Market turmoil in China is big news for the last week or so, also falling commodity prices. I’m going with a “RISK OFF” theme this week, which means my stronger currencies are the safe havens of USD and JPY, with EUR and AUD and CAD serving as the weaker side of my pairings.
Here is the link to my charts, along with ideas for Entry, Stop Loss, and Take Profit.
This trade was a loser, but made entirely with proper trading psychology, and I still feel confident despite being wrong.
Every day I’m reading Jarratt’s blog and other articles on Forexlive, as well as watching the risk events on Forexfactory. Based on Current Sentiment and Fundamentals, my outlook on the major currencies has been strong USD and GBP, and weak EUR and NZD.
Before the week of Nov 22 – 27, I developed trading plans to sell EURUSD, sell NZDUSD, and buy USDCAD. The plans included points for Entry, Exit (loss), and Exit (profit). I didn’t enter orders for each position, because each plan included (4) lots per trade, and I could not hold everything all at once. Rather, I watched price action until the entry points came closer into view, then executed the entire thing. This is the plan I developed for NZDUSD.
Based on the long term trend of NZDUSD and my fundamental outlook, I looked for pullbacks to resistance for sell entries.
Price was at about 0.6550 when I made this plan. The long term resistance point was about 0.6800, and I didn’t think price would come back this high. I decided that by 0.6750, I would be wrong, and then set my entry points at 0.6700 and 0.6650, (2) lots at each entry. I set a different profit target for each lot, so that I could leg out on the way down to a final exit of 0.6500. My next plan will revise how much risk/reward per trade, but the total risk of all (4) lots was 300 pips, with target gain of 430 pips.
Here is what happened.
I was a bit slow on entry, not getting in until 0.6670.
Net loss of 130 pips, or about $13. And my Mark Douglas psychology has helped me enormously to understand that ANYTHING CAN HAPPEN in the market, and that this trade has no impact on my next trade.
I’m satisfied with the plan, and with my execution. By next Sunday or Monday, I’ll draft my next trading plans, and then post them.
I’ve spent the last 2 months focusing on more trading education and development. This is what I’ve learned, and I’m poised for my next leg of live trading with an enhanced mindset.
There is endless information available on the internet, and sometimes it’s difficult to sort the garbage from the gold. The blog by Jarratt Davis is excellent. He offers paid subscriptions, but also posts lots of free training videos and regular updates. Since I went into live trading with this blog, I’ve been following Jarratt, but found myself making errors in trade management. So I’ve spent some time refining my strategy. The keystones are still here, 95% Fundamental Analysis, 5% Technical Analysis, with the added dimension of trader psychology management to orient my entire approach.
I’ve read the book “Trading in the Zone” by Mark Douglas twice in the last few weeks. I’ll outline some key points below, but the ultimate theme is that a trader’s mindset is more important for success than is the actual strategic method. Essentially, my strategy is refined and simplified, while my approach will be pure Mark Douglas.
Trading in the Zone – by Mark Douglas
Principles of my Trading Strategy
Trading the News
I started this blog on March 30, 2015. My first trade was June 29. Here is a screenshot of my performance up until September 11.
Gross profit from trading was $43.21. Less commission and rollover leaves me net profit of $39.27. On my $100 account, this is 39.27% return. To be fair, my $100 account size is ridiculously small. Let’s say that my original capital was $1,000, and that I was trading the same lot sizes, the same margin, and only risking about 5% per trade. Let’s say that my $40 return was on a more reasonable $1,000 account, and call it 3.927% return.
From June 29 – Sept 11 market performance in comparison:
My 3.927% during this period is looking pretty damn sweet.
Just some quick updates on my last few trades. Only brief analysis here.
The first is my AUDUSD sell from August 31.
AUD weaker than USD. Plan from Jarratt Davis was to sell AUD on rallies. Good data on Building Approvals from Aug 31 sent AUD rallying. Sold at 0.7134 and closed in the morning at 0.7029.
Next is GBPJPY, also from August 31.
GBP is a bullish currency right now. Plan from Jarratt Davis was to buy GBP throughout the week, expecting good data to support the pound. Data was not stellar, and some huge risk-off sentiment sent JPY off to major gains. GBP was getting killed, and I held on for the BOE Bank Rate vote till Sept 10. Learned my stop loss lesson again, for like the third time in 2 months. This one should have been allowed to fail at 50, maybe 100 pips, instead of dropping over 500 into the hole, and miraculously climbing back out. Stupid trade management here. Maybe I’ve finally learned to put in hard stops.
Most recent trade was USDCAD from Sept 9.
USD is strong, while CAD is on the dovish side of neutral. I took a short position the night before the BOC rate decision. My plan was, should BOC cut the rate OR hold steady, CAD continues to weaken. Took profit shortly after the announcement to keep the Interest Rate at 0.50%. A Double Lot strategy would have worked well here, to lock in partial profit and let another position run.
I have no active trades right now. This is a good time to report on performance.
After locking in some profit on my NZDUSD trade of August 4, I wanted a new position in favor of more USD strength ahead of the Nonfarm Payroll report on August 7. My plan was to wait for the data release on August 7, and take small profit on results that either met or exceeded expectations. I made the same mistakes of not setting Stop or Profit targets, and this one really got away from me.
I made a sell order on August 4 near the long-term low at about 0.6500, and the pair climbed higher during the week. NFP data was slightly below expectations, but not enough to derail USD strength. There was a quick USD gain at the release. Not enough to put me in the money, and then BANG, the NZD climbed and climbed to above 0.6600. Everything I read online was saying that traders were booking profit before the weekend, and this was pushing NZD higher and higher. At this point, like an idiot, I CHANGED MY TRADING PLAN, and decided this was now a long-term trade of fundamental NZD weakness from the RBNZ easing cycle, against expected USD strength from an impending Fed rate hike in September or December.
Market Sentiment
Market Fundamentals
Trading Plan: position for USD strength on Nonfarm Payroll data meeting or exceeding expectations. Trading against NZD which is a fundamentally weak currency.
Stupid Revised Trading Plan 2 after Trading Plan 1 Didn’t Work Out as Expected: Hold Short NZDUSD position for as long as it takes for the NZD to drop below the 0.6500 entry.
Result: After jumping above 0.6600 on August 7, I got my wish by Tuesday evening August 11, where NZDUSD dropped under 0.6500. I felt vindicated, that my prediction for NZD weakness was unfolding as it should, and thought, “No reason to close the position now, it’s a freefall from here”. The pair then turned back up, and moved sideways for 2 weeks. I decided that 0.6650 was a reasonable place to set a mental stop, and that if price moved higher than this, the trade was just flat-out wrong. I manually closed the position on Friday morning August 21 for a loss of about 160 pips (one lot only).
Comments: First mistake was making another trade without clear targets for Loss and Profit. Second mistake was changing my trading plan when things didn’t turn out the way I wanted.
I considered adding a Third Mistake, for not holding long enough, when I saw what happened on the morning of Monday August 24 at the New York market open. But 0.6650 was indeed a valid point of resistance that, when broken, was reasonable to admit that the entire position was a bad call.
The market truly freaked out this morning with Asian indexes posting HUGE drops. The NZDUSD pair gapped down from about 0.6550 to 0.6200, after hitting 0.6700 the previous Friday. This was an INSANE move. A pure knee-jerk fear reaction. This wasn’t validation that I was right the whole time, or proof that I should have waited longer. The plan was bad, the trade was bad, and my next trade will have targets before entry.
The NZD is considered a weak currency right now, and this week Jarratt Davis suggested trading into some employment and labor figures from New Zealand. I took a short position about 15 minutes after the Global Dairy Trade price index data release, and held through until the employment figures at 4:45pm my local time. The trade was helped along through the afternoon by some bullish comments from US Bank of Atlanta President Dennis Lockhart.
There were actually (2) lots on this trade, but the first cleared out before I could get a screenshot. At 8:15am my local time, the Global Dairy Trade price index fell by 9.3%, and milk powder price index fell by 10.3%. This data does not support New Zealand exports and growth, and so I entered my short position. Bullish sentiment on the USD pushed the NZDUSD pair lower through the day, and I took profit of about 30 pips on my first lot. The employment data was a slight miss at 4:45pm, and right after the data release I took profit on my second lot for about 60 pips, which was about 60% of the 100 pip daily range.
Market Sentiment
Market Fundamentals
Trading Plan: position for NZD weakness after GDT price index data, and heading into New Zealand employment data. Trading against USD which is the fundamentally strongest currency long-term.
Result: The weak data from New Zealand helped build selling pressure in the NZD, and Market Sentiment really pushed up the USD. Atlanta Fed president Lockhart is known more for a dovish stance, and his bullish comments about a September interest rate hike as being “appropriate” really invigorated USD.
Comments: The favorable Sentiment for USD was unexpected, but I was on the fundamentally correct side of the currency pair to enjoy the surprise. The Double Lot worked well in this trade, to lock in some initial profits and then let the second lot cook. In subsequent trades, I’ll consider using a trailing stop on the second lot, and let it run indefinitely, or hit the stop. For this trade, I’m satisfied with getting 30 pips on one lot and 60 pips on the other when the daily range is about 100 pips. No reason to be greedy right now.
I made so many mistakes on this trade, that it’s comical.
On July 23, Retail Sales from the UK reported -0.2% growth compared to an expected +0.4% growth, and the GBP sold off against other major currencies. Jarratt Davis’ blog identified any pullbacks in GBP from recent highs as good buying opportunities, because GBP is one of the fundamentally strongest currencies right now.
I entered a buy trade with only a vague concept of what I wanted, no hard targets for taking profit or stopping loss, and the next 6 days were torture.
Here is the GBPJPY trade:
Bought (2) lots at 192.85, after falling from a recent high near 194.00. This pair can move up to 200 pips in one day, and I noted 191.75 as a mental stop level.
Market Sentiment
Market Fundamentals
Trading Plan: buy GBP on pullback and position for continued fundamental GBP strength. This was a medium-term trade that I expected to hold for several days, possibly a week or more
Result: The pullback to 193.00 kept pulling back, nearly touching 191.00 by July 27. I let this trade blow past my mental stop, reminding myself that Market Sentiment may be Risk-Off at the moment, but my trading plan was for a longer-term fundamental move. I was gripped by doubt the entire time, and was begging for the trade to crack into positive territory again so that I could close it immediately. Shortly after closing the trade, GBPJPY shot up 100 pips. My emotions were out of control, and I took detailed notes.
Comments: The key problem was that I did not have defined targets for loss or profit. With those levels in place, my trade is transactional and the outcome does not matter. Without a clear plan, there were too many cracks to let the doubt seep in.
I fell into some of the most common psychological trading mistakes. In the spirit of keeping a trading journal, these are the things I noted:
Lessons learned:
The RBNZ Rate Statement was the biggest news event of this week, and I made a plan to trade it. This turned out as a losing trade, but my plan was sound and I’m not disappointed. Also, losing trades are fantastic learning opportunities.
At 3:00pm my local time, the RBNZ was expected to announce another Interest Rate cut. Probably due to a successful trade with USDCAD last week, I decided to trade INTO this event and take a short position before the announcement. At about 1:30pm my local time, I made (2) market sell orders at 0.6585. The Interest Rate cut of 0.25% (25 basis points) was announced, and the NZD immediately rallied, which was a big surprise for me. I managed the position to reduce loss as much as possible, and then set to work figuring out what happened.
Market Sentiment
Market Fundamentals
Trading Plan: position for continued RBNZ easing policy and more NZD weakness from expected Interest Rate cuts. Take Profit above Support at 0.6500, and set mental stop higher than the 0.6650 Resistance.
Result: The RBNZ cut the Interest Rate by 0.25% as expected, but the NZD rallied. Although RBNZ governor Wheeler said that further easing is likely, he omitted a previous statement that the NZD was at “unjustifiable” levels. Although the Fundamentals support NZD weakness, the Market Sentiment was that the RBNZ positioning was not dovish enough.
Comments: I was wrong on Market Sentiment, but the Fundamental data supported my plan, and my Technicals were sound. The mental stop beyond the obvious short term resistance at 0.6650 saved me from being stopped out immediately after the announcement, and let me trim the loss a bit. Sentiment is more important than Fundamentals for short term trades. The weakness was already priced in, and I could have waited until after the announcement to gauge market reaction before taking a position.
My emotions are in check. The loss is no big deal. We are moving on.
This week began with a review of Jarratt Davis’ weekly Risk Events video. I’m watching the news events and the corresponding market action as much as possible, and getting a feel for price action following an event. Knowing the schedule in advance, in my time zone, is absolutely necessary.
I like the concept of watching the market flow, and then riding the waves. For years I tried to identify signals based on confluence of several technical indicators, and never felt as in-tune with the markets as I do right now. Last night I scalped the Aussie.
At 7:30pm my local time, the RBA released the minutes of their most recent policy meeting, where they held Interest Rates at 2.0% on July 7. I waited for the information to come out, looking for any surprises. The information was in-line with Fundamentals and Sentiment, and so I made Entry Orders to sell (2) lots at 0.7368. My mental stop was 0.7400, and physical take-profit at 0.7352, just above major support at 0.7350. The risk-reward may seem a bit off, to risk 32 pips per trade just to make 16 pips per trade, but I wasn’t looking for huge gains below the major low, and my stop was high enough to prevent getting whipped out.
Market Sentiment
Market is expecting no new details, and possibly some dovish hints from RBA
Market Fundamentals
Trading Plan: if announcements are in-line with bearish bias on AUD, sell AUDUSD for small gain. Expect to hold position very short term.
Result: RBA minutes confirmed that their current policy is appropriate, and would be data dependent. Also that Q2 production would likely be slower than Q1, and that a weaker AUD is necessary for economic growth. I watched the action for a few minutes, waited for any spiking up, didn’t see it, and set my entry orders. They both filled, and both hit my targets about 2 hours later.
Comments: I’m happy about being in the moment with this trade. I had Sentiment in-line with Fundamentals, and monitored the important Technical levels to keep from getting greedy. The Double Lot strategy wasn’t really necessary here.
Turning $100 into $1000 