This originally appeared as a blog post in Scott Hoffman’s Futures Insight Blog on Thursday, August 16, 2012.
Currency futures can be a challenge to trade. Unlike some markets that see their best liquidity (and often the best moves) during US trading hours, currencies can see action almost any time of the day or night, and some of the best moves can occur when the “home market” is open-during Tokyo trading hours for the Yen or European hours for the Euro, Pound and Swiss.
That doesn’t mean that we shouldn’t watch them. On the contrary- they are liquid futures markets, and the nearly around the clock trading means that trade opportunities can come any time you’re watching them and stop losses work overnight as well. This reduces the risk of a market gapping through your stop and causing larger than expected losses.
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
For me, using the Taylor Trading Technique means that an around the clock trading markets like the currencies can require some flexibility and broader thinking to find entries. I find continuation or reversal entries to be good setups to look for.
The September Euro futures had a Taylor Trading Technique Buy day signal for today. Tuesday was a Sell day (or a breakout setup) that gave a Sell Short day move yesterday. Yesterday’s selloff left a close just above Monday’s (this week’s) low.
Yesterday’s selloff meant we anticipated a TTT Buy day today. On a Buy day we look for an initial move below the previous session’s low, to shake out the weak longs and suck in short sellers at the bottom. The initial selloff dries up and a rally begins (the day’s primary direction). We then anticipate that the market will continue to trend higher through the session, ending with a close near the session high.
The issue with buying the Euro today is that the last time it was around yesterday’s low was about 5 AM CT. At that hour my eyes were barely open and I hadn’t had enough coffee to think about trading.
By 7 AM I was in the office, and it was about 20 points above yesterday’s low. There were economic numbers coming out at 7:30, so I thought I would look to enter on a continuation of the rally.
This seems to be my job a lot of the time-to find price levels that I think will mark a resumption of the prevailing trend, so I can enter a trade when I have confirmation of the resumption. In this case I was going to watch 1.2324, a 50 percent retracement of the selloff from Tuesday’s weekly high to last night’s low. I view these 50% retracement levels as a good place to see if a move is a correction or likely to continue on.
The Euro broke above the 1.2324 level shortly after 7:30, reaching 1.2344 in about an hour. It sold off to retest the 1.2324 level before rallying again. The second rally traded through yesterday’s high and then tested trend line resistance (see the daily chart) at 1.2367. If it could hold above there, the next objective would be 1.2390, a full retracement of the selloff.
© Scott Hoffman
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
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