{quote} Despite my recent post on USD/CAD boss, this is the stuff I don't get. I can ride a trend ok like every other muppet, but despite years of trying to work this stuff out on any time frame I still can't seem to "get" it when it's in front of me. I can see the why in these charts, but doing it real time? Even if I'd entered where you did I reckon I would've been shaken out by that retracement. Don't get me wrong I'm doing much better than I was at the start of the year, but damned if it isn't frustrating seeing this stuff and not quite grasping...
Sorry was away in Devon on a family do this weekend so just catching up on the forum. Wanted to reply to help you hopefully by talking through my thinking on that trade. I'm far from being an expert but have had multiple profitable months in a row now so there will be lots of things I could have done better in the trade.
As Strat said try not to beat yourself up about not getting it all yet. It's taken me many years of trying this, that and the other to finally see what's going on and figure out what works for me. I've had multiple lightbulb moments over the last 6-8 months while trading price action. None more important than switching to a risk and probability mindset.
The real battle with trading is having the confidence to pull the trigger and just get in the market to see if you are right or wrong. So many times I would see a support level I'd drawn and price would start to stall and I'd think, but WHAT IF, THAT COULD BE WRONG, BUT THERES THIS OR THAT THERE WHICH MIGHT MEAN.....
Then I'd kick myself the next day as price just did what I thought it would.
I've combated this by entering with small positions initially to "dip my toe in" and see whether price does what I expect. Send out the scouts and see if they come back with a favourable report.
If price action tells me I'm wrong I either let it run for a while to see how it plays out (as long as it's within my risk tolerance) or get out.
Small positions and a couple of little trades to start with helps me get in without worrying what price does. It has to move A LONG WAY against me to make me start to worry about a financial loss that will hurt. So theres no reason not to see if I'm right.
This has always been the hardest part for me. You are either going to be right or wrong and price rarely just does what you want it to do straight away. You have to be patient and just let price do what it does for hours/days and get comfortable with draw down.
I sit in draw down A LOT on most of my trades and I'm comfortable with it now. It's part of trading and when I realised that it changed my way of thinking and how I traded.
I'll talk you through my exact thinking on that trade and my risk allowed which may help you understand why I took it and what I was thinking along the way as it played out.
I check the H4 charts every 4 hours and see if there is a price action candle that grabs my attention or a S/R level that price has reached.
On the H4 chart I saw three things.
1. A resistance level, so I drew drew that in (the zone from tip of the tail to close of the candle) so I could see clearly where I expected something to happen.
2. A doji candlestick after a big upward move. That candle told me the market was undecided where it was going to go next.
3. The 200MA area which price often likes to have a re-think at, and looking back at the chart historically on this pair it had been respected.
For me that was enough to get in with a couple of small positions to test if my edge was right. I put a big stop on the orders way above the resistance zone and that was well within my maximum risk allowance per trade. I personally think in £x risk not pips. I'm uncomfortable if price goes against me by £x and that's when I start to either reduce my position or get out completely with a loss.
I move down to the H1 chart then and monitor and manage the trade from there.
I was expecting price to consolidate a bit and then either carry on up or go down to at least test the bottom of the strat shadow or more likely much further. I don't have exact targets but watch what price is doing as I go. I know if I'm right it's likely to go a long way down but nobody knows. Depending on how many positions I have and what the P&L looks like I adjust my targets along the way. More positions = less price has to move for me to make a nice amount of profit.
I've no idea where it will go to but I do know what I'm comfortable losing. In this case is was £50.
The next candle after my entry re-tested the high of the last candle and closed below my entry so I added a little more to the trade.
I now have 3 small positions as price has confirmed at LEAST it's rejected that resistance for the moment.
2 candles later we have another strong bearish candle so I added another small position.
We're 3 hours into the trade and I'm gradually getting in as price is telling me my suspicion was correct so I added another small trade.
I now have 4 small positions in the trade.
2 hours later and price action was again very bearish so I entered another couple of orders.
I now have 6 positions and now my £50 max risk is still sitting above the resistance area so I've achieved 2 things.
1. I'm in the market. This is the most important part as without it we're not trading! Sounds silly but you have to be in it to win it....
I've sent out a couple of scouts (small trades) to see if price would carry on in the direction I suspected. I've added to the trades as price has confirmed my suspicion. I've got a good trade size in with confidence over a period of 5 or 6 hours.
2. I have my max risk if all these go against me still sitting above that resistance level so price has room to breathe. This is the real winner for me in my trades. Giving price room to breathe without me panicking and waking up the little people. They are the ones that make me lose and they need to be quiet. I've told them I'm happy to lose £50 so shut up and don't bother me until we're getting close to that. Job done.
I'm in the market and comfortable.
Often price will re-test a level (double tops and bottoms) so I don't really worry too much if that happens as it did in this case. It's not ideal and we all want price to just tumble in our direction but that rarely happens.
I should have added to the trade at the second rejection but didn't for some reason. Either asleep or possibly had other trades playing out and just not concentrating enough. It happens.
So now I'm in a trade and my only job now is to watch my P&L and manage what happens.
Now I'm thinking two things when I check that chart every few hours while I'm awake.
1. Has my max drawdown/risk been hit or are we getting close (£50 in this case)?
2. Has price moved sufficiently in my direction to make me enough profit for me to get out of the trade, in part or in whole?
I just ask myself those two questions every time I check the chart.
I'm not saying to myself has it got to 0.73170 yet as that's my target. I'm asking myself if I'm happy to stay in and do I think theres more room for profit. This was an important change in mindset for me. Rigid targets I found nerveracking.
In this case I wasn't at the screen when price tested the bottom of the strat shadow on the H1 timeframe either. Again, can't remember if I was sleeping or just away from the computer. I may have taken some profit there but in all likelyhood not as there was no clear BUEB or hammer to tell me to.
Anyway another retracement happened and the profit got sucked up, and in the past I would have been thinking "god I've missed my profit, better get out and break even". Now I think "I'm nowhere near my max £50 loss I've allowed and theres no higher high there yet so we're still in the trade." Price action in the last 12 hours has been massively bearish and it's because that resistance held twice. I think I'm right here and the big boys are agreeing with me. Or me with them, either way the trade is working so need to let it play out.
The main thing that changed me into being profitable is my mindset.
I'm thinking in probability and risk only now. I've seen price moving up and down so much I just expect it to do that at least twice before I get to anywhere near when I'm likely to take a profit. For me on the H1 timeframe I'm thinking of multiple day holds mostly unless theres a news event that takes me into instant profit at some point.
When you just take trades with big breathing room and let them play out they seem to work. In the past I used tight stops and they ended up killing me as I took too many losses and had a low strike rate because of it. That's just me and I know many who use tight stops and make very good trades with them. I'm just a little too inaccurate at the moment.
I especially love shorting because price climbs up the stairs and tends to fall down it. As demonstrated twice on that H1 chart. I was expecting another fall but if it didn't happen I'd have taken a loss and moved on. The next one or the one after that would have fallen for me and when they fall they always fall further for me than the ones that turn out to be losses.
Probability or winning is only confirmed I think when you have done it and seen it happen over and over. That gives you confidence.
Anyway back to the trade in hand.
Price came crashing down again and I took partial profit at the bottom of the strat shadow. Mainly because price had tested that the day before and bounced so I wanted to get something in the bank. It could have happened again but I didn't know. I just knew I'd been in the trade for over a day and I wanted to bank some £.
As price continued down it started to consolidate around the 200MA and there was some support there so suspected we may be hitting a hurdle for a while.
I was well into my profit target by now and comfortable so decided to take what I had and bank it. As you can see I could have let it run and banked way more but too many times after 4-6 hours of consolidation price has jumped up against me so I'd rather fill the bank and miss out on some profit so I can move onto the next.
That's an honest look at my thinking and you'll notice at no point did any little people pop up and start telling me to do anything.
I'd told them I was happy to lose £50 and they never got a chance to even pipe up in my ear! Killing them is the real battle and moving to a financial stop loss and gradual scale into positions for me has shut them up.
That's given me confidence to get in and trade and not worry.
They do pop up and start to moan when I go into big drawdown but having lots of small positions give me an opporunity to close one of them out and instantly shut them up. This is rarely done as by the time I approach my max loss target the trade is usually confirmed as wrong so I get all out. The point is having multiple entries gives me flexibility in managing the trade.
Hope that helps and apologies for the ultra-long post. You may need a nudge to wake yourself up now if you've drifted off!
Study enough and it all starts looking like the Matrix...
