ForexSpirit

It’s been a while since I last updated on my actual trading activity. This post is my remedy for that situation.

The large fall in EUR-USD between the 3rd and 12th of this month had a full head of steam stoked up by the US dollar bulls. Price tumbled from 1.3280 all the way down to 1.2866.

It pierced the bottom of the grid in place at the start of this year. The grid had been 1.31 to 1.35, but the sustained break of the 1.31 level led to a half-grid move downwards. The current grid is 1.29 to 1.33. If you’re lucky enough to have been receiving the daily briefing e-mail I send out you were informed of the grid change when it actually occurred.

I wasn’t too in sync with the market during the dollar bull run and bought at varied levels on the way down. I was wary enough not to enter at too many levels, and so my entry points are spread out a little. Dirk, my mentor, was able to see things slightly better and sat on his hand during the euro slide. Dirk credits his experience in the markets for helping out here. When the euro hadn’t rallied to the 1.35 level in December 2006 he got concerned that the euro bulls were taking a breather. The weakness in the Japanese yen also contributed, and once the dollar began to rise on good US data he decided to just stand aside until things had run their course.

On the slide down I entered positions at 1.3160, 1.31 and 1.30. Once the 1.31 level had been broken and the grid repositioned I needed to decide what to do with my exisiting positions with respect to the new grid position. Given that my positions have an average price that is below the median price of the new grid (1.31) I decided to be slightly unorthodox and hold them to see how well the 1.29 level would hold as support.

To continue the averaging down nature of the 4×1 trading methodology that I use, I had to compensate when placing new entries by slightly increasing my gearing. For example, I normally use a gearing of 2:1 for my Q3 entries. Since the grid move down, what used to Q1 entries are now Q3 entries. What was a 3:1 entry in Q1 is now a 3:1 entry in Q3. This means that I need to have Q2 and Q1 entries be above 3:1 to maintain my averaging down technique. To that end I have used 4:1 gearing for Q2 entries and 5:1 for Q1 entries.

I only plan to keep this modified gearing until my Q3 trades either hit their profit targets or are closed out for a loss.

I have closed out three bread and butter trades in the past two weeks. Two of these were during last week, as the euro made a few tentative moves up. The strength of the dollar bull run left almost zero chances to profit from such bread and butter trades as there were no substantial retracements against the strong downward trend.

Strong support seems to have been reached at the 1.29 level, as evidenced by the continual bounces off this level all week long. I was hoping to be able to grab more bread and butter trades this week as well, but the lurking possibility of continued US dollar strength was always hanging omniously in the wings, so I didn’t want to chance things too much. Especially with the increased gearing that I’m using for the moment. Of course, with hindsight it’s easy to see that this week was a great time to be going for bread and butter trades, especially off the 1.29 level, which was hit a number of times.

There’s no real US economic data releases until next Friday’s GDP and New Home Sales. This means that the EUR-USD will mainly be driven by the European and UK data coming out. This offers a good chance that the 1.29 level will actually have formed a bottom, and we might see movement back up towards the median level at 1.31.

The chart showing all this activity is below. I’ve had to use daily bars on the chart to be able to show the time period that I’m covering in this post. Unfortunately, FX Accucharts doesn’t seem to be able to reposition the text I place on the chart nicely (which I do on the 60 minute per bar timeframe).