EURUSD: Reversal Signs On Major Support. 1.1800's Within Reason.

EURUSD update: The swing trade long from 1.1745 is now in play. In this report I am going to explain the reasoning behind this long, and what adjustments to consider in the face of conflicting price action if it nears the bearish trend line. This trade was called on S.C. around 10:30 AM EST today.

The price action over recent weeks has been clearly bearish. For whatever fundamental reason that you want to point to, the US dollar has been surging. Often during times of prolonged momentum, it is very easy to lose sight of broader structure.

When you zoom out and look at the overall structure of this pair, you will notice that the 1.1708 area is the .382 of the entire bullish move since the December 2016 lows. This is important information because it means this level is a major support. One that offers a greater probability that price retraces higher, at least temporarily.

On this time frame, temporarily means a retest of the bearish trend line near the high 1.1700s or even a push toward the 1.2011 resistance which is the .382 level relative to the recent bearish structure.

Since momentum is still generally bearish, it makes more sense to place a target at a much more conservative level and that is why I chose 1.1823 instead of the high 1.1800s or even higher.

Keep in mind what makes this trade worth the risk is the potential. 1.2011 is around 300 pips from current prices. Capturing just 25% of that is very reasonable.

There are other factors that are in play that justified this trade signal. There is a minor failed low formation defined by 1.1690 and an inside bar on the 12 hour chart. The trigger was when the 12 hour high was taken out. There is also an inside bar on this time frame as well which will trigger at 1.1751 for those still interested.

Since momentum still favors the bearish side, price conflict may appear earlier than the target. The area to consider: the 1.1790s. If a bearish pin bar appears off of the 1.1790s, that would be a good time to exit for an earlier profit.

The 1.1683 stop is based on the 1.1690 low with a little extra room to help reduce the possibility of a fake out. At the moment, price is hesitating just above the 1.1700 area which is not the best sign. Keep in mind, if this market cannot get it together and mount a retrace over the next 12 to 15 hours, I will more than likely exit the position, even for a smaller loss. I do not want to be long for the upcoming holiday and these type of reversals should move favorably quickly, if it does not, it is a red flag.

Taking trades with higher probability and potential are one thing, but the key to remember is winners must be larger than losers. There are times when adjustments may call for taking less profit than the amount risked, and that is fine.

We can't control profits, but we can control risk. If you keep risk relatively small, and mitigate further when the market offers the chance by adjusting to new information and signals, that is how to average 2:1 or better reward/risk over time. It is possible to have a string of losses, but if you are following these best practices, your winners should be making up for them and then some.

Questions and comments welcome.

Comment:

This trade stopped out. The next support is in the low 1.1500s. Will steer clear until this market proves itself more clearly.