by Mike Lim
If you stuck until the end of the day yesterday, this trade would've gotten you to go "WTF??". It's already Saturday and there are still no items on any newswires to explain the sudden ramp to about 30-40 pips. The best guess really is someone needing to cover an order before month-end or a trader realizing it is month-end and needed to cover their shorts.
This is the new norm in these erratic markets where we can get 20-60 pip swings on no material news. Typically, technicals would take you somewhere between 10 and 30 pips on any good day. But when you get moves more than that, you really have to gather your thoughts and plan accordingly especially if you're in that trade.
Let's take the trade above for example. You could've been happily shorting since 1.6590 on multiple resistances there hoping to cover 60 pips lower from that entry point. You set a trailing stop of 20 or 40 pips and this thing happens at the end of the day. You easily get taken out for no apparent reason. You go home and you're none the wiser afterwards.
There's no magic formula or strategy to ensure that these things don't happen to you. It doesn't mean that you wouldn't set stop limits either. Stops keep you honest and keep you alive in these crazy markets. What it does bring home though is this point: No one ever got poor taking profits. Even if you may be a few points short of your profit target, think about taking profits if you see the price is taking awhile to get there.
Have a good (long) weekend! :)
Traders from Equity Sense will be writing on this blog on positions and other market-related things.