“The rewards for success are high and the penalties for failure aren’t worth thinking of. If you can adapt a few of [successful trading] concepts into your own trading plan, then hopefully you’ll become a great trading general who goes out to win a good many battles of your own. ” – Paul Wallace (italics mine)
Hello:
This is an update on some of the movements in the markets and what I’m doing about them, plus my losses and profits. The analyses are based on 4-hour charts, looking at the trend. My preferred leverage is 1:100 and my position size is 0.01 lots for each $2000. The risk per trade stands at 0.5%. The Stops are my life insurance policy. I use the Price Behavior rules for strategic decisions and customized indicators for tactical entries. I believe that a ‘buy’ signal that fails is a ‘sell’ signal; and a ‘sell’ signal that fails is a ‘buy’ signal. I open primary positions with a risk-to-reward of 1:3, riding the trend until the target is hit or I’m stopped out. The value of patience will forever be emphasized. As long as I stick to my rules and keep my risk low, I’m immune to fear.
The prolific Paul Wallace states that a plan is only good till first contact with the enemy. ‘Everyone has a plan - until they get punched in the face.’ So you have a plan and you have practised until your competence levels are sufficient. Is that all there’s to it? Sadly, no. The person who plans your trade and the person who executes your trade will undoubtedly be 2 very different people. To explain further, it’s easy to sit at the end of the day to go thru the charts and pick possible trading opportunities for the following day. You can take the time to sit and make some great plans on how to engage with the markets. However next time when you’re in the thick of blood and thunder of volatile fast-moving market, the calm, quiet, decisive person from the other day has now been replaced by an anxious, indecisive, impulsive, aggressive, crazy whirling dervish! This is where your brains turn to water and pour out of your ears. Unless you’ve drilled yourself properly and know how to operate in such environment, you’ll find your carefully laid plan evaporate when you get caught with your pants down during an unexpected news event… Part of your plan should be how to deal with such contingencies. Create ‘what to do’ lists for all manners of emergencies. Yes, it’s boring with low probability of being needed – right until that day when it all goes wrong.
Below is the summary of some of my trading activities this week.
AUDUSD
Primary Trend: Bearish
I got a ‘buy’ signal on this pair when supply and demand went out of balance at a critical price level. A gap up that occurred at the open of the market presented an excellent trading opportunity with hundreds of pips. However, note that the bearish scenario is still valid, as this is rather a kind of breakout. There must be further northbound move before the bearish bias can be rendered completely invalid.
NZDUSD
Primary trend: Bearish
Like the AUDUSD, the bearish scenario on this pair remains intact. Some supply zones have been rendered ineffectual at the upward price breakout of the price. Currently, there seems to be some serious resistance level at 0.7800. If price can break this resistance, then the bullish ride may continue – something that could render the primary bearish trend totally invalid. Should the price continue its upward journey, I’d open another trade and be on the offensive.
AUDNZD
Primary trend: Bullish
The serious breakouts that happened this week had no effect on this cross. The SMA 50 is above the SMA 200, and the price is moving sideways along the former. The RSI 14 is hovering around the level 50 – indicating a sideways move. Plus the Stochastic 14,3,5 is trying to go into an oversold region. The Aussie and the Kiwi appear to have reached some equilibrium.
EURCAD
Primary trend: Bearish
This instrument experienced a serious southbound move this week. I’ve an open trade that’s positive (something that’s had its risk eliminated by a breakeven adjustment). The movement along a predetermined opening range was what gave the signal setup. When a currency price moves above the opening range the bulls are in control and the prevailing sentiment in the market is bullish. The same but opposite applies when a currency price moves below an opening range which indicates that the currency is weak and the bears are in control.
EURNZD
Primary trend: Bullish
When this market opened, there was a gap down, and the price has been falling since then. Though the primary trend is still bullish, going long in this market is suicidal. The SMA 50 is still above the SMA 200, while the price is clearly below the latter. The ADX 20 has gone beyond the level 60 before stabilizing, showing that the market is in a very serious trending mode. -DI is far above +DI, signifying bearish pressure. My short trade on this pair was closed with 200 pips.
GBPCHF
Primary trend: Bullish
Playing this market requires some degree of discretion. One formula may be buying at a support and selling at a resistance. Nevertheless, it makes sense to buy only at support levels, as that’s what’s right for now. Then one would need to use a sensible position sizing, just as is expected of good traders. This is what’s expected of us. You should never expect a seasoned and serious-minded trader like Mark De La Paz to risk 100% of his portfolio on one trade.
Conclusion: Even with the best of intentions, many traders don’t fully understand how their actions are instrumental in their trading results. Imagine the gambler’s trepidation as they journey into the unknown future. Managing portfolios in a way that shows regard for their safety requires a change in traders’ thinking. You need to realize how dear your capital is to you. Another point is that action must be taken when warnings are given (like warnings against the use of big position sizes). Doing so can make the difference between surviving and sustaining a huge drawdown or a margin call. With very small sizes and other safety measures, your portfolio can’t be washed away by the uncertainty in the markets or any losing streaks.
Some quotes from Ralf Kraemer end this article:
1. “Aristotle already knew that the ‘impossible probable is preferable to the possible improbable.’ Generally speaking, we only think what we also believe to be possible. Past experience causes us to draw conclusion about the way the future is going to develop… Will chance be tradable at all? These questions must be answered with unequivocal yes if tried and tested methods are implemented in combination with the new thinking. Only trade what you can see, and always expect the probability of the unseen.”
2. “The most important thing in trading, though, continues to be risk and money management. It’s relatively insignificant which underlying is purchased at what price. Even random entries supplemented by prudent risk and money management, can be developed into a system with an expected value that’s positive. Make sure that you control the factors that can be influenced.”
3. “Jesse Livermore already knew that ‘on Wall Street there’s nothing new. Whatever happened in the past will happen again and again. That’s because people don’t change.’ Among other things, it’s the sense of fear and greed that interferes with man’s intellect. And that’s the constant that we can continue to count on as traders.”
Your questions and opinions are highly welcome.
Thank you.
With best regards,
Azeez Mustapha
Forex Signals Strategist, Funds Manager &Coach
Senior Analyst
FX Instructor, LLC
Email: amustapha@fxinstructor.com
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