Trade Review: EUR/USD (-170 pips)

Entered EUR/USD short at 1.3766 on 19 Oct. Stopped out 24 Oct at 1.3936. Result: -170 pips.

Entered with a stop at 1.3936 and a target of 1.32. Greatest open loss: 170 pips Greatest open gain: 110 pips.

It’s frustrating to be right on the macro front but get the levels/timing wrong. That’s what happened with my EUR/USD short.

I entered the trade thinking there would be a European resolution on the weekend, as planned. I was right about the Guardian story being bunk, my read on bank recapitalization plans being ratcheted down was right. Economic news has also been disappointing.

I see two possible trading outcomes from this weekend’s summit. Outcome 1: Discord, disagreement or disarray. Outcome 2: an agreement that falls short of expectations or becomes impossible to implement.

That prediction rings true. (the full reasoning is here)

What concerned about a further stock market rally but I thought 1.3936 and the 55dma would cap the rallies. I was wrong.

What I didn’t anticipate was the round of repatriation that’s going on at European banks. The threat of higher capital ratios is causing them to reduce exposure abroad and bring euros back. They are also said to be holding back on dollar lending.

What I’ve learned: As soon as the story changes, get out. The moment it became apparent that European leaders were changing the timeframe, I should have got out. I also should have recognized that there are/were way too many moving parts in the euro story to accurately forecast everything. It’s not like forecasting Australian CPI or a Fed meeting. I should have been more disciplined with the entry level.

 What I’m happy about: the initial timing of the trade was solid. I was up 80 pips within a few hours. I’m also pleased with my overall assessment of the outcome. I wish I were still in this trade because the euro is going to fall. But this is the first losing trade I have had in awhile so I’m not going to compound it by chasing.

I’m looking at USD/CAD longs once again.

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