BarroMetrics Views: AUDUSD Revisted 2010-12-01
On Dec 1, I wrote the following e-mail to my Squares Group:
I am writing because the AUDUSD has provided some interesting lessons – lessons outside the ordinary.
As you know, the AUDUSD has been my preferred FX pair in the current environment….(snip). So I’ll just send you my charts and we can go thru it next time I am in town. Note that the ADUS has finally given me a zone and setup (daily chart) for a buy. Can you find it?”
A couple of hours after I wrote this, the pair gave an entry signal and I took the trade at .9572. My stops were .9467; and my first target was at .9654. Let’s look at the Reward:Risk –
- Risk = 105 pips
- Reward = 82 pips
Unlike the possible trade on Nov 30, I was happy to take this one, even though the Reward:Risk ratio was a little below the 1:1 I like to see in this timeframe.
Now, I did not examine why I was happy to take the trade at the time of the trade – I was focused on getting in.
But later, when writing my journal, I realized that the main difference between this trade and the prior one was this: the AUDUSD had made its 4th attempt to breakdown and failed. For me this meant that I could place my stop below the Maximum Extension of the 290-minute chart (and the 60-minute) rather than the daily’s .9317 because acceptance below .9467 carried bearish ramifications into the 18-day swing trend.
Even more important, the trade felt right. Don’t get me wrong; had the Reward:Risk been the same as Nov 30, I’d have passed on the trade. On the other hand, because this trade felt right, I increased my position size to 1.5 times normal. As a result:
- I took out 1/3 at .9654;
- On that exit, I brought the stop on breakeven on 1/3 of the remaining positions; and
- I left the original stop for the balance.
In this way, if I were stopped out on all positions, I’d have had a scratch trade (a small profit would have been made). As it has turned out, the AUDUSD has done all I could have hoped for. We now have to see what happens tonight with the Non-Farm numbers. But whatever happens, this AUDUSD trade is an excellent example of my thought processes. It even shows the importance of ‘feel’.
FIGURE 1 AUDUSD 60-minute