Rookie Mistakes – forgetting to account for the spread
by Trader Rich
Last Night, I made a cross currency trade with the GBP/JPY. I shorted the pair because of resistance from a six year high on 12/6/2005. I considered the trade a low risk trade because I shorted at 211.05 with a stop right above the 12/6/2005 high of 211.43. I set my limit at the 50% fibonacci level plus minor support which was 210.45.
It turns out that my limit was right on but with 1 rookie mistake which was not taking the 9 pip spread into consideration. If I would have, I would have surely placed my limit at 210.54. It turns out the pair went as low as 210.40 but with the 9 pip spread, 210.49. So my limit was never triggered. When I woke up this morning, I realized this and closed the position at 210.83 for a 22 pip profit.
So although I did make 22 pips and just under $200, I could have realized an additional 29 pips for a 51 pip profit and more than double the $200. If only I would have accounted for the 9 pip spread.
Believe me, I’ve put this trade behind me but mention it here as a learning experience. I’m just glad I was able to get out of the trade with a profit because the pair is trading at 211.60 which is a high not seen since 1998. Correct me if I’m wrong but I’m assuming it must be the interest rate differential continuing to put pressure on the Yen.
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Could you have closed your position before retiring for the night?
Good question. I’ve never exited a position based on the time unless it’s Friday and I don’t want to hold on to a position for the weekend. I guess I could have but with my limited trading time, if I find a decent setup before retiring for the night, I’ll make the trade, set a stop and limit, and see what happens when I’m sleeping. Another way would be for me to get up a little earlier sometime during the first hour of the european trading session to check on it.