Preparing for Volatility and Short Term Trades Next Week

Though I kept my position size small on those setups that I took over the second half of this past week; they have not worked out. Doing a critical analysis of those setups, the risk management and technical considerations were sound. Where I fell short was my appreciation of the fundamentals and its influence over momentum. When it was clear that there was too much fundamental headwind that would at best slow the trade and at worst lead to unfavorable turns; the best best decision would have been to cut and reevaluate.

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This reflection particularly applies to GBPUSD which (though the pound doesn't carry much of its own momentum) can be heavily influenced by volatility from the dollar or the euro - both facing major troubles. That said, the setup was well placed for entry and stop. The same is true for AUDUSD and keeping the position size small by cutting the add-on limit entry was a sound decision.

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Carrying forward what I learn from these failed trades and the market conditions that led them to be stopped out; we see many of the same considerations going forward. Anything euro or euro related (sterling, franc and dollar can all feel major ripples) will be open to sudden turns thanks to the lack unanimity on what the second major bailout effort from the EU means for the euro and European capital markets. Furthermore, the dollar will be prone to volatility without direction as long as the budget debate is still open; while a solution itself can come suddenly and potentially generate a new trend. So, we have to be flexible and short-term focused on euro-affected and dollar-affected pairs as well as those pairs that are sensitive to risk appetite changes. In other words, we'll need to keep nearly all setups to short-term (no more than a few days).

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So, scanning the list of opportunities we have now, there are medium-term setups that will need to be put on the back burner. Amongst them, GBPCHF as a channel reversal candidated with a close above 1.33 (along with confirmation of momentum), AUDCAD as it once against struggles bleow a consistent descending trendline at 1.35 (the short I held on this from the inverse head-and-shoulders was stopped out Friday, I should have cut earlier) and EURGBP as it traces out a struggling bullish reversal pattern.

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Amongst those shorter-term opportunities, EURUSD is prone to a reversal from its wedge resistance at Friday's high should confidence in the EU bailout collapse. A short-term bullish scenario for the euro could be built in a EURJPY breakout above the pivot / fib in 113.50. AUDJPY and NZDJPY can be contrasted off each other as the former leverages the pressure for a bullish break above 85.25 while the latter is holding back at 68. GBPCAD is a distinct range candidate having pulled back from its 1.55 top. And, then there is AUDNZD as it stresses for a breakout and looks at 1.26 as a short-term break and correction point.