Emotions and Trading II

BarroMetrics Views: Emotions and Trading II

When I said yesterday I’d give an example today, I did not know the example would be as dramatic as it turned out.

The example is a long AUDUSD trade I initiated on  Jan 13 and 14.

Context: Until Jan 13, I leaned to the bear side so far as the AUDUSD was concerned. Figure 1 is a weekly chart with 13-period swings (quarterly trend). Acceptance below the 67% retracement suggests a move to the Primary Buy Zone, .8521 to .8163.

The AUDUSD had retested the breakdown point at around .9597 and appeared then to resume the downtrend.

Friday Jan 10’s price action changed the bearish picture for me.

The post Jan 10 price action is shown in Figure 2 (13-week swing chart), and Figure 3, (18-day swing). The latter shows a confirmed buy signal on Feb 10, a Spring Change in Trend. If correct, the Spring signal would project prices till at least the Primary Sell Zone at .9674 to .9573.

I initiated a long trade, half normal size: 25% of the intended position size on Friday’s close, .8997, and 25% on Monday at .9046.

Figure 4 shows a tree analysis of the various likely scenarios as at close of trading Monday:

  1. The Primary Sell Zone did not hold (Figure 5). If the Spring signal was valid, then 
  2. We’d see prices rebound either at the Value Area High or at the Value Area Low
  3. If the Spring signal was invalid, then we’d see either a sharp downside breakout or see a new sideways range between .90856 (Monday’s high) and .88202 (Dec 18 Low).
  4. Because the Spring is such a robust signal, I thought the most probable scenario as a bounce, probably from the VAL. The second most likely was the Failed Spring. The least likely was the new trading range. 

That’s the context ….more tomorrow.

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FIGURE  1 13-week Swing Chart AUDUSD

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FIGURE  2 13-week Swing Chart AUDUSD

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FIGURE  3 18-day Swing Chart AUDUSD

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FIGURE 4 Tree Analysis

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FIGURE 5 290-min Chart AUDUSD

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