Month 1, Day 15 - 36-month forex trading challenge - partial exits and fading the retail trader.
I received a question overnight via eToro. The social element is one of the things I really like about the platform, as the trading life can be a lonely one. The thing I don't like however, is that they've still not resolved the matter of the two rogue GBPAUD long trades I queried with them on Monday. This needs resolving today, or I'll need to make a formal (or at least threaten) a formal complaint.
One of my copiers (@Vandaahl) asked why I'd partially exited a couple of positions:
I noticed you closed two trades with small losses, yet you kept the remainder of the positions with the same currency open. Why is that? Why not keep all open (or close all)? Just curious to hear your rationale.
My response went like this:
Once I'm in a trade if the market moves against me I have strict rules to begin to lighten up on any given position. I exited 1/3 of both of these trades (GBPUSD and USDCHF) when the 10 EMA closed back above the 30 EMA. The idea idea behind this is to minimise the size of the loss on any given trade, while still giving the trade an opportunity to work.
This is exactly what happened on a new trade I opened at 2pm yesterday in GBPUSD (T13S). All of my signals are pointing to bearish territory for this pair, and I'd waited patiently for a FULL HOUSE signal to get in, which arrived on the 2pm close.
The 6pm candle close also held below the 50 SMA, then comments from the Federal Reserve caused a news spike in the USD. The market interpreted that these comments signal a faster rate cut, and as a result short-term speculative interest was to the bid side.
GBPUSD spiked and closed above the 50 SMA. My signal to exit 1/3 of my position was the 10 EMA (Exponential Moving Average) crossing above the 30 EMA. I lightened up at 10pm in line with my rules and my only mistake was exiting in a thin market where the spread being wider than usual, cost me more than usual. This is a reminder to myself, that if I need to do something on the 10pm close, better to do it a few minutes before the close actually happens.
In my experience it's often the retail trader who buys and sells the news. The speculative frenzy is driven by this group and is a golden opportunity for the professional to gain a better price and fade the move. The professional to sell, needs a willing buyer (forex is a zero-sum market), and what better buyer than the retail sucker caught up in a short-term speculative bubble.
From my analysis, GBPUSD is in a long-term downtrend, which is still intact given price failed to close above the previous high on the 240 chart above. Notice too that prior to the spike, price had made a lower lower. Lower highs and lower lows are the characteristics of a bearish trending market. This knowledge and my strict trading rules meant I didn't panic. I remained calm and unemotional, and this morning with GBPUSD turning down I look to have been rewarded.
Overnight the 10 EMA also crossed above the 50 SMA, which is a signal for me to lighten up on an additional 1/3 of my position, leaving a final 1/3 in play. For the moment, I've not actioned this and will wait to see where the 10am candle closes. What I have done however is place a buy stop at 1.2538, which is where the 2am candle closed and the time the second 1/3 signal showed up. If price climbs back to this level I will be out for my second 1/3. I can set this in ETX Capital, but it's not possible in eToro, where I'll need to do this manually if the time comes.
So, to a quick update on the other positions I'm in:
USDCHF (T12S) >
The USD sell-off helped this trade, but failed to trigger the stop losses that will inevitably be under the recent level (c.0.9829) where short-term buyers stepped up. Note here, the lower low. This trade still makes sense and I'm holding firm.
USDCAD (T9S) >
It's a similar story here to USDCHF. No lower low, but where we're at on the monthly and weekly charts gives me a lot of confidence in this trade. Again this trade still makes sense and I'm holding until proven wrong.
EURCHF (T11S) >
Slow progress, but nothing to signal I should be lightening up on this trade yet. Patience is a virtue and once again I'm staying in the game. I've moved my stop closer to my entry on this trade, which has reduced my overall risk.
GBPAUD (T10S) >
Somewhat frustrating due to its slow progress, but this trade still makes sense. I've moved my stop loss twice ahead of news and now have a risk-free trade.
This cross or synthetic pair is made up of its counterpart USD pairs – GBPUSD and AUDUSD (remove the USD in both and you're left with GBPAUD).
In GBPUSD below (I also mention this above), the daily chart clearly shows a bearish bias.
In AUDUSD however, on the daily chart we've just moved from range to bullish mode, following the daily close above the range high.
This is exactly what I want to see – GBP weakness with AUD strength. This is a prime example of why the cross / synthetic pairs should never be viewed in isolation, and always considered in relation to the USD.
Wow, a lot of analysis for one day. It's now day 15 of the 36-month forex trading challenge and the end of week three. Once today is done, there are 8 trading days left until the end of the first month.
So, can I still hit my target of a 10% gain on opening capital? Well at the moment I'm about where I started, but half the battle in forex trading is getting positioned in the right pairs, and in order to do that you have to kiss a few frogs along the way. If my existing positions break out of their current status quo there is every chance that this target can be hit. My job is to hold them until they prove me right, or tell me it's time to get out. Time is still on my side.
After the 10am close this morning, I'm out for a networking lunch. It's a good opportunity to take some mental relief from the markets and to trade (to coin a phrase) the company of my trading screen for human interaction. All in all, good for my mental well-being, but it means I'll need to monitor the 2pm close on the move.
Is it really possible to turn £50K into £1M? Over the next 36 months I'm going to find out by trading my personal account with full transparency.
Follow my 36-month challenge to turn £50K into £1M.
Read my blog here: https://stgforextvforexchallenge.blogspot.com
Subscribe on YouTube here: https://www.youtube.com/channel/UCyGySJ5IeDjq-DIJPU7nYvw
[Please note, the information presented is general educational material and does not constitute trading advice.
Trading foreign exchange (forex) on margin carries a high level of risk and may not be suitable for you or your circumstances.
Before trading forex you should investigate all of the risks, including the possibility that you could lose more than your initial investment.
It’s important to consider your investment objectives, level of experience and risk appetite. If in doubt seek advice from an independent financial advisor.]
One of my copiers (@Vandaahl) asked why I'd partially exited a couple of positions:
I noticed you closed two trades with small losses, yet you kept the remainder of the positions with the same currency open. Why is that? Why not keep all open (or close all)? Just curious to hear your rationale.
My response went like this:
Once I'm in a trade if the market moves against me I have strict rules to begin to lighten up on any given position. I exited 1/3 of both of these trades (GBPUSD and USDCHF) when the 10 EMA closed back above the 30 EMA. The idea idea behind this is to minimise the size of the loss on any given trade, while still giving the trade an opportunity to work.
This is exactly what happened on a new trade I opened at 2pm yesterday in GBPUSD (T13S). All of my signals are pointing to bearish territory for this pair, and I'd waited patiently for a FULL HOUSE signal to get in, which arrived on the 2pm close.
GBPUSD spiked and closed above the 50 SMA. My signal to exit 1/3 of my position was the 10 EMA (Exponential Moving Average) crossing above the 30 EMA. I lightened up at 10pm in line with my rules and my only mistake was exiting in a thin market where the spread being wider than usual, cost me more than usual. This is a reminder to myself, that if I need to do something on the 10pm close, better to do it a few minutes before the close actually happens.
In my experience it's often the retail trader who buys and sells the news. The speculative frenzy is driven by this group and is a golden opportunity for the professional to gain a better price and fade the move. The professional to sell, needs a willing buyer (forex is a zero-sum market), and what better buyer than the retail sucker caught up in a short-term speculative bubble.
From my analysis, GBPUSD is in a long-term downtrend, which is still intact given price failed to close above the previous high on the 240 chart above. Notice too that prior to the spike, price had made a lower lower. Lower highs and lower lows are the characteristics of a bearish trending market. This knowledge and my strict trading rules meant I didn't panic. I remained calm and unemotional, and this morning with GBPUSD turning down I look to have been rewarded.
Overnight the 10 EMA also crossed above the 50 SMA, which is a signal for me to lighten up on an additional 1/3 of my position, leaving a final 1/3 in play. For the moment, I've not actioned this and will wait to see where the 10am candle closes. What I have done however is place a buy stop at 1.2538, which is where the 2am candle closed and the time the second 1/3 signal showed up. If price climbs back to this level I will be out for my second 1/3. I can set this in ETX Capital, but it's not possible in eToro, where I'll need to do this manually if the time comes.
So, to a quick update on the other positions I'm in:
USDCHF (T12S) >
The USD sell-off helped this trade, but failed to trigger the stop losses that will inevitably be under the recent level (c.0.9829) where short-term buyers stepped up. Note here, the lower low. This trade still makes sense and I'm holding firm.
USDCAD (T9S) >
It's a similar story here to USDCHF. No lower low, but where we're at on the monthly and weekly charts gives me a lot of confidence in this trade. Again this trade still makes sense and I'm holding until proven wrong.
Slow progress, but nothing to signal I should be lightening up on this trade yet. Patience is a virtue and once again I'm staying in the game. I've moved my stop closer to my entry on this trade, which has reduced my overall risk.
Somewhat frustrating due to its slow progress, but this trade still makes sense. I've moved my stop loss twice ahead of news and now have a risk-free trade.
In GBPUSD below (I also mention this above), the daily chart clearly shows a bearish bias.
This is exactly what I want to see – GBP weakness with AUD strength. This is a prime example of why the cross / synthetic pairs should never be viewed in isolation, and always considered in relation to the USD.
Wow, a lot of analysis for one day. It's now day 15 of the 36-month forex trading challenge and the end of week three. Once today is done, there are 8 trading days left until the end of the first month.
So, can I still hit my target of a 10% gain on opening capital? Well at the moment I'm about where I started, but half the battle in forex trading is getting positioned in the right pairs, and in order to do that you have to kiss a few frogs along the way. If my existing positions break out of their current status quo there is every chance that this target can be hit. My job is to hold them until they prove me right, or tell me it's time to get out. Time is still on my side.
After the 10am close this morning, I'm out for a networking lunch. It's a good opportunity to take some mental relief from the markets and to trade (to coin a phrase) the company of my trading screen for human interaction. All in all, good for my mental well-being, but it means I'll need to monitor the 2pm close on the move.
*********
Is it really possible to turn £50K into £1M? Over the next 36 months I'm going to find out by trading my personal account with full transparency.
Follow my 36-month challenge to turn £50K into £1M.
Read my blog here: https://stgforextvforexchallenge.blogspot.com
Subscribe on YouTube here: https://www.youtube.com/channel/UCyGySJ5IeDjq-DIJPU7nYvw
[Please note, the information presented is general educational material and does not constitute trading advice.
Trading foreign exchange (forex) on margin carries a high level of risk and may not be suitable for you or your circumstances.
Before trading forex you should investigate all of the risks, including the possibility that you could lose more than your initial investment.
It’s important to consider your investment objectives, level of experience and risk appetite. If in doubt seek advice from an independent financial advisor.]
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