Thursday, November 5, 2009

Another Trading Tragedy Killing Me Softly...


Doubt and pride: a lethal combination in and of itself, which in conjunction with a trading ego the size of Belgium, could lead to an extra dose of trading tragedy.

I didn't want to relive yesterday's trading sob story, hereforth known as Stop & Reverse Day, but I forced myself to take a closer look. Yes, my trading journal practically reads like a Greek tragedy and it just falls short of accusing people of having an Oedipus Complex.

A positive change in trading philosophy is required here. Whenever anything is going wrong, it's so often the philosophy that's wrong. So, if I correct that, half the problem is already solved.

I can do better. I know I can. And if I play this right rather than getting played, this could be the biggest comeback in the history of forex trading reality blogging.

So here's what went wrong:

1. First Trade... Shorted GBP/USD @ 1.65117 at my lunchtime yesterday, which would be about 1 pm Central European Time. My notes at the time: +5 pips in a few minutes, but of course, no one is going to take 5 pips! So, it reversed and I was down about 7 pips… Stopped & Reversed @ 1.65187 and it was against me for about 5 pips, but I thought there was clear support at 1.6512, so I better not have a trading ego and close out the trade. But this could have been very risky. I could have been chopped up – right on the chopping block of the Hell’s Kitchen Trading Floor. Since I had to get back to work, I closed out the trade to net out the loss on my previous short. I was feeling proud of myself at that point.

2. Second Trade... After getting home and seeing that BAC played me like air piano, I was so ticked off and definitely unhappy about the fact that GBP/USD had also skyrocketed. After FOMC and after the equities market closed, I was looking for an opportunity to fade a move. GBP/USD looked interesting, not least because I had retribution in mind. Oh, yes I did.

Shorted @ 1.65539
Target = 1.6453
Up by 5 pips and down about 11 pips in a few minutes, so I did the Stop & Reverse. At negative 8 pips, I did the World Famous Stop & Reverse again. Finally, after being in the trade for at least an hour, wishing for cinnamon muffins, banana bread, and seriously praying for that trendline support to break, I thought this is so not worth missing out on much-required beauty sleep and stopped myself out at another negative 2 pips. So, in essence, I was short, long, then short again within a span of an hour. And no, I did not have any spasms.

Here's the thing... back in May, I had another bout of the Stop & Reverse. However, I actually learned a tonne from this recent Stop & Reverse experience. I was emotional, but at the same time, I was paying attention to technical levels and looking for clear signals based on price action. I suppose it was the combination of pride and doubt that got to me. That, and the need for beauty sleep.

Here's the chart... I was looking for a break of the trendline support that occurred from pre-FOMC right through to post-FOMC. Plus, there was the Little Black Dress bearish divergence signal.
My biggest observation from this experience is there's a time to Stop & Reverse and a time to just use a fixed stop. Stop & Reverse doesn't seem to work very well when the market's closed.




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