EUR/GBP position closed out for a loss

It does not feel good to blog about losing. Neither does it feel too bad. But it is good to blog about the losses as well, because that is the reality of trading, investing or anything else in life for that matter. In trading, losses are part and parcel. Some traders say it is the cost of trading. I agree. So I keep my losses manageable and bite-sized. It does not affect me much emotionally or financially. I am not going to scream my head off over this.

So what do I lose? If you have to ask, then you really have not been reading my blog, have you. No matter, the loss is 1R as usual. What is 1R? 1R is 1% of my trading capital. What is my trading capital? My trading capital is the amount of monies in my trading account. What is my trading account? My trading account is a forex margin account with Dukascopy.

USD/RUB Part 2

Started a new long position on USD/RUB after noticing the one day reversal which produced the bullish dragonfly doji pattern. The price traded to a low of 32.6701 and then reversed and rallied to 32.8718 which is when I noticed it and decide to place a trade.

Stop loss at 32.6345. First target at 33.3094 valid for 3 days.

When the price has such a turnaround as to produce such a candlestick, it tends to continue its bullish trend. And I allow myself to be proven wrong if the price falls below that candlestick. Which is where I placed my stop. The stop loss is wider this time compared to the previous round so naturally this position is smaller than the previous one, to preserve the risk taken per trade.

Sold USD/RUB at 32.824 to close position

The first target of 32.824 is reached on the 3rd day of the position and the full position is closed. Profit is 2.7R. Not bad for just 3 days.

The purpose of the first target is to get a quick gain that is characterised by a strong move, in this case strong because it just encountered the diagonal support 3 days ago and reacts to it. Slowly at first but gaining momentum once other traders realise what is happening and joins in the move.

Hence, I am free now of this market exposure and available for the next opportunity. If you profit more than you lose over the long term consistently, such quick trades are invaluable in the sense that the profit (though smaller than my usual 2-4 weeks duration profits) are made in a few days. It is a higher frequency of return. If I have more of such trades, it is like I am selling $3 chicken rice to more customers and gaining more from it. My longer duration profits are like selling $6 pork chop in comparison but to less customers.

Bought USD/RUB at 32.3619

Stop loss at 32.1924. First target 32.824 for first 3 days.

I never thought I will ever be trading the RUB. In fact I just knew what it is a moment ago. It is Russian Ruble. So I am buying USD and shorting RUB with this trade. So why did I trade the Russian Ruble when I know nuts about it? Well I like the price action (pattern) I see on the chart. First, I see a diagonal support. Second, I see a pennant pattern unfurling. Technical traders will know this pattern.

Anything else? My gut feel and experience. Anything else. No, I do not use fundamentals much. So as for the fundamental reasons, I really do not know nor do I really need to know. Because, price action speaks for itself and is always ahead of fundamental reasons. Way ahead. What is important is the risk you bear. Fundamental news and analysis are for journalist and investors who believe they can rely on them to make their investing decisions.

Bought DBS at 16.8

Stop loss at 16.55, first target at 17.76 valid for 5 days. After 5 days, if target is not reached, I will manage the trade accordingly, either I get stop out, or I react to certain price patterns. My first target also means I may just take half my position off on a discretionary basis when the time comes. Discretionary because I want to assess the price action on that day when it reaches 17.76. Then I will decide if I take half or full position off.

These are my thought processes as I look at the chart. These thoughts form as a result of experience trading the markets over 6 years or more. As always risk small.

The Illusion of Control

The closest to being in control we will ever be is in that moment that we realize we're not.
- Brian Kessler

Short on EUR/GBP

EUR/GBP Weekly Chart

Looking at the weekly chart for EUR/GBP, it looks ripe for a downturn. On a weekly chart, the trend is down.

EUR/GBP Daily Chart

Over to the daily chart, the trend is up. But I am betting that the weekly trend will override the daily trend soon enough. That is why I am considering shorting it.

EUR/GBP Daily Chart Zoom-In

Zooming in, I see a MACD Histogram divergence from May to Jul 2013. That seconds my decision to short it. With stop loss at 0.8724, target at 0.8412, and entry point at 0.8632, my reward-risk ratio is close to 3. However I set an initial 0.8493 as initial target for the first 3 days in the trade. After 3 days if the initial target is not reached, I remove the target and preferably ride my profits down.

Why do I have an initial target for the first 3 days? Because if the markets moves strongly within the next 3 days and reaches my target, it is prudent to just take the quick profit and remove your exposure from the market. However, if that does not happen, I am prepared to ride a longer period for a bigger profit, together with the risk exposure of course. In this case, my reward is 3 times my risk.

Close Gold Short at $1222

I trailed a stop and got stopped out of my Gold short position. My profit is 4.3R. Not a bad trade at all!

 

And yes the answer to the previous question is that my stop loss level was the same at 1378 whether I entered earlier with the break of the slant or later with the break of the horizontal. Entering earlier at 1348 versus1335 at the horizontal, I can command a position twice as big while risking the same i.e. 1% of trading capital. If I entered at the horizontal, my profit will probably be 2.1R only.

 

Why 1%, you may ask? It sounds pretty small. Next time I will show you why. And why inevitably, if you trade long enough and want to continue prospering from trading for the long term, you really should stick to no more than 1%.