After talking to a member on a different thread this Golden EURUSD short opportunity was spotted. There is alot to like about this trade but would you trade it?
[li]Higher time frame analysis has suggested (my opinion) that the market is bearish
[/li][li]A bearish Gartley variant and Butterfly variant have both formed
[/li][li]On the last pattern (butterfly) the difference in pips between D(X) and G© is 41.4 pips. This gives the market sufficient volatility for the trade to work. I like to see a min 40 pip difference on either the XA or XC leg.
[/li][li]Has a min RR of 1:1, Target of 1:1.8 and possible 1:5+
[/li][li]Has a tight SL and loose TP
[li]Formed on the 5min chart. I usually like to work in the 15min chart
[/li][li]Formed at close of trade Friday. My personal rules are no trading Friday afternoons and Mondays.
So me, personally, I wouldn’t take the trade. But if I did heres how I look to manage it.
First establish my SL. I’ll place this at 1.3745. This corresponds to X. If the pattern is true then it will find it hard to pass through the 78.2 mark of the XC retracement. If it does the patterns will fail and I want to get out quick. It doesn’t get much sooner than point X.
Establish a TP. I usually don’t pay to much attention to it. I manage my trades right through to the end. I think its just good to establish one. So I generally set TP at the 1.618 retracement of the XA line, so at 1.36920
Establish my PRZ. I like to trade true patterns. If you have studied PP’s, many times you will see that the price will not always make it to the true retracement level before reversing. Resistance at the PRZ is just too strong. This chart might turn into a classic example of that. Doesn’t make the pattern any less valid. I choose not to trade them. Money management is everything to me. Minimize my risk and maximize returns. I could enter the trade now but I’m 13 pips from my SL and only 6 pips from my PZ. Thats a RR > 2:1. That’s unacceptable. If I wait until it it reaches the PRZ that ratio becomes 1:1 and if the trade goes in my favour, I can let it run for a lot more. For the pattern to be a true butterfly variant the CD leg must retrace to the 78.6 mark of XC. This mark sits between the 127.2 (1.3744)and 141.4 (1.37480) retacement mark of the BC (FG) leg so I will use them as my upper and lower level. If it does this then the trade will meet my MM requirements and I will trade.
Establish a Profit Zone. This is the area I will look to secure and protect my trade. It is found between the 38.2 and 61.8 Mark on the final CD leg. At This stage point D is still to be determined but as I’m looking to enter in a pretty narrow range I will consider the lower level value of my PRZ as my point D value. My PZ now is between 1.37324 and 1.37249. Beyond the 61.8 mark all the way to my TP level I call the Greed Zone (GR)
Enter the trade. As I’m trading the pattern, I want to price to turn inside the PRZ. I will drop down to the 1min chart and start monitoring PP on that while the price is within the PRZ. First sign I get that the price is reversing I will enter. If the price moves through the PRZ and doesn’t reverse I will consider the pattern invalid and finish up. There will be a next time.
Manage the trade. So with a bit of luck the trade will go my way and start heading to the upper level of my PZ at the 38.2 mark. Its hard to explain what my mind processes at this point but basically I am back in the 1min chart monitoring PP. What I’m trying to do is secure my profit by moving my SL as quickly as possible to the 38.2, 44.7, 50 and finally 61.8 mark as the price moves down though my PZ. Sometimes the price reverses straight away triggers my SL and the trade ends. Only to watch it reverse again and I watch a lot of pips disappear. I just accept that. At this point I have made at least a one percent profit and I should be happy. A lot of times the price won’t reverse and if I haven’t locked in my profit I pay the ultimate price and that’s a loss. Now if the trade continues my way, the price moves through my profit zone and into what I call the Greed Zone. The greed zone is where I am going to let my trade run and try and capture as many pips as I can. I call it the greed zone because if I wasn’t greedy I would have exited the trade by now and taken the profits. Again I will be in the 1min chart. First thing I will do is get my SL at the lower level of my PZ, the 61.8 mark. This secures a profit of 1.8% a good trade. Again I will be watching the price as it moves through each retracement mark looking to move my SL. However price can start to fluctuate a bit more now so I don’t want to get to close with my SL. Is takes a bit of time to master but when it works and everything comes your way its a thing of beauty and a lot of pips can be made which = profit.
Exit the trade. Exit the trade will be a SL or TP trigger. However if the trade goes all the way and gets to the TP level there is absolutely no reason why one can’t move the TP level and keep capturing pips. Lets face facts. If the price breaks through the TP level at the 1.618 retracement of XA then it is likely to continue to keep going in that direction.
Now as I said I personally won’t take this trade but I will be looking forward to examining the chart Monday afternoon to see whether I should be kicking myself or if the power of Price Patterns comes true again.
What would you do?