A little while ago I wrote an article that predicted the euro would peak at 1.60 and could go to its true value of 1.20. Since then the euro has crashed for huge profit of over 35 big points. Here I want to reveal the simple tools, I used to get into and hold the trend... Before we look at the trade in more detail lets make a point about market behaviour.
Markets tend to make important tops when the news is most bullish. Human psychology always pushes prices to far up or down so how do you spot the turns?
The news is very helpful - but you don't want to use it the way most investor's do and believe what it says, you are going to ignore the news and simply look at the price reaction to it.
Confirming the Top
The euro was rising purely on the perception that the ECB would raise interest rates - but the economy was actually going into recession!
So logic told me they probably wouldn't and the price was coming in to 1.60 area and resistance to the euro was holding. Furthermore, the CFTC Publish a great report called Net Traders Positions which is free and shows the positions of speculators in the futures market ( but it is also a great indicator for how traders are trading in cash FX) and it showed huge speculative buying.
The report also shows you commercial hedgers - these are the people who hedge and are not motivated by greed and look at fair value and they started to sell - these two indicators warned of a top.
Confirming the Break
Now the 1.60 level was holding and you have to then look for proof of a top.
This can be seen in a waning of price momentum or buying. Two great indicators for this are - the stochastic and RSI. We have written about them in our other articles so look them up. They can be learned in about 30 minutes and as soon as both turned down, it was time to sell - then we saw a huge fall.
Value
Thinking about it, the whole euro rise since it hit 1:1 had been driven by interest rate perceptions, so it's logical to assume that it would go back there once this key fundamental had been removed. The euros true value in purchasing terms is about 1:20, so that is easily achievable and we are not far off that level now.
The above is a huge profit 35 big points! Does that make me a guru or expert?
No of course not, but it shows what you can do with some common sense, when looking at the facts and then using some simple tools to time the move.
Many traders like to trade short term - but my view is trade long term, as you get better odds of success and bigger profits so, look for and hit the turning points and then hold them.
Markets don't move to some mysterious law, they move to probability and the probability was the euro had no more upside and the result was a great profit.
Could you spot trends like the above?
Of course you can, with a little practice and the right Forex education, you could soon be spotting and hitting the big trend changes and piling up huge profits.
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