EUR/USD Day Trades – November 1

Another trending day for the EUR/USD, providing ample opportunity to trade the short-side (puts) during the London session and the start of the US session.

To take advantage of the downtrend, look to enter on pullbacks and exit on the next swing lower. Using 0.01% envelopes provides a context for pullbacks on a 1-minute chart. This technique is addressed in prior day trading posts, including EUR/USD Day Trades – October 8

Trade 1.

Just prior this trade, a double top develops and then breaks lower. The break lower signals current momentum is in alignment with the overall downtrend of the day.

Figure 1. EUR/USD 1-Minute Chart

The rectangles on Figure 1 show the entry and exit. The entry is taken near the upper band, with a 3.5 pip stop placed at the time of the trade. This could have been almost immediately reduced to 2 pips (just above the pullback high) as the price began to drop shortly after the entry.

A Fibonacci Expansion tool is used for the exit. The most common exits are 61.8 or 100, but which one is used will depend on how aggressively the price is moving toward the target. Due to the strong selling pressure, the 100 level was used, snagging a profit of 10 pips.

Trade 2.

This trade occurred shortly after trade 1, as shown in Figure 2. Shortly after entry it became apparent that the price action was a little choppier than during trade 1. The price had a tendency to consolidate a little more, and therefore at that time was showing less strength than on the first trade.

Figure 2. EUR/USD 1-Minute Chart

This indicated the target would likely have to be at the 61.8 level, instead of the 100 Fibonacci Expansion level.

The entry is taken near the upper band, with a 3.5 pip stop. Once the price dropped, the stop was reduced to the high point just seen, reducing the risk to 2.5 pips. An exit is taken at the 61.8 Fibonacci Expansion level, for a profit of 9 pips.

Two more potential trades are marked with small red arrows in Figure 2. Both would have been profitable.

Considerations

These trades were taken because they aligned with the overall trend, and on the timeframe being viewed (1-minute chart) the price was continually making lower-lows and lower-highs (See: Capitalizing on Lower Highs and Higher Lows in Price). This is the only time this strategy should be used; it produces a lot of signals which need to be filtered out. The primary filter is that there must be a strong trend in place in to make trades.

A Fibonacci Expansion tool is drawn for each trade, using the most recent price swings. This provides a target, but is somewhat subjective. I may draw my Fibonacci tool connecting to different price levels than you would, which will produce a different target level.

Unless there is a lot of strength, I always opt for a more conservative profit target. Alternatively, you can use a fixed target, such as 6, 7 or 8 pips. Since the maximum stop is 3.5 pips using a 1 minute chart, a 6 to 8 pips fixed target provides a nice reward-to-risk ratio, and the target is still likely to get hit.