How to Read the EURUSD – October 16 EURUSD Day Trades

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How to Read the EUR/USD – October 16 EUR/USD Day Trades

Paying attention to price action doesn’t just occur before a trade, price action is also very closely monitored while a trade is underway.

We take trades because our strategy indicates to do so based on current market conditions, and a stop loss and profit target are placed to limit risk as well as capitalize on those conditions. But conditions change.

When starting out it is beneficial to let the price hit either your stop or profit target. This forces you to become detached emotionally from the trade, let the market move without trying to impose your will on it, as well as fine-tune your strategy. Once discipline has been developed, as well as a heightened ability to read the market, there is no reason to let your stop get hit if you see that conditions have turned against you.

One of my trades today provided an example of this.

Figure 1. EUR/USD Failed Trade

The EUR/USD was in a strong uptrend through the European session. After the US market opened (pale yellow on the chart) there was another run to the upside. Unlike prior runs to the upside, this push higher had a pause in it; not anything which would cause me to skip the next trade, but I did note it.

The pullback was also quite sharp, and I took a trade just below the lower envelopes (for information on the basic strategy see: EUR/USD Day Trades-October 10 and prior trade journal articles). The price continued to drop a bit further and then consolidated, which is fine.

The price then began to rally. But it barely made it past the upper band, and out of the consolidation area before it got hit by strong selling. I exited just above my entry point for basically a flat trade, which turned out to be a good decision as my stop would have been hit moments later.

Piecing it Together

Deciding whether to let a trade hit your stop or profit target, or instead manage it manually like I did on this trade shouldn’t be taken lightly. There are times when getting stopped out is worth the risk, and other times when a condition change makes the reward potential unattractive relative to the risk.

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In my trade above, the trend had been in effect since the start of the European session, without a significant pullback in several hours. Knowing that a reversal is “eventually” going to occur is never a reason to avoid a trade, but it should be noted and then included with other evidence which appears.

The price also rallied toward the former high, but before making it there witnessed strong selling. This created a lower high, and indicated the up trend may be in trouble. The swiftness of the selling, combined with the lower high and maturity of the trend indicated it was better to exit the trade than hold out for my target to be hit. Based on the new information provided by the market it was unlikely that my target would get hit before my stop.

Had this trade occurred earlier in a trend, I likely would have let the trade hit my stop or target. The price rarely just surges in our direction to hit our target, pullbacks occur the way. Early in the trend, holding through a few market gyrations is worth the risk as early in the trend the target still has a high probability of getting hit.

Therefore the “maturity” of the trend is an important factor in whether I actively manage a trade once I am in it. I define a mature trend as more than 5-waves since the last significant correction. The EUR/USD has a tendency to run for 7-waves on the 1-minute chart before a significant reversal.

This particular trend had already had 11 waves. This alone isn’t a reason to avoid a trade, especially since the EUR/USD was still showing strength when the trade was taken. But this late in a trend a more significant reversal becomes more and more imminent, so being aware of that is important.

Figure 2 shows the waves in the EUR/USD on a 1-minute chart (note: not all waves labelled).

Figure 2. EUR/USD Labeled Waves on 1-Minute Chart

The arrow near the top of the trend marks my entry, and the exit is also marked. From this vantage point we can see the market was struggling to keep pushing higher. Seeing this in real-time is what takes practice. A trader must also be able to accept that market movements are not totally predictable, and that the price could have surged higher as soon as I exited my long.

Most new trades will benefit from learning to read the market in real-time, scrutinizing price movements, but being detached enough to let the price hit their stop or profit target. This creates discipline. More advanced traders can look to actively manage certain trades, as doing so in the right way will likely increase the percentage of trades won.

EUR/USD Forex Signal – 16 October 2020

Last Wednesday’s signals produced a profitable short trade following the hourly pin candle rejecting the resistance level at 1.1838, but the trade gave only a little more than the minimum 20 pips of profit.

Today’s EUR/USD Signals

Trades may be taken between 8am and 5pm London time today only.

Long Trade 1

Go long following a strong bullish price action reversal on the H1 time frame immediately upon the next touch of 1.1780.

Put the stop loss 1 pip below the local swing low.

Adjust the stop loss to break even once the trade is 20 pips in profit.

Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

Short Trade 1

Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of 1.1891.

Put the stop loss 1 pip above the local swing high.

Adjust the stop loss to break even once the trade is 20 pips in profit.

Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

EUR/USD Analysis

The price rose steadily for the first half of last week, in line with the long-term bullish trend in this pair, but it was unable to crack the medium-term bearish trend line at about 1.1875. After rejecting this line, the price has fallen continually, and is now sitting right on an area of key support that stretches from about 1.1802 to 1.1780. As the area at 1.1800 has already been touched with little reaction, I look to the lower boundary at 1.1780 for a potential long trade entry. There is little news today so I think it will probably hold if reached, as it should be a relatively quiet trading day.

There is nothing significant due today concerning either the EUR or the USD.

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Adam Lemon began his role at DailyForex in 2020 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
Learn more from Adam in his free lessons at FX Academy

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Best Time to Day Trade the EUR/USD Forex Pair

Best hours of the day to day trade the EUR/USD

Image by © The Balance 2020

The allure of forex day trading is that you can trade 24-hours a day. Unfortunately, that doesn’t mean you should. Day traders should only trade a forex pair when it’s active and there’s lots of volume and transactions occurring. The EUR/USD has certain hours which are acceptable for day trading because there is enough volatility to generate profits, which are likely higher than the cost of the spread or commission. To be efficient and capture the largest moves of the day, day traders hone in even further, often day trading only during a specific 3–4-hour window.​

The Impact on EUR/USD Volatility

The forex market operates 24-hours a day during the week because there’s always a global market open somewhere due to time zone differences. However, not every global market actively trades every currency, so different forex pairs are actively traded at different times of the day.

When Europe is open for business, pairs that involve the euro (EUR) or British pound (GBP) are more actively traded. When the U.S. and Canada are open for business, pairs that involve the U.S. dollar (USD) and Canadian dollar (CAD) are more active.

If day trading the EUR/USD, the times that are likely to be most active for the pair, on average, will be when London and New York are open. Those markets are open between 0800 and 2200 Greenwich Mean Time (GMT). To see major market hours in your own timezone, or your broker’s (charts) time zone, use the forex market hours tools.

Acceptable Times to Day Trade EUR/USD

The hourly volatility chart shows how many pips the EUR/USD moves each hour of the day (times are in GMT). There is a significant increase in the amount of movement starting at 0700, which continues through to 2000. After this, movement each hour begins to taper off, so there are likely to be fewer big price moves day traders can participate in.

Day traders should ideally trade between 0700 and 2000 GMT. Trading outside of these hours, the pip movement may not be large enough to compensate for the spread or commissions.

Volatility changes over time, but the most volatile hours generally do not change too much. 0700 to 2000 GMT will continue to be the most acceptable time to day trade, regardless of whether daily volatility increases or decreases. Note that daylight savings time may affect trading hours in your area.

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