FX Trading - Can't Turn Back the Years

Once in a while we make the most basic mistakes and take a trade we shouldn't have. Yesterday's EURUSD short was one such example. While we can't change anything, we can at least look back on it and remind ourselves of our stupidity, in the hope that we've learnt a lesson, never to repeat it again. 

EURUSD - which fool called for a short?

We sold EUR (around the bar we circled) after the bounce from the lows, thinking that a reversal had taken place and it was time to be short. Nothing supported the decision except for some idea that fundamentals looked horrible. Our obsession with that blinded us to these glaring facts:

1. After an extended sell-off, a base had formed above 1.4200 (the area in the rectangle).

2. Breaking out of the base, not a single bar on the hourlies closed under the low of the previous bar.

3. We had said ourselves that it will only be worth shorting when everyone's turned long; well, a look at some brokers' positioning data still shows a market net short.

The only thing we did right in this trade is to place a stop order, which got triggered when we weren't looking.

A child looking at the chart could have told us the market was in an uptrend for the day, and yet we went against it, even adding to our shorts when the market went against us. If we were fully committed to the trade, we should have sized down to withstand a test of recent highs at the 1.4520 area. We were not, and only had some vague notion that EURUSD will continue lower.

So a reminder to self: 

Even if you think your idea is brilliant and the whole world is wrong, markets can stay irrational longer than you can stay solvent. And for god's sake, take a clear look at the charts before you do anything.

All said, EURUSD shows no sign of letting up and we wouldn't be surprised by a test and eventual break of recent 1.4520 highs, having flushed out all the weak hands these few days. But we don't like jumping back in the same pair right after a loss, although we saw something interesting in USDJPY and have gone long there.

USDJPY - ready to rumble?

Again, we saw a base form, this time in USDJPY, after a test of trendline support (see this earlier post for the complete picture). While we do not usually put much faith in previously violated trendlines, this pair seems to have bottomed out nicely so we've gone long with a stop under the recent lows ard 82.17. Even if this trade does not work out, we'll know that it was a proper trade taken under the right conditions. 

So the BOE minutes will be out soon, more nonsense on the wires I expect, we'll just sit back and enjoy the show.

Peace.