EUR/USD recent uptrend has pushed the currency pair up to 1.3175 since the multi-month low of 1.204 that printed in July. Technical analysis now implies a likely retracement that is regarded as a correction drop in currency trading. The double top pattern printed in the 30-min forex chart is a sign that Euro might as well be heading south the following weeks. I suppose quite a few forex traders will be trading out today taking their profits. I myself, having missed the party, tried to short the currency and buy 65 thousand dollars at 1.3110 yesterday but unfortunately I was stopped out at that specific double top pattern, before taking advantage of the predicted short-term decline.
I was expecting the EUR/USD uptrend to meet resistance at 1.30 mark. Unexpectedly the currency pair traded close to 1.32 before signaling a pullback during yesterday’s trading session. When I shorted EUR/USD at 1.3110, I set my stop loss at 1.3130 unwilling to risk more than a hundred dollars in this trade. The doji candlestick in the daily chart is now a great reversal candlestick, which will most likely be accompanied by today’s falling candlestick to complete a strong bearish pattern according to technical analysis.
Should I have set my stop loss at the previous high of 1.3180? That would mean risking 70 pips instead of 20, which would lead me to trade 4 times less money, in order to keep my risk amount at the same level. In that instance, I would also need to set a profit target much lower to compensate the increased threshold of me being wrong and maintain a sound reward-to-risk ratio. A retracement back to 1.2750 seems very possible and 360 pips would be a huge win but what if EUR/USD decline stops at the round number of 1.30? The profit would be 110 pips and while it would still be a profitable trade, I’d rather have a 5.5-1 RR ratio than a 1.5-1.
The double top pattern found at the 30-min forex chart is a great technical indicator for traders to better define their entry point, instead of looking at the daily chart. The much more detailed 30-min chart hid a reliable reversal pattern inside the doji candlestick of the daily chart that is highly expected to predict the future retracement of EUR/USD. Have you been active in currency trading lately? Let me know what you think of the chart analysis in the comments below.