Are you afraid to trade?

I have taken a longer-than-expected break from trading, mainly because of being too busy at school. Now, I'm slowly getting back to it.



Look at the E/U chart above. Support at 1.2180 is broken. If we were to trade at this point in time, what would the course of our action be? Buy or sell. Well let's see.

According to many popular forex trading courses and websites, break of support signifies that many sellers are present and it is a sell signal. Most people would probably pull up their Fibonacci tool too and measure some magic number and go short. Before moving on, do yourself a favor and think about what you would do in this situation. Now let's look at what really happened.



The second --- more significant --- support was not even touched and E/U rallied. Until when? Until the next important resistance at 1.2388, where a short was good for 50+ pips.

Let's go back to the first buy though. If you had acted according to what forex websites tell you, you would have been eaten alive by the bull in no time. Period. RSI, at the time of break, was indicating a very very oversold market. Noobs would have sold the break, people with more experience would have probably sold very little, scalpers would have bought and got out for 20+ and pros are probably still holding it with locked in profit.

Of course sometimes things break and continue. However this was at 6pm EST and the market was barely moving. No volume. More often than not, price breaks support to lure in noobs (retail crowd). It starts breaking when pros start selling. Noobs wait for the break and once it happens, they start selling too. At this time, pros are already getting out of their shorts by consuming all selling from the noobs. When noob selling stops, pros continue their buying, price reverses and starts going up, noobs panic and start getting out of their shorts. This moves the price even higher and people who trade price action start playing the bounce by buying. When they are done, pros have already made a lot of money and get out. Then they go play golf for the rest of the day. Noobs start wondering what the hell happened and why they have lost money. Again.

The master of faking breakouts is G/U. Look at the arrows on the chart. 1) support broken, then ridiculous rally (stop now and think about what the chart looked like just before the bounce) 2) perfect bounce 3) resistance broken, then a fall 4) perfect bounce 5) resistance broken, then a fall, 6) detto.



The most important thing I learned this week is that the best trades look scary as hell. In all cases, hourly candles looked very strong (solid bodies) JUST before the bounce. Then a bounce and candles close with long wicks. I used to let my fear get into my way of trading. Seeing a solid candle would have made me trade in its direction after a break of a S/R level. However, as pointed out today, this is a mistake.

Craziness on a FOMC day

FOMC is announcing its rate decision today and expected volatility came in at its best. I got stopped out on the very first trade I took. G/U broke support by 40 pips, retraced to it but never bounced. This cost me 20 pips.



Other than that I made another mistake. After getting stopped out I attempted to short G/J and E/J too at very bad levels which cost me too. So the day started quite negative. After seeing the upside momentum, however I reversed my shorts to longs and made up for all the losses. This however, constitute breaking of my rules. The only trade according to the rules should have been the G/U short so far.

Now a good one. G/J rallied a lot so I exited my longs and started looking to short this crazy upmove. G/J came to resistance at previous high slightly below 137.00. I let it break a bit, then shorted at 136.99. As you can see it fell 30 pips from there.



At around the same time, E/U hit a round number too, 1.3700. A short would have been good, but I was already short G/J so I didn't enter. Also, this was just moments after ZEW surprised to the upside so I stayed away from this one.



There was a good long on U/CHF on hourly/15-minute support. I didn't take it, because I was already short in E/U.



U/CAD also bounced off hourly support, good for 15+ pips.



I went long E/G on strong support again and got +8. It's getting closer to FOMC.




-Tyler

Up and down

It should not come as a surprise that the recent rally in G/U and G/J was about to be reversed soon. G/J broke the raising trendline today and fell as much as one would expect (that is to the next support level).



USD showed some strength by retracing G/U and E/U, however failing to bring U/CAD higher. U/CAD created a strong resistance, so I went short when G/U and E/U stopped their fall. Initially, I was planning on holding the short a lot longer, but I got out after the momentum vanished.



Here's an opportunity which I missed. I had planned to short E/G at 0.9132, but unfortunately we never reached this level. We came to 0.9128, but I do not enter until a level has been reached, since the price can attempt to fake a breakout. Some people advocate using multiple entries and smaller lot size, but I'm not a fan of this, since it gives us unfavorable R/R ratio.



Finally, I wanted to short U/CAD at 1.0222 - previous strong daily support which got broken last week, but I was in school already. The trade would have gone to -8 and +35 at the time of writing.




-Tyler

Don't trade dead markets

Yesterday, I was able to avoid one of my common mistakes - trading slow markets. However today, I fell into the trap and got caught. Fortunately, it only cost me very little. Let's see what happened.

I managed to quickly make 16 pips by shorting E/J and G/J in the first 90 minutes of London session. The trades were not textbook though and I'm not going to post them here. After a while of the price failing to fall I decided to go long for some reason. This was a really bad decision as the price was already caught in the range with very low volumes being traded. This mistake cost me 3 hours of waiting to get out of the positions, which I finally managed right before US retail sales hit the wires. I faded the news, but got in a bit too early so made nothing on this.

Like I wrote last week, news respect S/R levels more often than not, you just need to have the courage to execute the trade properly. E/J hit strong resistance upon release and only went south from there.



Later on, G/U did what it does best - go ballistic. Hourly resistance was at 1.5193 and I was going to short at 5200, possible slightly higher if it breaks. Well, miss sterling broke by 20 pips and then crashed. I missed this trade though, because I was sleeping.



And finally, A/U had a beautiful bounce too. I don't trade Aussie too much though, so I missed out on this one too.



Total performance for this week very positive.

-Tyler

Slow Thursday

Absolutely no volume in the first two hours on the London session. I went back to bed and decided to trade US session. Around 8.00am, I was looking at shorting E/J and G/J but with upcoming weekly jobless claims at 8.30am I decided to wait. News moved both pairs down, breaking support. I decided to short, since the move wasn't big in size (I usually fade news if the move is significant) and made around 30 pips.



Second trade was interesting. I had planned to long G/U on support at 1.4990 but somehow I got in at 1.5000. It broke down right away so I got out for -8, not realizing that my entry was bad. Of course, G/U rallied 25+ from the support. I guess a mistake from lack on concentration. Looking at my strategy though, this would have been a perfect trade, had I executed it correctly.



Well I think I'm going to call it a day, since pushing trades when the market resembles a sluggish dog is pretty much just like tossing a coin and betting it will land on its edge. Off to school and C++.

-Tyler

You can't catch all of them

I woke up at 4am, quickly glanced at charts and immediately became slightly disappointed because I had missed out on fantastic trades. Let's review what were textbook trades:

G/J went to retest yesterday's low exactly at London open, got rejected and rallied over 100 pips. I doubt I would have stayed in for the whole ride, but 20+ pips were sure here. Notice the accuracy of the bounce. I don't know many other strategies which allow you to use a 20 pips SL on the Dragon, but this one surely does.



Similarly to G/J rallying after the bounce, E/J rallied too. However it was quite clear to predict where it will stall/bounce - at previous resistance at 122.80. It only bounced around 20 pips, but that's half of your day's work.



News trade - UK released manufacturing production, which disappointed (just like all other data coming out of the UK in the recent months). G/U reversed the morning rally and plummeted to previous support. I got in/out for 10+ pips. As you can see the support got broken later on. Quite normal.



I indeed played the breakout this time, however I got in before it was even attempted and I got in based on price action. I shorted right after the strong bearish bar on the M1 chart (two bars to the left of the entry arrow). First the momentum slowed down, then the support broke and I quickly got out for 15+. I suspect, however, that this might have been a stop hunt and a fake, but we shall see later.



Well...



There were two other perfect trades around noon. I wasn't trading, because I was at school, but these should have been taken no matter what. E/J bouncing off resistance on hourly chart. Broke by 10 pips then plummeted 60+ pips.



And finally, U/CAD bounced off strong daily support. The 15 minute chart on the left shows that it went really high and the daily on the right shows the obvious level.

-Tyler

Support becomes resistance

London open brought in very strong USD and selloffs in E/U and G/U with the latter falling a lot more due to buying in E/G. E/U broke support at 1.3595 by around 20 pips on high volume. Of course I didn't get in the breakout (since most of them are fake), but waited. USD strength developed across the board and E/G reached resistance slightly below 9100, suggesting a turn. I shorted E/U as it retraced to 1.3595 (support becomes resistance) and then fell down. I got only +10 here as the liquidity dried out. Better safe than sorry.



Same play on G/U. I missed this one, because I was taking a nap.



Another trade was a bounce on G/J. You can see it was pretty much in a freefall, but the first bounce at a round number was respected. What happens after the bounce (+15), we really don't care about. How did I choose the 134.00 level? Well 1) it's a round number, 2) G/U and U/J were both going down and 3) the move became over-extended.



U/CAD support holding strong. It will break eventually, but not yet.


-Tyler