
short towards the 100-Pip profit target.



 



30 MINUTE CHART






 In trading this breakout, entry was
executed at the close of the second bearish candle below the Inner Uptrend
Line at 12 30 PM GMT, with the Stop Loss just above the highs of the Double Tops. The charts
were then closed (important to avoid second-guessing yourself) until the next
day when the target was hit at the end of the
US trading session around 21:00
GMT.



30 MINUTE CHART



 



 



As we notice
from the breakout on the chart above, there was a brief pullback following the
break of the Outer Trend Line that may have taunted persons to exit the trade
prematurely. However, this eventually gave way to a sharp U-turn to continue
the downtrend until the 100-Pip target was hit. Of note also was
that this pullback was actually part of the formation of another bearish signal
on the 4 Hour Chart that would further confirm the direction of the market. This
was the common ABC pattern that was formed after the break of the Counter Trend
Line.



4H CHART






By the end of
this 100-Pip breakout, the Daily Chart had formed the expected Bearish U-Turn
below the Support in response to the signal on the Weekly Chart. Given the
overall downtrend in this currency therefore, this Daily signal tells us that further
bearish moves over the next several days or even weeks are anticipated.



 



DAILY CHART






 FUNDAMENTAL
ANNOUNCEMENTS



 The catalyst for
the decline in the Euro during this breakout on August 14, began at 10 00 am
GMT with two important data releases for
Europe.
The Flash 2
nd quarter GDP figure showed a decline of 0.2% for the
region, while the German ZEW Sentiment Index was worse than expected. The
latest figure came in at -25.5 for August compared to the expectation of -19.4
and the previous reading of -19.6 in July. It was also the third consecutive
negative reading for 2012 following the more optimistic values earlier in the
year. This leading indicator of economic health pointed to a more pessimistic
outlook for the German economy over the next 6 months.



Another relevant
economic data released that morning was the monthly Retail Sales for the
US at
1 30 pm GMT. The figure surprised to the upside with a growth of 0.8% in July
compared to the forecast of 0.3% and the previous decline in June by 0.7%.



With Canada highly
dependent on the spending power of its neighbours below, this would have provided
additional support for the strength of the Canadian Dollar against the Euro. This
decline in the Euro was also reflected in the EURO USD but was not enough to break out of the strong Consolidation
boundary that has held since the end of July. There was a brief decline to
Support that eventually gave way to another rally to the Resistance of the
Pennant.




EURO USD-DAILY CHART



 



CONCLUSIONS



 



This latest
trade example adds more validity to this high probability trading strategy,
despite the unconventional use of 15% on each trade. So long as the common
elements that make these trades highly profitable continue to appear and are
followed, continued success in subsequent trades is very possible. Admittedly,
however, only a handful of these trades have been made over the last few
months, due mainly to the long periods of sideways movement on the currencies
that I trade. As such, I would need several more trades during the months of
August and September before being able to conclusively determine the strategy a
success.



                                                                                                                          



As stated
earlier, it is very important to avoid looking at trades while they are in
motion in order to allow them to go to their targets. This is to avoid the
self-doubt and anxiety that affect many beginners and intermediate traders
around the world who literally see their money moving up and down in front of
their eyes. Once your trades meet the criteria set out in your strategy, you
need to allow the market to continue its movement unhindered in order to
objectively determine the success or failure of the strategy. 



 

Translate to English Show original