Two EUR/USD Shorts – High Risk/Reward Day Trade Setup 02/05/2011
Here we had 2 trades on the EUR/USD. One was a day trading confirmation entry short and the next was a high risk/reward trade setup that came together towards the end of our New York trading session. The first trade was a standard confirmation entry short. Again the confirmation entry is a 3 candle day trading setup. To even begin looking for this trade setup the market must be at some level of support or resistance.
On the first trade the market came into resistance, touched it and then closed below it, thus showing that the resistance for the time being was holding. Therefore candle number one satisfied the criteria for the reversal candle, which is the first candle for the confirmation entry trade setup. After the reversal candle formed at resistance we then looked for the 2nd candle in this trade setup which is called the confirmation candle. The goal of the confirmation candle in a short setup is very simple, it must close below the body of the reversal candle (candle #1). The reversal candle shows you the market is stalling, and then the confirmation candle shows that not only is the market stalling, but it is in fact reversing off this level.
The first two candles of this day trading strategy give you your direction and the 3rd candle is where we actually pull the trigger. When the 3rd candle pulls back into the body of the reversal candle this is where we took the entry short. Unfortunately the market didn’t give us any follow through to the downside and it went up and stopped us out for -20 pips. Whenever you have a losing trade you should be able to say, “that is a trade I would take every single time”. This was one of those trade setups. Every forex trader will have losses, however those losses should not come from a bad trading decision, rather they should be very simply a good forex trade setup gone bad. That was exactly what happened here.
I mentioned in the live trading room today one of the most common traits of struggling forex traders. They have a quality trading strategy, but then after only a few losses, or some after only one loss will begin to question it, and more often than not go in search of a new one! This is a massive mistake! We just closed out the month of April with a +5% gain. However in that month there were losing trades! In fact the last week of the month was down -4%. So because this trading strategy, as well as the others used in the room produced a losing week should we change are method? Does changing from a strategy that has produced a winning month every single month this year make sense, just because it had a losing week? OF COURSE NOT! As I said in the room today, if you know the strategy is sound, learn to implement it better, but don’t change all together. When you jump system to system you keep pushing yourself further and further from being a profitable trader. Ok well I’m done rambling….I just had to get it out, and I hope it helps someone out there that is facing that situation right now.
Ok on to the good stuff! The black circle is where we again shorted the EUR/USD. Once a month, and maybe twice we will get this trade setup. Very very rarely will you see me take a trade without some type of confirmation that it is coming down. However when there is a huge risk/reward to a trade, and it is at a massive support or resistance level I will seize the opportunity. This is exactly what happened today. If you look at today’s chart on the 1H time frame you will see the EUR/USD ran up into a very large double top. With an entry near the highs and a 40 pip stop this offered at least a 3 to 1 risk/reward scenario. In addition to that, on these types of setups I want to see the market having made a 100 pip or more run into the support or resistance with very little pull back through out the move. Therefore once the market gets to that point it will have a higher probability of actually making a retracement at the very least and potentially a reversal.
Anyway we took an entry neat the high of that double top, and as of writing this we are +80 pips or so in profit. The entry was 1.4865 and we had a 40 pip stop. My overall take profit on this when we left the room was 1.4735 If you are apart of the room make sure you check your email as I will be tightening up the stop to lock in some more profit and may stretch the take profit out to a bit more than the +130 pip take profit already in place. I will keep everyone posted as to how that works out.
I hope these recent trade updates are useful to those that read it. I really do try to fully explain why I took each specific trade, so that others are able to see how I applied it to live market. My hope is that by doing this others will be able to do the same over the course of time. If you see any way I can improve these recent trade updates please feel free to shoot us an email through the contact us page on the site. Or if you have just general feedback I’d like to hear that as well. I wish you all the best and I will see ya tomorrow! Sorry I rambled on so long today with this one:)