Long term Setup on E/U-19th Feb ‘09

One of the biggest shortcomings we have as day traders or swing traders even is that we often fail to keep track of the outlook or the longer term picture of where the pairs might be heading. I make it a habit to check some of the majors every once a week or at times even during a few days even, just to ensure that i see longer term patterns that form or get broken. This can pave perfect opportunites for long term trends and potentially some huge pips that can be made in the process.

I sense the Eur is heavily oversold and with risk appetite returning, if it does, i expect a rally that can take us back to the heydays of the Eur. I won’t be confident if it can reach that heights, however, i still do expect a very strong rally, at least to re-test the 1.40 level which was easily reached during a very short term timeframe during last decemeber.

Take a look at this daily chart that i managed to capture just;

Lets note the various factors that have aligned nicely on this chart;

1) we are noticing a double bottom formation at the 1.24 region

2) It also finds a very strong 0 Fib level support at the 1.23 region, which i suspect will never be breached.

3) The Stochs is clearly in the oversold region and it is showing a reversal and just about to leave the oversold (20) region.

4) It is caught in a 500 pip range between 1.24 and the 1.29 region, and we are just about at the 50%  mark at 1.26-1.2650 mark, where we saw a nice 100 pip uptrend today, with a slight correction and a possible uptrend later today as well.

So, we are just about at the bottom reversal area and we could be in too early or just at the right time,

To see further grounds, let us see the 4h time frame chart.

Now on the 4h time chart, i am seeing more factors to confirm my trade;

1) The downward trend channel from Dec has now been broken.

2) It finds support nicely at our next fib level at 1.2515

Bottomline, i feel that we could see a short rally till the next fib resistance, which is at the 1.30 area which is the next H1 fib resistance. I have actually scaled in a a very small 0.5% order at 1.2680 area. I will look to add another at 1.2600 and another at 1.2500. If it breaks that level, i will add another 1% at 1.24 and another at 1.23 area. I don’t expect that much of a downside, but one would never know. This is high risk as i am risking just about 300-400 pips to make this trade work out. If it does, i am looking at 300 pips minimum on the upside. I will take partial profits then and let the rest ride long term, where perhaps the previous 1.40 area could be tested where i can pick up another 1,000 pips.

What do you think about this setup? Have i missed anything or just completely lost my mind?

Give me your comments below.

Happy Trading,
Seeni

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