Discussion on how to (and how not to) trade the USD at times like this

I’ve really enjoyed the chat forum these past two weeks, because there’s some thoughtful and interesting analysis going on almost every night. This isn’t always the case, so it’s refreshing and time well spent.

What’s also been going on however is a nightly discussion on ways to short the USD, since after all, it cant go any higher, can it? Unfortunately, these guys are constantly getting their stop-losses blown out night after night as the USD keeps on running. Here are the mistakes I’m seeing from them almost on a nightly basis. Keep in mind this mainly pertains to trading near the end of a big run like we’ve seen this month:

[B]1) Using support and resistance lines on low TFs in an attempt to figure out when the big reversal is coming[/B] – S/R lines on low timeframes work, but not nearly as well as on larger timeframes. And they’re not effective when it comes to finding out when to enter for the major reversal that we all know is coming sooner or later. The people that are quoting support and resistance lines on their 15m chart are getting them blown out every night.

[B]2) Trying to pinpoint the exact moment of the reversal in the first place [/B]-- AKA, lack of patience. The best traders out there rarely enter the market at the very bottom or top of a major trend reversal. I’ve learned the hard way, don’t bother trying to get in at these times! Let there be some real momentum (and by real I mean more than one candle on a 4h chart or greater) going against the trend before getting in. It may not be the perfect entry, but your chances of getting stopped out go way down as well, and this can save you from jumping the gun.

[B]3) Making their entries during the Asian session[/B] – Asian session highs and lows both get blown out more nights than not. Go look. Using these levels as a reason to enter before the London Session even begins is just asking for trouble IMO. Those highs and lows can be useful later, but not right then and there.

I’m far from an expert, but during times like these, I’ve had some real success holding out, dropping down to a daily chart, and waiting for at least a couple of candles to start going the other way before getting serious about shorting the USD, or whatever the charging currency is at the time. I think blindly entering when a pair has kinda sorta looked like it bounced off of a resistance line, especially on a lower timeframe, is asking for trouble. I think traders really overvalue a lot of support and resistance lines when you have a runaway freight train that seems to care very little for them.

I would love to hear your thoughts on this, and any other tips or methods you like to use when we come to what we think is an end of a big run, because it can be a really tough time to trade.

And make no mistake, I hope everyone here banks some pips, lots of them, and on a consistent basis, but I’ve seen some pathological errors in the last two weeks that have put some dents in people’s accounts, and I want to get people’s input on that either way so we can all be better prepared.

I agree with you, very well said. I think market sentiment and risk aversion are the two biggest players in these past two weeks ball game.

Technical analysis isn’t what’s making the big players money right now due to the fact that the momentum easily can blow through support or resistance at such a time as this. It’s better to follow the trend or stay out. Long term trading is what’s going to make the big bucks right now. Seeing that the market is making big moves in one generally stable direction. Until I see a few positive days that have some momentum, I will throw any accusation that the dollar is about to reverse, or is reversing, out the window.

Until Greece is solved the euro is doomed to go down. Idk about you guys but that sounds like another two weeks or so to me.

I expect the kind of movement that happened in 2009 to happen again if the Greeks exit the euro. Probably some huge gains to be made immediately following the news headline.

How to trade USD right now is simple. Most plattforms have a buy or sell button. Just click it and buy USD.

I totally agree with Leg0nd. if i was you i wouldn’t trade eur/usd at all this stage untill Greece drama is over. i would rather trade cross pairs. market is such, **** can happen over night only to find out that your account is in REDs or total loss. i am trading cross pairs for past two weeks with 95% success rate and i am quite happy.

Very nice. As economic data worsens, high volatility spreads like wildfire. Even crosses aren’t safe right now as they are more subject to huge movements inconsistently. Whereas the majors make big moves more consistently, thus are easier to read, making a long term approach more viable.

Refreshing to see a poster here on BP advocating 4h and above and not getting hung out to dry! LOL… that used to be my experience from the 15m brigade. Well said SIR! :57:

Current 4h EU.

Great post, imho, wish there were more like it on here, these days.

Over half of my trading is placed off the Daily chart, for the reasons you outline here. I am currently (re)reading Al Brooks’ Technical Analysis of PA book, and you bring to mind one of his key points: when there has been a prevalent and powerful trend, a number of traders decide that it must end soon, so look to take any minor PA as a sign of a reversal and enter countertrend trades. His point is that if the trend looks strong then it generally is, so continue taking signals in the direction of the trend until it does not work any more. You might get a trades hit its Stop at the end of your run, but (assuming the presence of sensible money management principles) this should be more than offset by the number of winners (or the enormous single swing trade) that you have already gained from that same trend. Brooks says that one of the most satisfying feelings in trading is looking at a trending chart, thinking ‘this can’t possibly go any higher’, seeing a good with-trend setup, taking it and having Price make a new recent high and give you a winning trade. Better than than slowing bleed away 5% of an account looking for the top five times and getting it wrong.

My own coach said to me many times - trade what you see, not what you think. It’s all in the chart, and expectations of a reversal are too often overly influenced by off-chart factors and preconditioning, imho.

I will look for signs of a reversal if I see a trend that looks overextended, but I need a number of supporting factors in my favour before trading it. I am far more likely to continue looking to trade with that trend, entering on pullbacks or whatever, than I am to assume that a reversal must be happening soon. Opinion and analysis are two very different things, after all. Often when people hear that I am a trader, they ask me what the Euro will be doing in a year’s time. I might speculate over a glass of wine - but I stress that I will not be trading any of the stuff I am saying, as my analysis at the time might be entirely different.

I am currently short EUR/GBP end of day and whether it works out or not I stand by the decision to enter when I did. I have shorted NZD/USD a lot recently, mostly intraday, and all the trades played out nicely - including the ones that I placed when the market looked overextended. If it looks like a duck, walks like a duck and quacks like a duck, it’s a duck.

And to address your ‘how to trade USD’ point, I just look for technical setups, same as ever - the only difference at the moment is that they are paying out more quickly than they did a few weeks ago. A market with a clear, strong direction is a currency trader’s dream, after all.

Anyway, great post, need more off them round here as the ever-wise RCarter says.

ST

[B]Trade what you see, not what you think[/B] My new trading slogan!