The EUR made an extended move during the Asian session. My preference would have been to trade it short if the setup presented itself. Instead the EUR broke above the Asian session high, then re-tested that level. Due to the fact that we were so close to the Targets 1 and 2, the minimum Reward to Risk of 3:1 to our Target 2 wasn’t there. This is why I had wanted to see a short trade setup that I could take which would meet the 3:1 minimum.
The pair continued higher making a series of higher lows surpassing our Target 2 level and going up to the Red line indicated on the chart. Statistically, price is likely to reach our Target 1 and Target 2 in terms of probability. This however does not mean that it will each day – only that it has a very high probability of reaching our levels and so that is why we determine our Reward to Risk based upon Target 2. We always protect profits once Target 1 is surpassed. Statistically, once Target 2 is surpassed, price is much more likely to begin to retrace than to continue its move. In other words, we don’t get greedy past Targets 1 and 2. On a few occasions during the year, price will go well beyond our Target 2 and possibly double its range, but those days are few and far between and result from an over-reaction to some news event.
The Red line on the chart today is from the Daily chart. It is a tool we use to determine where price is likely to go – over time. It too is a target and when price reaches it, price is statistically likely to pause and re-test it, before either moving upward or downward from it. This tool is used by some very massive institutional longer term traders. We are intraday traders but we pay close attention to the levels where massive traders may slam on the breaks for a given day.
It’s been a profitable week, but we were unable to find high probability trade setups each day. We don’t compromise our trading style, we are highly selective each day and with each trade. I recommend all traders be the same way.
Enjoy your weekend!
Back Tuesday.
