Month 1, Day 7 - 36-month forex trading challenge - pullbacks, momentum, and update on GBPUSD and USDCAD entry.
I had the video back from my editor in Romania last night, which tells the story of the first week of the 36-month forex trading challenge.
It's a little longer than expected at 50 minutes, but I guess there's always a lot to talk about in the markets. I'll need to try and keep things shorter this week – the last thing I want to do is bore my audience.
I need to give it a quick review and will then publish on my YouTube channel tomorrow. Be sure to 'Subscribe' here and click to receive notifications if you don't want to miss it.
My trading approach has changed much over the years. The more experience I've gained in the forex market the more I've observed and understood. By the way, when I talk about experience, I'm not talking about paper trading a 'demo' account, but putting real-life capital at risk – there's a big difference and it's called emotions.
My early approach was to try and buy (or sell if going short) pullbacks. A temporary move back against the overall direction of a trend was the best place to buy (or sell), right? I'd often set a buy order (assuming I'm long) at Fibonacci levels – typically at the 38.2%, 50% and 61.8% levels. I did this with little thought and trusted that other traders would support these levels and be on my side, helping to reverse the current direction in favour of my position and what I'd observed to be the prevailing trend.
Everybody likes a bargain and buying (or selling if going short) a pullback is exactly that. With bargain hunting, you don't always find the good stuff, and more often than not to source goods of higher quality you have to be prepared to pay a premium.
It probably won't surprise you to learn that I lost money using this approach. Trusting in levels prescribed by a medieval mathematician with the vain hope that other traders would be watching them was rarely a winning strategy. What's more, to achieve a desired reward-to-risk ratio my stop loss was invariably too close. Even if I was right on the ultimate direction of the market I'd usually have been stopped out a couple of times, and often missed the move altogether while licking my wounds from a handful of previous losses.
I've now stopped bargain hunting and realise that paying a premium in the market is a necessary part of the business of trading. My strategies now look to buy or sell momentum. Sure, I don't always get in at the best price, but I do get in when price is moving in my favour. As the saying goes, no more trying to catch a falling knife, momentum is a much better entry signal.
This holds true for my TREND, FULL HOUSE, and GOLDEN GATE strategies, with the exception being the initial entry on my RANGE strategy. With the latter, I'll have a buy or sell limit set just inside the extreme of the range. If I'm stopped out, I have one more opportunity to get in, but this time look for momentum in the direction of my entry.
I now realise that my pullback approach often didn't work, as my assessment of market conditions was wrong. Many times the market would be in RANGE and not TREND mode. My approach now assesses the market mode using the daily chart and I have two strategies to trade in each – I never mix the two.
Anyway, let's get back to the charts and the task in hand.
Overnight my GBPUSD (T2S) short continues to press down.
This trade has profit locked in and I'm now looking to add. We're still in RANGE mode and I'm waiting for a close on the daily chart below 1.2507, signalling a move out of range territory before adding to this position. I think there is a possibility that we could see this pair trade down to 1.2000 in the foreseeable future. I have no way of knowing for certain, but will follow my rules to the letter to stay in this trade as long as possible.
Last night at 6pm I entered a short trade in USDCAD. You may remember that I was short this pair last week and was stopped out on a trailing stop at the level I have just reentered at.
This trade is now taking a little heat with price trading above the 50 SMA on the 240 chart. My entry signal was the S candle and all FULL HOUSE conditions were met. Sellers have also previously stepped in aggressively, evidenced by the preceding S and SZ reversal candles (notice my stop is above this level).
Although I'm feeling some pain in this trade, this is not uncommon. I have to trust in my system, follow my rules and distance my emotions – my focus is on the process and not the prize.
This may sound strange, but a winning trade is one where I've followed my rules, even if I've lost money. A profitable trade where I've made money, but in doing so have gone against my trading plan and broken my rules, is always a losing trade.
What's very interesting about this trade is the level we're at on the weekly and monthly charts.
On the weekly chart, price is testing the 200 SMA from below.
And, on the monthly chart we're also at an interesting level – testing the 50 SMA.
One of three things will now happen and it's important I know what I'm going to do in advance, to proactively manage this trade, instead of reacting emotionally in the moment to what the market throws at me. This is why the psychology of trading is so important – you can't control the market, the only thing you can control is you.
Before any decision is made, the 10am candle first needs to close. I never make any trading decision until the current candle has closed. It's 8:10am, so there's still just under two hours left to play with.
Once the candle closes my options then come into play:
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.]
It's a little longer than expected at 50 minutes, but I guess there's always a lot to talk about in the markets. I'll need to try and keep things shorter this week – the last thing I want to do is bore my audience.
I need to give it a quick review and will then publish on my YouTube channel tomorrow. Be sure to 'Subscribe' here and click to receive notifications if you don't want to miss it.
My trading approach has changed much over the years. The more experience I've gained in the forex market the more I've observed and understood. By the way, when I talk about experience, I'm not talking about paper trading a 'demo' account, but putting real-life capital at risk – there's a big difference and it's called emotions.
My early approach was to try and buy (or sell if going short) pullbacks. A temporary move back against the overall direction of a trend was the best place to buy (or sell), right? I'd often set a buy order (assuming I'm long) at Fibonacci levels – typically at the 38.2%, 50% and 61.8% levels. I did this with little thought and trusted that other traders would support these levels and be on my side, helping to reverse the current direction in favour of my position and what I'd observed to be the prevailing trend.
Everybody likes a bargain and buying (or selling if going short) a pullback is exactly that. With bargain hunting, you don't always find the good stuff, and more often than not to source goods of higher quality you have to be prepared to pay a premium.
It probably won't surprise you to learn that I lost money using this approach. Trusting in levels prescribed by a medieval mathematician with the vain hope that other traders would be watching them was rarely a winning strategy. What's more, to achieve a desired reward-to-risk ratio my stop loss was invariably too close. Even if I was right on the ultimate direction of the market I'd usually have been stopped out a couple of times, and often missed the move altogether while licking my wounds from a handful of previous losses.
I've now stopped bargain hunting and realise that paying a premium in the market is a necessary part of the business of trading. My strategies now look to buy or sell momentum. Sure, I don't always get in at the best price, but I do get in when price is moving in my favour. As the saying goes, no more trying to catch a falling knife, momentum is a much better entry signal.
This holds true for my TREND, FULL HOUSE, and GOLDEN GATE strategies, with the exception being the initial entry on my RANGE strategy. With the latter, I'll have a buy or sell limit set just inside the extreme of the range. If I'm stopped out, I have one more opportunity to get in, but this time look for momentum in the direction of my entry.
I now realise that my pullback approach often didn't work, as my assessment of market conditions was wrong. Many times the market would be in RANGE and not TREND mode. My approach now assesses the market mode using the daily chart and I have two strategies to trade in each – I never mix the two.
Anyway, let's get back to the charts and the task in hand.
Overnight my GBPUSD (T2S) short continues to press down.
Last night at 6pm I entered a short trade in USDCAD. You may remember that I was short this pair last week and was stopped out on a trailing stop at the level I have just reentered at.
Although I'm feeling some pain in this trade, this is not uncommon. I have to trust in my system, follow my rules and distance my emotions – my focus is on the process and not the prize.
This may sound strange, but a winning trade is one where I've followed my rules, even if I've lost money. A profitable trade where I've made money, but in doing so have gone against my trading plan and broken my rules, is always a losing trade.
What's very interesting about this trade is the level we're at on the weekly and monthly charts.
On the weekly chart, price is testing the 200 SMA from below.
And, on the monthly chart we're also at an interesting level – testing the 50 SMA.
Before any decision is made, the 10am candle first needs to close. I never make any trading decision until the current candle has closed. It's 8:10am, so there's still just under two hours left to play with.
Once the candle closes my options then come into play:
- If the 10 EMA (Exponential Moving Average) has crossed above the 30 EMA I will exit 1/3 of my position.
- If the 1.3121 (red dotted line) is reached I ask myself the question: Does this trade still make sense? This level is halfway between my entry and stop, and is an important checkpoint if reached.
- If the 10 EMA crosses the 50 SMA (and this is flat or in the direction of my trade) I will take a long entry if all conditions of my TREND strategy are met. This means I could be long and short at the same time, which is one of the reasons I have a separate long and short account set up with my private broker.
*********
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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