Don’t Move Your Stops
Here is a quick lesson from Sam Shenker about moving stops which I’m sure we have all been guilty of.
As a trader one of the lessons I learned the hard way is to never move my stops against the position. One of the most common mistakes made by the novice traders is to move the stop against the position once the trade start going against him or her. As the trade keeps going against the trader and once again approaches the stop, what do most of traders do, they move the stop again, thus increasing an unrealized loss, but unrealized loss is still a loss and a real one at that. In order to become successful, a trader must learn that the initial stop most of the time is a correct stop, because if the stop is triggered it usually means that the trader is on the wrong side of the market and by moving the stop he or she only increases the loss. The reason why traders move stops is hope that the market turns around and goes in the direction of the trade, but hope has no place in the market, protective stops do. Remember: NEVER MOVE THE STOP AGAINST THE POSITION, BECAUSE BY MOVING STOPS AGAINST YOUR POSITION YOU ONLY INCREASE THE SIZE OF YOUR LOSS.
Dollar Strength and EUR/USD Channel
I’ve been trading the EUR/USD since yesterday evening and caught the breakdown below 1.1855. The USD has not been able to push below 1.1827 though and until then the price may remain in a 60 pip channel.
I’m up a little more than $400 to start the week in realized gains but as of now am only in a short EUR/USD position that I entered on a pullback last night. There haven’t been any major developments since the Asian trading session set most currency pairs in motion except for the USD/CAD which has broken down nearly 75 pips from yesterday evening. I was actually long on a USD/CAD position yesterday and decided to get out after hearing that some favorable economic reports were expected from Canada this morning. This demonstrates some good behavior on my part with an exit of the position with a $100 loss. I didn’t see the pair doing what I would have expected from my technical analysis and wasn’t aware of the economic reports coming out of Canada when I entered the position. What good would it have been to stay in the position?
USD/CHF 2006-02-21
TRADE
Date: Tuesday, February 21st
Entry: Short USD/CHF at 1.3082
Reason for trade/setup: Using the 240-minute chart, there was the presence of a downward trend line above. In addition, a momentum indicator that I created and am currently testing indicated a short opportunity. Furthur confirmation was obtained from the 3-period, 5-period Price oscillator using EMA and the continued downward movement of the 8-period, 21-period Price oscillator. Stochastic crossover and a decreasing rate of change since early February provided double-secret confirmation.
Initial Stop: 1.3121, the high of the entry day.
Initial Target: 1.3050 then 1.2950 which are horizontal support lines.
RESULT
Exit: 1.3121
Reason for Exit: Stop Loss triggered
Profit/loss: -38 pips
Trade executed according to plan? yes
Outcome: After trade entry, the pair had remained close with the downward trend line. Volatility was non-existent during Asian session. The USD was bullish going into the European session and the pair went as high as 1.3153 stopping me out of the position between 3 am and 7 am. This trade never moved in my favor by more than a couple of pips.
Thoughts: All the indicators in the world can’t predict the future. I seemed to have multiple confirmation, felt great about the trade, yet it didn’t turn out well. I feel good about executing the trade though because I didn’t go against my plan. I saw a possible setup and pulled the trigger. If I could do it all over again I would make the trade again but may have waited for an increase in volatility. In addition, I probably set my profit targets too high considering the lack of price action this week.
Weekend Reading – Keeping an eye on Momentum
Keep An Eye On Momentum
http://www.investopedia.com/articles/forex/05/MomentumMACD.asp
This article states the obvious yet brings up a simple setup that I never thought about. The basic premise is that momentum precedes price. Any momentum indicator can be used but this article uses MACD as an example.
1. Define a MACD segment. Segment #1 below.
2. Measure the highest bar of segment #1. In the above case, the highest bar was .004.
3. Wait until the next segment forms; segment #2 above. If a bar from segment #2 falls below -.004, downward momentum has exceeded previous upward momentum.
Segment #2 consists of 10 bars. The values are in order from left to right (-.001, -.004, -.006, -.007, -.008, -.008, -.008, -.006, -.002, -.0008)
The third bar from the left is -.006, showing greater momentum than during anytime in segment #1. Sell at the close of this bar (price=1.7579.) Exit the position at your discretion but a good time to do so might be when momentum slows. Momentum stalls 2 consecutive bars at bar #7. MACD value is -.008. Exit at the close of this bar (price=1.7381)
The profit is close to 200 pips. Like every other setup, this will not always be successful and should be used in conjunction with other confirmation tools.
What I like most about this setup is its simplicity.
