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June 15, 2009

6/15 EUR/USD Head and Shoulders Update



Hello Traders!

Just wanted to throw a quick update your way with regard to our ongoing EUR/USD Head and Shoulders situation. I hope some of you made some coin on the way down, it was a nice ride so far if you have been scalping. I should clarify because I know that I have mentioned very stearn reminders about not front-running and there being no need to get in front of such a large pattern. If you are a scalper, and you are comfortable hopping in and out of things, honoring stops, and generally being 'quick on your toes', then BY ALL MEANS go ahead and trade with the trend. In this case that would be down, and in particular I would probably wait for a nice right shoulder to be formed before really getting any major scalping going. That said....

For those of you doing a longer term style of trading, or maybe just some swing trading, well formed Head and Shoulders patterns offer a great reward with low risk, hence the warning to not front run. There is no need, especially if you are longer term (when I say LONGER, I mean holding your trades a bit longer than a day-trader, not 'investing'.) trader, because these types of patterns produce very nice returns after confirmation, assuming they continue as expected.

I have backed our chart out to a 4-hour chart, and wow, what a beauty. It is also viewable on the daily, which is great. The current status of this setup is on HIGH ALERT. We received a VERY nice confirmation of the pattern signal this AM/late last night, depending on where you live. The neckline, which I have illustrated with a horizontal trendline in the included chart, shows you exactly where you want to get in and also place your stop. The neckline is traditionally seen as the confirmation point for the Head and Shoulders pattern, and after what is usually a healthy retrace to 'test' the broken area, the pattern development ensues and it is off to the races. This, of course, is assuming everything works out out way! We always have to remember that nothing is promised, that's why we use stops! : ) We are currently sitting a bit above the neckline, and we area actually allowed a FULL 100% retrace of the neckline and right shoulder, from a technical perspective, so keep that in mind. If you are down, keep your stops where you feel comfortable, but do not believe that all is lost. This is a confirmed pattern, and therefore a major retrace is needed to blow it up. Until then, the trend is down, and the target is still the target. I will be looking to ADD TO MY SHORT upon a secondary break of the neckline, and I will then put my stop above the neckline. I will repeat this process as many times as is needed, until all the late longs and pained longs give in. If, however, we get a FULL 100% retrace of the right shoulder, you must respect the technical significance and alter course...... Good Luck and please feel free to contact me with questions!

Happy Trading....


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