Trying to understand a whipsaw

Hi all,

I was updating my journal this morning and filling in some of the losing trades I made this week. When filling in the 'what went wrong' field I couldn't really think of much other than 'whipsaw'.

The trades were all long JPY trades that I took on the daily charts. I entered on Tuesday am (GMT) at about 7 am. They were:

CAD/JPY
EUR/JPY
CHF/JPY

Now in retrospect I can see that there was a correlation between these trades and taking so many positions in the direction of one currency is not something I will do again. However, that aside what's bugging me is why JPY reversed so dramatically yesterday and stopped out all my trades.

I didn't really see any news directly affecting JPY and it all happened during the UK/EU/US session.

Can someone please help me understand what I missed so I can hopefully learn something from these trades? My entry signal was a bearish candle (Monday) in a downward channel that signalled a short trade for the week.

Perhaps the question you ought to be asking yourself is why your expectations were so high that your bullish stance on JPY would be vindicated based on a 'bearish' candle? I could give you a handful of technical reasons why Tuesday morning wasn't a good time to take that trade according to my analysis, but after the fact it is useless. The market is what it is, you can't force your will upon it and you can't knock it out of the park every time you swing. A bearish candle is purely a description of what has already occurred and has little predictive value. You cannot attach such high expectations to something that does not have a corresponding positive expectancy, either your expectations will align to the reality of the market or emotionally you will become bankrupt. It depends on how tight you hold on to your preconceptions of the market.

My advice is that you need more sophisticated reasoning for entering a trade and that your need to manage your risk and your profits better when you are in a trade. You could have banked a profit, you could have gone to break even or you could have reduced your risk based on your reaction to price action as it was playing out.

Hi Birdt,

Thank you for taking the time to look at my trade and provide your analysis and charts. It really is very much appreciated In answer to some of your questions:

The method I’m using at the moment is swing trading the daily charts using trend channels and price action candles. What I saw was a bounce off the upper trend line and a bearish engulfing candle which was my entry trigger. I placed my stop a few pips above the upper trend line as set my T/P at double my S/L for a 1:2 risk reward ratio.

Looking back now I could have banked a nice profit although I didn’t want to close the trade early as I saw no reason to. Unfortunately I don’t have the opportunity to monitor my trades or wait until an optimal entry point using the lower timeframes due to my 9-5.

I trade directly off the daily charts and put my trades on before I leave for work at about 7:30 am GMT, I’ll look for a better way to make more well timed entries based on support/resistance, pivot points, fibo levels and use entry orders rather than just jumping in if I see a trend line bounce + BUEC/BEEC.

I shall head back over to the PA threads for more education.

Could this be the reason maybe?

Trading technicals is fine as long as you're aware of fundamentals which have the potential to screw up your trade! Some traders say "it's all on the chart", only problem is it's on the chart after the event!

It might be an idea to have a financial news channel on in the background when you're trading to keep you informed about what's going on, or at least read the currency pages of the mainstream media for upcoming events to help with currencies to avoid.

That's the exact answer I was looking for - thank you

Looking back now I can see that I was going short into a major resistance level which it bounced off and is now headed up.

I was so focused on the trend channel I missed the support level and the news didn't help either.

In fact it looks like it could now be heading up toward 129.66, although I know this month is repatriation so who knows..

I entered this trade at 123.02, set the T/P at about 121.00 and got stopped out at 123.80.

Now I know a fundamental and technical reason why that happened which I didn't before.

That makes this loss into a win which is the purpose of this post. Thanks guys