Although I am following a London Stone Trading strategy for the Daily Time Frames that I am involved in, I am keen to put in some work to find a way to mitigate the losses when I get a false signal or when the market conditions change.
I had a feeling that the EUR/USD would turn based on what the SPX is also doing and recent price action on both instruments.
EUR/USD these last 3 trading days is showing a reversal pattern (imho). It has been in a down trend for quite some time and we have made lower lows. Hence why I was happy to take the next signal to Short when it arose. However, these last couple of days there has been a change in the sentiment as portrayed by the candles. On Friday we made a new low and took out the previous days high. It also closed towards the high of the day, showing that the Bulls had taken charge of the days action. The result was a Bullish Outside day or Engulfing pattern.
Over the course of todays trading we have seen the Bears attempt to test the low of Friday, only to have the Bulls seize control and make a new high of day. The result has been a Hammer candle stick, where the shadow/tail/ is twice that of the body.
If the next few trading days take the EUR/USD higher and we close above the 8 hour ema, I will hedge my position with a long trade on the EUR/USD if we can open higher again. With the logical profit target being the 20ma and then 50ma (at 1.24 7 1.26 respectively). This, I feel, will allow me to keep the losses of the trade to a minimum should the price go completely against me, whilst also following the strategy I have been given.
I’ll keep an eye on this with the hope that I don’t get to hedge my position as I would like the EUR/USD to come down and hit it’s profit target that I placed when opening this trade.