1) Don't trade with any money you can't afford to lose.
2) Make more than you lose per trade. If you are risking 60 pips (or worse - no stop loss) for 10 pips every trade that is a recipe for eventual disaster.
3) Have a strategy that you have backtested over YEARS and you know is long-term profitable. There is a BIG difference between short-term and long-term profitable.
Daily Outlook: As expected the markets were fairly volatile yesterday after China announced it was unpegging its Yuan from the USD and allowing it to appreciate. Investors are still factoring this into their assessments of the pair but there are a few conflicting interests here: first for international corporations who operate in the US and China if I were them I would be buying large amounts of US Dollars at the moment because it is a guaranteed 5-6% return by year's end. This USD buying will serve to slow EUR/USD bulls. Think about it. The bears also have plenty of ammunition in Eurozone to keep them going for awhile. The more reading I do about Spain the more dismal the situation looks. That sort of uncertainity makes investors risk-averse and drives buying of USD and other so-called safe havens such as gold. The unpegging of the Yuan will also in theory increase US exports, correcting the trade imbalance and giving much needed life support to the US economy.
On the side of the coin, however, are the risk-hungry Euro bulls looking to jump back into the markets after letting the Euro fall to 4-year lows. They rightly point out that the US economy is not in much better shape: oversupply of housing, unsustainable debts and high unemployment are just a few of the things Euro bulls point too.
All of this uncertainity makes me glad I'm a 95% technical trade ;). Technically, to recap, the pair has been in a free fall since December of 2009 when it began its tumble from 1.5180! Only recently was a short-term base carved out around 1.19 and we've seen a decent retracement since then with the pair rising almost 500 pips in the past 3 weeks. The rising trend support that was guiding that retracement was broken yesterday though, leaving room for more fresh downside.
To sum it up neither side holds on the cards right now and the situation is muddied both from a technical and fundamental persective. This opens up the possiblity of range trading, and while I will look for conservative trades on either end of the spectrum (long and short) my preference is to short.
Trading Idea: Primary trade is a short on a failure of 1.2450, with confirmation, with targets at 1.2425, 1.2400, 1.2370 and 1.2340 for 110 pips profit. I will also look for a long around 1.2200 with targets at 1.2230, 1.2255, 1.2285 and 1.2310 for 110 pips profit.
Also I had some questions about pools of resistance yesterday - this the same thing as a breakout trade.
P.S. Don't forget to put @piphut when asking me a question in the comments! Happy pipping today!