A relatively successful day yesterday for me trading wise and a few good decisions kept me out of a couple of losing trades. As I mentioned in the live blog, TUFXP first signalled a short at 0650 BST and as quickly as it triggered, it lost. I didn’t take this trade for a couple of reasons, firstly the fact that the stochs were indicating that GU was oversold. I’m becoming used to how these indicators work and the more you experience it, the better feel you can get for it. You’ll also notice that the 50 SMA is pretty flat and has shown indecision several times prior to this trade triggering. Secondly, I’ve noticed over the last few weeks that GBPUSD seems to have a shakedown pre London open or just after. Whatever the trend is prior to this shakedown, the price always seems to go in the opposite direction before reverting to its original trend.
From doing some reading and some general observations I believe this happens when there is a strong bias of traders going in one direction and the market literally shakes a few of these positions out. You’ll notice more often than not that these price reversals go above/below the recent high or low. I’d say this happens due to a majority of traders positioning their stops below the recent high/low thus causing them to be stopped out.
A regular reader, Matt, left a comment yesterday regarding my use of the 85 EMA:
Interesting comments today John. I didn’t touch anything trade wise myself.
G/U has just bounced of the 85 EMA as you suggested it might. Any reason you fancy the 85 EMA? I’ve seen you mention it a few times, but it’s never something I’ve heard of being used much before?
Here is the bounce off the 85 EMA shortly afterwards I posted about it during my live blog:
Whilst it doesn’t look much of a bounce in terms of pips, that is actually a 55 pip bounce which is a fair return for a very low risk trade.
I like the 85 EMA purely from trial and error, every trader seems to have their favourite EMA for one reason or the other and you obviously get the popular ones like the 10 SMA, 100 SMA, 200 SMA etc. I’ve also found that MA bounces tend to occur best when the market is trending like GBPUSD is right now. If you get a choppy market, no MA will save you. It’s a fine line though as I’ve seen many, many charts with up to 10 MA’s plastered on and you really do struggle to see the price action.
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