EUR/USD Trading for July 29, 2014 (1/2 ITM)

A bit of a unique set-up occurred when I first began trading, in that it’s not one that comes up frequently. Starting on the 2:10(AM EST) candle, a series of consecutive wicks occurred on each five-minute candle, showing an inability to break this particular price level before the daily pivot.

Before the end of the 2:20 candle, I began to take note of this formation given this candle was evidently going to represent a bearish engulfing pattern – that is, the body of the red candle engulfs (or more simply put, goes down lower than) the preceding green candle. It’s typically indicative of a potential reversal pattern. So on the 2:25 candle, I took a put option at the level that had seemingly set up on its own. Ultimately I did not win this trade due to the expiry time, but I had the right idea as price fell afterwards.

It’s not often that price stalls in an apparently arbitrary manner (i.e., not a price level you’d necessarily expect it to), but when it does, viable trade set-ups can occur this way.

Support 1 became my next focus after the market fell. But the market seemingly wanted to veer lower by the 3AM hour (relative to Eastern Standard Time). Whenever you’re considering call options against a down-move, it’s always important to due your dilligence in ascertaining whether the evidence of a reversal (or at least a temporary one) is most likely. Nonetheless, support 1 was never in play and the market reversed course just a couple pips away from it.

The next potential set-up came at the daily pivot level of 1.34349. There was a touch and rejection on the 3:15 candle, showing some sensitivity to that particular price. The market remained under it, and stayed relatively lazy for the next 20+ minutes. It wasn’t until the 3:40 candle that 1.34349 was re-touched a second time. However, this was not a signal to enter into a put option due to the degree of volatility that was inherently expressed in this candlestick.

Over the past few weeks, I’ve become more cognizant of the necessity of better taking into account increasing volume and “momentum” in the market due to the fact that it’s been a legitimate cause in some trades that I’ve lost in the past. And as I wrote recently, it’s very important to learn all that you can from the trades that you lose.

Granted, picking up on higher market volume can be difficult, given that you only have part of a candle to reach this awareness. But if a particular candlestick is moving at a good clip or whose basic size has clearly superseded that of the recent preceding candles, the market is simply receiving an influx of orders. This can dent hopes of capitalizing on potential trade set-ups, given the fact that some will simply not hold up very well while more volume is entering the market.

I did recognize this and stayed out of this particular trade set-up.

It wasn’t until a few hours into my trading session that I actually made my first (and only) winning trade for the day.

There was some sensitivity shown to the pivot level, but the market did break pivot at 4:30AM EST and began inching higher. The move wasn’t very energetic at all. In fact, it basically hit the brakes about halfway between the pivot point/resistance 1 channel. It wasn’t until the 5:20 candle where the official oomph behind the move to resistance 1 actually occurred. Price touched and rejected the level on the 5:25 candle.

Based on what I said earlier, this also seems like an appropriate place to stay out of the market due to the increased volatility. But on the same token, it’s also necessary to consider what happens following. Sometimes these are just mini spikes, rather than indicative of a trend. In this case, based on evidence gathered on the 5:30 candle, it leaned in favor of the former. In order to get a better resolution of the underlying movement, going down to a smaller time compression – such as the one-minute chart – can prove useful. Based on the action occurring, I did feel confident enough of resistance 1 holding to take a put option.

I also felt confident in the sense that there was clearly a reasonable amount of selling influence in today’s market. The market was nearly pushed down to support 1 early in the day. Price remained stuck in the vicinity of the pivot level for about an hour right before this. And, as aforementioned, the move up from the pivot wasn’t very spirited, outside of perhaps just the 5:25 candle. Hence, the fact that there was enough selling influence in the market to keep the market below resistance 1 was not surprising and this produced a solid winning trade.