I was stopped out of this position yesterday.
To some extent it was just bad luck that Jean-Claude Trichet decided to sound hawkish at yesterday’s press conference. I don’t think there is much chance of interest-rate increases from the ECB this year, and I think Mr. Trichet is playing a political game, signalling that the ECB is not going to provide a permanent solution to the European debt problem, even if it helps with stopgap measures. He wants politicians to sort the mess out.
However, had I followed my trading rules I would still be in the trade, because I would not have taken profits early on my previous short EUR/USD trade. My plan was to hold the trade for a long time, but I bottled out before New Year and took a small profit. What I have to remember when considering action like this is that you can’t just think about the current trade. If you take profits, it means that you have to trade the next signal, and you will be a weaker holder because you will have a new, closer, stop. I know that the success rate of my trading strategy is lower in this currency pair, and that once I do get in I have to stay in — but I didn’t follow through.
Thanks to my analysis of last week I am surer of my current strategy and more inclined to follow my rules.