Rather than laughing at the GBP/JPY nervous breakdown, the smarter thing to do would have been to join in the downtrend. Hindsight is always 20/20 and it wasn't like I saw my classic bearish divergence little black dress setup.
Right now, I've got two trade setups I can trade with a fair amount of confidence - little black dress (bearish divergence) and little red dress (bullish divergence).
So, I'm going to do what Warren Buffett advises and just stick to what I know.
It did get me thinking though. I'm always trailing my stops haphazardly, doing this pretty much on a whim. I'm going to start experimenting with moving my stop in a more consistent way. What I'm thinking of is moving it based on a percentage of risk, which would also be linked to the probability of the trade.
Getting into the trade, I would need to set an initial fixed stop. Once the trade starts moving in my favour, I'll start trailing the stop.
I'll calculate my trailing stops as follows:
x = Initial Fixed Stop expressed in pips
y = Probability of trade
Trailing Stop = xy
So, if my initial risk is 50 pips, and I feel that this trade has a 70% probability, then my trailing stop would be 35 pips. If my initial risk is 50 pips, and the trade has a 45% probability, then my trailing stop would be 22.5 pips.
I would only start moving my stop when my profit level is equal to my trailing stop.
Essentially, the more confident you are on the trade, the less you'll move your stop.
I'll experiment with this for a while and see how that works with live trading. The question remains: how fast can I move my stops?
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