How this Forex trade gained over 200 pips on USDCAD
In this part, I will talk about my best trade but before I
do that, I would like to do a recap of part I on the most valuable lessons I
learnt and am still learning because trading is an unending journey of
discovery especially that of the market and oneself.
Never Trade Without A Trading
Education-The biggest mistake made by
traders.
Never Trade Without A Plan-
Do Not Be Smarter Than
Your Emotion-The market doesn’t know
you trade it so take care of your emotion
Cut Your Losses Shut And Let
Your Winners Run-Understand this and
you will have more chances of becoming a better trader.
Becoming A Professional
Trader Takes Time-You must pay
your dues. This is not a get-rich-quick scheme.
Success in this business depends
on how willing you are to become a student of the market and how prepared you
are to face the most dreaded problem in trading, digging deep into your
psychological issues.
Having said that my best trade
was in the month of April this year in a trade, I took in USDCAD. Before I go
into the detail of the trade let me defined my trading philosophy. I trade in
the direction of the trend and do a top down approach from monthly to 60mins
chart. I do not go below 60mins chart and I take my entries on 60mins and
240mins charts. I am 90% a swing trader and 10% a day trader. If I am day
trading I ignore all signals against the prevailing trend, downtrend or uptrend
and take signals that meet my daytrading trading plan.
USDCAD has been in a downtrend
since 2002 and when it sold off to 1.1306 low in early march 2006 and rallied
from that low it was time for me to keep an eye on the price and my trading plan.
I used one of my strategies to execute this trade, which is the use of support
and resistance, price action, emas (50 and 200) and Fibonacci retracement. I
had already done my fib studies and drawn my resistance line (horizontal, along
previous lows and highs. My bias in my fib studies was on.618 Ret instead of
.50 Ret and the simple reason was that .618 coincided with my horizontal
resistance line and the 200 ema. When price hesitated at .50 Ret and later broke
above it I new the next target would be .618/200 ema but I noticed something
strange on the MACD histogram, the higher the price moved the lower the dept of
the histogram, this suggested to me that a divergence was forming but the only
way I could confirm it was for the price to reverse which did not happen until
it bounced off 200 ema /.618 Retracement sold off the next day, I actually
wanted to place my limit order 10 pips below the sell off candle based on my
analysis but I said let me wait until the next day and see what the price
action might look like before executing my plan. In case of a continuation of
the sell off, I will wait for a pullback to enter and a retest would even give
me better entry. So when the price reversed the next day, made a new high
(1.1771/April 03’06), closed lower (1.1712) two days later and formed a hammer
below the three things I monitored, resistance line, .618 Ret, the 200 ema with
the divergence on macd histogram, it was time for me to take a second look at
my plan and place my sell orders (2 lots) 10 pips below the close (shooting
star candle formation) at 1.1669 with 67 pips stops placed above the 200 ema (1.1736). My
first profit target was at 1.1574,Mar 03’06 low which was very close to the
daily 50 ema and that was hit, I would move my stop to breakeven on the second
lot thereby putting myself in risk less trade. These trades were swing trades
so they were meant to last for days. Anyway my sell orders were triggered the
next day and three days later my first profit target was hit for a 95 pips
gain, as it was in my plan I did move my stop to breakeven. The second profit
target was at 1.1510 (
low) which market blew through because of a sell off and gave me another 159 gain.
These trades were executed on 240 charts.
Finally, I learnt three lessons
from this trade; (1) Patience to wait for your set up to unfold (2) Sticking to
your trading plan which will reduce a lot of emotion in your trading (3) Living
money on the table, there will always be more gains to shoot for but once your
targets are met, shut your computer down and take some rest. The market will
still be there tomorrow.
“If you are distressed by
anything external, the pain is not due to the thing itself
but to your own estimate of
it; and this you have power to revoke at any momentâ€-
Marcus Aurelius