I’m still devising a plan, but starting to make some progress. This week I’m going to try and make sense of my losers, in the four pairs I’ve been trading since I started my forwards testing. I’m trading confluences of support/resistance, trendlines, round numbers (especially the 00 and the 50), and fibs, with some basic patterns taken from the nobrainertrades website. I move down the charts putting in my barriers starting at the monthly, then weekly, daily, 4 hour and finally 1 hour. I look for trades on the 1 hour charts, then once in the trade, I drop to the 5 min chart to monitor its progress. I’m looking for an almost immediate 1-2 hour reaction followed by a move towards my take profit. I explained the reaction I’m looking for in my last post.
My stops are now a minimum of 25 pips up to about 40, and after deciding on a stop and take profit, I need a minimum of 1:3 risk:reward to enter. I like to place the stops behind certain round numbers for protection. When going long I’d ideally like them 3 pips below the 20,30,50,60,80 or 00. When going short, ideally 3 pips above 20,40,50,70,80 or 00. This makes the entry 2 pips above/below another round number which allows for the spread with the minimum 25 pip stop.
The stop must also be behind any nearby support/resistance, fibs etc, which will tend to suck prices towards it. All orders can be placed as a limit order and never a stop order, as I’m looking at bounces not breakouts. Breakouts can only be traded on the retest which becomes a bounce. I also like to see the main thrust of the move towards my entry start some distance away 40 pips or more, preferably that days range being much larger than 40, so the move may be starting to tire a bit at my entry . My stops are in case the move bursts through, but are placed to allow me to get out for breakeven, a small gain or loss if the move pauses there before resumption.
When monitoring the the trades in the 5 min chart, I’m using ideas from the strategy section of nobrainertrades, http://www.nobrainertrades.com/2008/11/stop-losses.html ,to know when to bail out early. I’m still working on this part and trying to add in a time factor to my plan, for how long I leave the trade when price pauses, hence this weeks post. At the moment I’m looking at a max 2 hour pause and getting out at break even after or just before.
Prior to this week there were 7 losers to work with, from over a month of trading. Some of these were just because I was trying things out. I will go through each in turn. In all cases the little triangles on the charts are entries. Blue for buy, yellow for sell. The brown circles are stops.
1: EURUSD 24 Feb.
This one I only set a 11 pip stop. Big mistake. Ignore the trend line below the stop as this was put in after. The stop according to my new rules, should have been 3 pips below 1.3700 also a daily support line, giving ample time to get out 1hr 45min to 2hr 15min to get out at break even or a small loss. After a 16 pip break of the 4 hour cyan lower channel line the writing was probably on the wall for the trade anyway. The target was only 47 pips here so the trade would not have been allowed with the new stop of 26 pips. In the end price only went up 44 pips before plummeting down 2 days later.
2: EURJPY 26 Feb
This next one spiked down with no forecast announcement, only pausing briefly below my entry and continuing down after 20 mins, stopped out for 25 pips at 30 mins. I need to see more of this type of scenario before I decide how to approach the bail out.
3: AUDUSD 27 Feb
I actually bailed out of this at break even, although this was not in my plan at the time. I’d lost my process mindset and it was more of a panic measure . The plan was to let trades run to the stop at this stage, just to observe what was happening. No points to start with. Even so, it ended up as the correct thing to do according to the new plan. This was a break and retest, trade that in hindsight looks a terrible trade. The move towards my entry was a tight 5 min channel, turning from only 18 pips beyond, not a significant breakout or a direct move. When the move rebounded off the hourly broken trendline back upwards the move looked over.
4:EURUSD 3 Mar
Another one that plummeted to my entry, moving 40 pips in 10 mins and 28 was in the last 5 min. This should be a warning to get out quickly. As was part of the testing I let it go to my stop, which was taken out to the pip before reversing. There was just too much momentum for my normally safe stop.
5: AUDUSD 6Mar
This one was definitely one that I wouldn’t put on for real. Just part of the testing. I left a limit order open overnight with 2 big announcements due to see what happened. Retail Sales and Trade Balance. The currency was also drifting sideways since the afternoon GMT, only 10 to 25 below entry. Not a good trade and I really shouldn’t have even tested it. Just got carried away I suppose.
6: EURJPY 6 Mar
Another poor entry, with price drifting sideways before and after entry with plenty of time to realise my mistake and get out for breakeven. I let it run to my stop as it was only testing.
7: EURJPY 7 Mar
Another poor entry. The same as the last one, drifting sideways before entry at resistance and then after using as support. Shouldn’t have entered and plenty of time to get out with a small loss. Stop was all wrong as well and what was I doing on NFP Friday. I definitely wouldn’t have entered this trade normally.
You could be forgiven for thinking what a terrible trader I am. Before this I hadn’t traded for a while though and I felt I needed to throw a few wild ones in. The thing is, most of these loser could be eliminated or taken for a smaller loss or even break even and having looked at all my winners, none of those would have been eliminated as they all moved for me pretty quickly and all at least 1:3 risk:reward. These were my last losses up to this Thursday gone.
Only able to trade Thurs/Friday again due to my work shift pattern. 3 more limit orders put in. The Thurs saw a winner and a loser. Friday saw an unfilled order that I pulled off the table after 10.ooam gmt, with few announcements and an early Friday close approaching. As I’m looking at losing trades, I’ll start with that one.
8: EURJPY 20 Mar
Rated a 2. This one came down to my entry and basically went sideways. I had a 36 pip stop with a 111 pip target. In the end I bailed for a loss of -12pips, although my stop would never have been hit. After 1hr 40mins though and making new lows I took a loss of a third of my stop. I’m quite pleased with this effort.
The winner came with a 75 pip target and 25 pip stop in GBPUSD , and I’d rated it a 3 prior to the trade. After price flagged overnight after FOMC spike down, I entered on the pullback to the 38% fib from the spike origin, also retesting the 4 hour channel line the spike broke. Target above 4 hour support and also a longer term 62% fib level. Stop above 50% fib of spike down at 1.6583 and also above a 0% fib level from the 4 hour channel which had been previously been retested as resistance on the spike down as a pull back seen only on the 5 min chart. This was almost a rated 4 trade.
All this a bit boring for anyone trying to read, but it’s good for me to go over the past losses and celebrate another good week testing, even if it was only 2 days trading. What I really need is a lot more losers to work with, to get more confidence in my exit techniques. I’m getting too many winning trades at the moment. Damn!!
This coming week is a terrible week, as I I have only Friday off work to do some testing :-((
Cheers. Time for a jug of ale.