ForexSpirit

When price in EUR-USD dipped into the middle of my Q2 quadrant at the beginning of the week I decided it would be prudent to close out some of my Q4 trades from earlier in the month. I couldn’t think of when my last losing trade was closed out, so I had to check my trade records. My last losing trade was at the end of January. In between then and Monday I had 25 profitable trades. I’m pretty pleased about that.

The dollar has been finally getting some love from the market, even if it is seemingly still undeserved.

I was kicking myself on Monday morning, not for having closed out the two Q4 trades but for not taking profit on a Q2 trade that I had entered last Friday at 1.3472. On Sunday evening I was undecided whether I should take my profits off the table as price hung around the 1.3520 level, or if I should wait for a slightly higher move into Q3. With the total lack of any US or European economic data releases on Monday I weighted the dollar resurgence against the chances of the move from Friday continuing and ended up holding onto my trade.

I think this sort of decision making is definitely one of the hardest parts of trading, and almost certainly something that I will be continually struggling with as long as I’m a trader. You are constantly asking yourself the same old questions over and over:

Should I exit the trade now or wait for a further move in my direction? If I exit now I lock in my profits, but then I have to wait for price to fall before I see enough value to entice me to enter the market again. If price moves up after I exit then I’ve wasted the opportunity to avail of that continued move.

Is now the right time to enter a new trade or would I be better off waiting a little longer to see if price drops even further? You can enter now and watch as price continues to fall; you put on the trade too early. If you can wait and price goes back up you’ve missed your chance to buy at a price that you had identified as being worth buying at. If you decide to wait and price does indeed fall some more, then you’re right back to where you started: is now a good time to place a trade or will it continue to fall?

At the end of the day you just have to accept that you will never know what price is going to do, whether it is the very next tick, in the next second, minute, hour or day.

While I would surely love to be able to pick exact tops and bottoms, I know that it is never going to happen. This means that I don’t beat myself up if I enter a trade and price continues to drop. So I didn’t pick the bottom; I can live with that.

I just then look to manage the trade I have placed. As price falls I can decide to cost average my position with additional trade entries. This is all part and parcel of utilising the median grid and of knowing where price is within the grid. If the trade continues to go against me I have several exit criteria that I continually check against to see if the trade is worth keeping on or not.

Two of these exit criteria were hit for the trades I closed out on Monday. Price was close to being 200 pips south of my original entry points. I don’t like holding onto positions that are more than 200 pips in the hole, so I was keeping a close eye on them. The sentiment on the euro has changed quite considerably since I had originally placed those trades. While US dollar sentiment seems relatively unchanged (being very much of a mixed bag), euro sentiment has taken a few splashes of cold water. Euro enthusiasm has cooled considerably. The market has locked in the June ECB interest rate hike, but isn’t hearing any rumblings about further rate hikes.

I decided to was time to lighten my leverage. While I have to absorb the financial loss of closing out the two trades, I reduce my overall gearing, thus allowing me the opportunity to put on more trades lower in the grid (i.e. where price is now) so that I won’t exceed my maximum gearing level.

Euro economic data continues to be very strong (as evidenced by this week’s high ZEW sentiment index, positive Euro trade balance and strong industrial new orders) but the market seems to be turning a blind eye for the moment. I still think my current grid of 1.33-1.37 will hold any further dollar strength before the euro bulls come back out in force. Having a decent sized correction is part and parcel of any market and my focus is on trying to identify when a solid base is forming. In doing so I can avail of the support and look to build positions for when the euro surges back higher.