Different Timeframes, Different Results

Good Morning, Friends. The FX market had plenty of fundamental factors to work with today; S&P suggested that Japan’s sovereign debt ratings may be at risk, Spain sold notes in an auction that looked decent initially but proved on closer inspection to be a disappointment, the U.S. had a positive jobless claims number, and the European Central Bank left rates unchanged.

What resulted in terms of price action in EUR/USD was a whipsaw, but the impact for traders varied significantly depending on the timeframe used. Hyperactive traders using a 3-minute chart – which under Todd’s tutelage I’ve used very successfully in the E-minis – could hardly have helped getting slammed, as stops were hunted to the downside, ending only when the “last support” was broken at 1.31.

Of course, once those downside stops were out of the way, the market turned and drove relentlessly higher to 1.3180. Time elapsed: 42 minutes. Given the leverage typically involved in FX trades, the carnage would have been considerable.

For someone using the hourly chart – which seems to me the smallest interval that should be used in FX, with respect to those who are more adept than I am – the trend in EUR/USD changed to down on Tuesday around 1.3230. Until this morning’s bounce there hadn’t been a retracement that was large enough to be enticing.

Now, with the spike in the early going, we have a retracement that may be worth selling. Apart from the chart-based discipline taught by Todd, there are plenty of offers now on the order boards from Asian central banks, among others, looking to sell into strength; this selling interest will be translated into points on the charts, and of course helps to provide a potential short EUR opportunity.

The trend on the hourly remains firmly down; a retest of 1.31 wouldn’t be surprising. I’d be inclined to put a protective stop on at 1.3215, as a bounce that extends that far (and through quite a few large sell orders) would indicate a change in the market’s direction. The chart suggests that there may be some support at 1.3140, and that might serve as an initial profit target, at which point the stop could be moved down on the remaining portion of any short position. Todd of course spends a lot of time on trade (and stop) management as part of his courses.

Just as a reminder, we have the current Most Important Economic Release, the non-farm payrolls report, will be out tomorrow at 8:30 AM EDT, and that number could certainly have some market impact. Best of luck!

About the Author Brian Keith


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