Bad Assed Trader: Back on December 3 2011 I shared with you a trade I was stalking on NZD CHF. At the time it looked like price was pretty much in a range and nearing the top of the range so I was looking for it to bounce off the resistance line (ceiling) at the top of the range when I would sell (once the four hourly chart showed a lower high and price dropped to form a lower low).
I promised to let you know how it all panned out so this is the story of my trade on the NZD CHF.
I have to start at the end of the story because my coach Emmanuel saved me from myself on this one like the knight in shining armour that he is. I know I called him a midwife only recently when he helped me deliver my strategy but Emmanuel is made of magic gold dust and can turn from midwife to knight in the mere blink of an eye such are his powers.
So I lost no money. But nor did I make any...and as Emmanuel pointed out - strictly speaking I shouldn't have taken the trade in the first place.
So here's the chart showing what happened (yellow arrow is when I sold and my stop loss was at 0.7260 - well above the high of the spikey red bar):
This is the four hourly chart which is the one I use for entry into my trades. The yellow arrow marks the entry point - although as you can see the second peak is not actually lower than the first which is why the trade didn't actually meet my rules.
Clearly at the time I was anticipating the second peak to be lower and because it was a spikey outsize bar (larger than the previous bar which had also engulfed the bar before - good reversal signs) I must have justified it to myself as equating to a lower high.
Also, and perhaps more importantly, price had actually broken up through the resistance level on the daily chart (not shown here but see Dec 3 blog) and closed above it so my ranging strategy was now a counter trend strategy if I'm completely honest. And with counter trend trades my rule is to only expect 1% profit and to set my target there.
So I entered at the break of the neckline as shown by the yellow arrow and set my target at a rather ambitious 222 pips (0.6938) rather than at 1% profit which would have been 100 pips or 0.7060.
As you can see, price plummeted the next day but not quite to a 1% profit target level. It then bounced back up off the 20MA on the daily chart (not shown here) and showed indecision for a few days before testing the 50MA on the daily chart, partying wildly there for a while and then springing back into action.
As you can see, I have marked on where 1% profit could have been taken if I'd had my wits about me and had actually noticed that I was in a counter trend trade (which I didn't until after the trade was closed).
I had a session trading with Emmanuel on Monday (December 19) who, in his lovely gentle way, pointed out that the slightly higher high on the four hourly chart meant I had broken my rules and so I should move my stop loss to break even so as not to lose money on a trade that I shouldn't be in. He's a wise man and as you can see on the chart after that price went in only one direction really - up.
This trade provided me with a couple of really useful lessons:
1. When I'm stalking a trade where I expect price to stop somewhere in particular (eg at a support/resistance level on the daily chart) and it doesn't but is sufficiently close for me to justify taking the trade then I must review the label I am giving to the trade. When I trade a range I set 3 or 4% targets most of the time but a counter trend trade only justifies a 1% target. I didn't show good mental agility with this trade.
2. I need to stick to my rules and not see what I want to see rather than what is actually there (a higher high on the 240)
3. If I find myself in a trade which broke my rules I should follow Emmanuel's advice and move the stop loss to break even.
So even a crap trade provides useful lessons!
I promised to let you know how it all panned out so this is the story of my trade on the NZD CHF.
I have to start at the end of the story because my coach Emmanuel saved me from myself on this one like the knight in shining armour that he is. I know I called him a midwife only recently when he helped me deliver my strategy but Emmanuel is made of magic gold dust and can turn from midwife to knight in the mere blink of an eye such are his powers.
So I lost no money. But nor did I make any...and as Emmanuel pointed out - strictly speaking I shouldn't have taken the trade in the first place.
So here's the chart showing what happened (yellow arrow is when I sold and my stop loss was at 0.7260 - well above the high of the spikey red bar):
 |
| NZD CHF Counter Trend Trade from 08 12 11 on the Four Hourly Chart |
Clearly at the time I was anticipating the second peak to be lower and because it was a spikey outsize bar (larger than the previous bar which had also engulfed the bar before - good reversal signs) I must have justified it to myself as equating to a lower high.
Also, and perhaps more importantly, price had actually broken up through the resistance level on the daily chart (not shown here but see Dec 3 blog) and closed above it so my ranging strategy was now a counter trend strategy if I'm completely honest. And with counter trend trades my rule is to only expect 1% profit and to set my target there.
So I entered at the break of the neckline as shown by the yellow arrow and set my target at a rather ambitious 222 pips (0.6938) rather than at 1% profit which would have been 100 pips or 0.7060.
As you can see, price plummeted the next day but not quite to a 1% profit target level. It then bounced back up off the 20MA on the daily chart (not shown here) and showed indecision for a few days before testing the 50MA on the daily chart, partying wildly there for a while and then springing back into action.
As you can see, I have marked on where 1% profit could have been taken if I'd had my wits about me and had actually noticed that I was in a counter trend trade (which I didn't until after the trade was closed).
I had a session trading with Emmanuel on Monday (December 19) who, in his lovely gentle way, pointed out that the slightly higher high on the four hourly chart meant I had broken my rules and so I should move my stop loss to break even so as not to lose money on a trade that I shouldn't be in. He's a wise man and as you can see on the chart after that price went in only one direction really - up.
This trade provided me with a couple of really useful lessons:
1. When I'm stalking a trade where I expect price to stop somewhere in particular (eg at a support/resistance level on the daily chart) and it doesn't but is sufficiently close for me to justify taking the trade then I must review the label I am giving to the trade. When I trade a range I set 3 or 4% targets most of the time but a counter trend trade only justifies a 1% target. I didn't show good mental agility with this trade.
2. I need to stick to my rules and not see what I want to see rather than what is actually there (a higher high on the 240)
3. If I find myself in a trade which broke my rules I should follow Emmanuel's advice and move the stop loss to break even.
So even a crap trade provides useful lessons!
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