So that trades that occurred this week included a short AUDUSD trade which was held over the weekend and remained active until Thursday when it’s swing high was hit ~1.0090. The other trade was a shorting of the EURUSD which opened later in the week and shortly exited a day later.

The EURUSD currently has much congestion around the 1.2970-1.2920 area and it will be interesting to see if it breaks from this zone earlier next week.

As usual the video explains the trades as well as what I’ll be keeping a keen eye on throughout the week.

Generally when placing an entry trade I always ask myself the question: “Have I drawn a valid trend line?” – the essence of my trading strategy being the very trend line that I hope to see broken by price (or reversed). But lately I’ve been using the same style of questioning on my exit strategy.

I remember reading one trading book which mentioned that it was wise to place your exit stops at points where you knew price was no longer confirming your bullish/bearish position. This seems to me the most common sense approach, but implementing it into something tangible is quite the challenge as we can very easily deceive ourselves into widening our stops or being too emotional once the trade is under way.

One such trade I’ve been analysing (which I didn’t take) was the NZDJPY. To reiterate my exit strategy it is this:

• Once a trade has broken through move the initial stop loss to the opposite extreme of the breakout bar (i.e. in case of a bullish breakout move initial stop loss to the low of the breakout candle, if it’s a bearish breakout move initial stop loss to the high of the breakout candle).
• Adjust the trailing stop to a subsequent swing high or low (a swing low for bullish trades is defined as a low formed with two lows either side that are higher than it, and a swing high for bearish trades is defined as a high formed with two highs either side of it that are lower than it)

It’s simple and has been shown to work. But with the recent NZDJPY trade, technically this wasn’t the smartest exit strategy to use. Let’s have a look at the initial breakout:

As you can see from my trading method, the initial stop was a placed a decent size away from the market, making any whiplash announcements difficult to reach (~65 pips away from the break point). Upon the candle breaking through we moved our stop to the high of the breakout candle which now had our stop within ~45 pips of the market.

When our first swing high formed we move our stop to a ~20 pips profit and the market was ~40 pips away. What happened next was history. We obviously took our 20 pip profit and then watched over the ensuing days the NZDJPY hit what was once our support zone, but now confirmed to be new resistance and then subsequently move 180 pips in our favour without even breaking sweat!

So was it a case of moving stops to points that weren’t really valid after the initial break?

Or… maybe I’m thinking about this incorrectly and I should possibly look at a second strategy where I need to continue to analyse the “significant” trend line even after it’s initial breakout and subsequent closed trade to see if that trend line poses any additional trades – whether they be reversals back above the trend line, or, as seen in this case with the NZDJPY trade confirming the direction of the initial break by touching the line and coming off it.

Thoughts to ponder on.

It’s important that once you’ve defined an area of significant resistance or support that you keep both possibilities open – don’t get fixed on one of them happening! If I’d kept the “reversal” possibility at the forefront of my mind and coupled this with the fact that neither the Euro or US markets were open I would’ve been looking more intently for a reversal pattern! Anyhow… you always seem to learn more from your mistakes.

There were two other currencies that I looked at during the past two weeks and they were the AUDUSD & NZDJPY (both were twitted). I didn’t get an opportunity to trade the NZDJPY, but I have made mention in the video about it’s lovely “previous support becoming new resistance”.

The AUDUSD is still an open trade for me and we can see a very clear area of support that was broken.

Without further ado here is my *sick* video:

PS – I love the NZDUSD break!

Interestingly though with the NZDJPY rallying it initially stalled around the previous support new resistance area (coincidence?) forming a nice doji (although an engulfing pattern would have been preferred as shown in previous examples).

The other currency on watch last week was the EURUSD, and with the NZDJPY failing early this ended up being the only currency being watched throughout the week. However, the EURUSD had other ideas and decided to rally moving away from the significant support zone before moving speedily towards it by the end of the week.

On my watchlist this week is the EURUSD and the EURJPY as explained in the following video.

I feel like a crouching tiger with the EURUSD – patiently watching for the opportune moment to strike!

*Bzzzzt*

My phone had been buzzing all morning. I had a wonderful night’s sleep and hadn’t planned on placing any trades in the morning so I decided to sleep in that morning. By the time I had stirred and bumbled out of bed I glanced over at my old mobile phone and noticed about a dozen missed calls.

Strangely all were from the same number: my broker.

“What on earth could he want?” I asked myself. I scratched my head pondering all the possible scenarios as to why he needed to get in touch with me urgently and couldn’t think of any. I then went about my normal routine that morning.

It didn’t take long though, during breakfast, that the phone buzzed. It was my broker. I didn’t like being interrupted during my breakfast time so I hit the cancel button and it seemed as though he went through to voicemail… again.

After showering and feeling good about the day I opened my laptop and began the routine of checking my open positions as well as pending ones. I was a plain vanilla options trader: buying out-of-the-money near expiry call or puts depending upon patterns. As I opened my quote screen my phone buzzed again.

*sigh*

I was feeling a little more polite and decided to take the call.

“Rory, how’s your day?” I answered.

“Great! Have you seen your National Australia Bank puts?” he didn’t waste any time.

“No. Why?” I began to pull open a quote on NAB to see what was happening.

“You’ve made $40,000…” he continued to babble for a little while but I couldn’t hear him. Synapses were firing in my brain like fireworks. $40k! Wow! 800% return for a position held for only 3 days. Ecstasy filled the room and my lips began to numb.

“…so do you want to close your position?”

It felt like someone had just ripped the needle off of the soft playing sound track in my head.

“Ah, excuse me?” I asked.

“Did you want to sell your position now?”

I could sense my broker Rory had been sweating under the collar all morning. I pictured him watching every tick from the opening bell dialling my number every second the market ticked against my massively profitable position. He didn’t like the silence.

“Why would I want to sell now?” I asked, flicking through my diary at the notes I had written about what I was going to do.

“Well you’re not going to be making another 700% tomorrow, so why not lock it in now.”

After considering my notes I told him to hold on to the position. All of it. Sadly, he phoned back through nearing the end of the day when the market had my open position only making $35,000 instead of $40,000.

“You’ve got to sell,” he pleaded. He obviously wanted the commission.

I unfortunately capitulated and sold the majority of my position that afternoon. The relationship though between us had deteriorated and I began to look for other options trading platforms that didn’t involve young highly emotional brokers.

Interestingly over the next couple of days NAB continued to fall. Rory didn’t call during those days. By the time I exited my position my exit price was better than “Rory’s” peer-pressured price several days before.

Why do I mention this story?

For several reasons:

1. You may be cool, calm and a very collected person when it comes to executing your plan, but be aware that the unexpected can happen. My successful grandfather share investor and businessman grandfather used to always recite, “hope for the best, expect the worst” (I’m sure he read that somewhere). He used to add that if you can’t live with the worst case scenario then you shouldn’t place the trade. Sadly, most people just hope for the best and wonder why they just can’t handle the stress of trading. While I’ll stress that point another time I want you to understand the importance of being massively successful with a trade or even a series of trades. Even with your synapses in your brain firing like fireworks, try to remain level-headed and continue to stick to your plan. Put everything that happens in your trading journal and notch everything to experience. When the situation arises again you’ll be the more wiser for it.
2. Lastly, try not to involve others about your trades – especially those who do not trade and especially those who (like my broker Rory) are highly emotional when it comes to profits. I love my wife dearly and I love how she occasionally asks about my trading activity, and while I’ll answer her with specifics about overall net profits (or losses) I’ll NEVER EVER EVER tell her about the positions I’m currently in, how much that position is currently making (etc etc) – because as soon as you do you’ll find people reacting in strange ways. In my experience most people will immediately tell you to close any profitable position you have as their nature is to avoid risk… and the best way to avoid risk is to close anything risky when you’re ahead. So please try and avoid informing non-traders (or minimising informing highly emotional people about your trading activities) – personally I don’t tell anyone my positions and this site is my only outlet.

Managing risk can certainly be one tricky endeavour, but the longer you stay in the trading game by managing and preserving your capital well you’ll eventually encounter very high rewards – and you’ll soon see that managing big profitable positions can be just as tricky. Hopefully you’ll be able to stick around to experience it!

However, all was not lost and for active forex traders amongst us there could have been further opportunities to make money on the AUDJPY pair by placing reversal trades around the new resistance area.

Perhaps the greatest aspect of the trade, which isn’t evident in the money made (or even lost – if it had have been a loss) was that by pre-empting the move emotions in the trade were highly minimised. The trade almost felt very “cold-hand clinical”… and this is what we ideally want as traders – to be able to know (predict) price action and then know (predict) what our (your) response will be. When it then all unfolds it’s simply a matter of following through.

Try it.

Next trade, predict what you think the market will do. From your prediction determine how you’ll react. Generally you’ll find one of three things will happen, either:

1. The market did what you said it would do and you did it
2. The market did what you said it would do and you DIDN’T follow through
3. The market didn’t do what you said

If the first option happened – great! You will continue to refine your skillset and wait for the next trade.

If the third option happened – great! You can analyse the trade and through your experience improve your skillset.

If the second option happened though, we may find there are deeper issues that need to be addressed. We need to honestly ask ourselves the following questions:

• Why didn’t I follow through with what I said I wanted to do?
  • Am I afraid of loss?
    • Was I risking too much?
  • Do I lack confidence in my method?
    • How can I regain confidence in my method? Can I demo trade for awhile? Can I focus on JUST doing ONE good trade this week? For a month? Am I over-trading my method? Am I seeing dragons in the clouds?
  • Did I put my head in the sand and hope the problem would magically disappear?
    • What didn’t I want to see? Why am I watching the screen? Do I need to be watching the screen? …

These questions are by no means exhaustive, but should start you on the right path of self-discovery with your personal disposition towards risk and the method you are using. Whatever you do, don’t put it off.

Anyway, this week we are looking at a couple of currency pairs, namely, the NZDJPY and the EURUSD. The NZDJPY perhaps more so than the EURUSD. Personally I’d like the NZDJPY to fluff around on Easter Monday so as to keep it’s current support at 66.50 as I’d prefer for this to be broken when there is liquidity in the market (banks will be closed on Monday) – without liquidity we can get pretty wild swings and this is not what we want.

As for the EURUSD my thoughts are still “tentative” as there is the concern of support building around the nice round number of 1.3000 – so I’ll probably play this one by ear as each day unfolds.

All the best for the coming week traders! As usual, if you’d like to share some thoughts please either comment below, or join the free forex price action forum here.

In this weekend’s video I share an idea about trading engulfing patterns and where to spot them especially in light of previous support and resistance areas that become NEW resistance and support areas (respectively).

Also I take a look at the currency charts to see what lies ahead and share some ideas on what I’d like the AUDJPY currency to do this week!

Anyway, I hope you’ve all had an enjoyable couple of weeks and please avail yourself of the free price action forum if you’d like to share ideas with other like-minded forex traders.

After when price rallied it hit it’s head nicely against what was previous support and now becoming new resistance. This formed a swing high which ended up moving the stop from the high of the breakout candle to being at a slight 10 pip loss point.

It didn’t take long until after this high had formed that the Cable rallied strongly on a combination of economic announcements and Bernake.

With this trade I didn’t take any reversal positions, generally reversal positions work well when the breakout fails early – not when a couple of days have passed.

For the week ahead there doesn’t appear to be any currency pairs that are looking interesting for a Monday or Tuesday break. The EURJPY & CHFJPY intrigue me, but I think their current formation might take another week. I’ll keep you all updated through Twitter if anything develops later during the week.

If you’d like to get involved by sharing your price action experiences, asking price action questions or just sharing some price action ideas, please avail yourself to our free public price action forum!

After the trade had finished, netting ~15 pips, price showed rejection of the move back ABOVE the support zone at 1.0590 and fell sharply BELOW this area and continued to fall.

This pattern occurs frequently in the forex market and potentially provides a SECOND opportunity for the astute trader to profit from the original breakout move. However, identifying the correct form of price action is key.

We clearly need to see price rejection AT or BEYOND the previous level of support/resistance on the chart to identify our second opportunity. We would then trade this by entering in at a stop level that would confirm the price move and place our stops back beyond the limit of where price went to.

We’ll continue to monitor this type of activity in our trading and will keep you update on any progress. If you trade this method or have any additional ideas about taking a second bite of the breakout pie please subscribe to our free price action forum and share your ideas. We look forward to hearing from you!

Here is the week’s trading video:

Personally I didn’t trade it.

Not because I don’t like the Loonie, but because the trade wasn’t perfectly set up for me. If it bounced, or formed a reversal candle around the 0.9900 zone I would’ve been all ears (or should that be eyes?). Sadly, the Loonie trumpeted through and I think this is why the move after the break was not prolonged – it had already moved ~90 pips getting to the support zone.

And this is something we need to consider when trading breakouts – how much has the currency already moved prior to the breakout? If we’ve already had a 100 pip move, would it be wise to think that it could move another 100 pips?

Be careful here.

If you find your breakout trading just isn’t working then maybe consider and understand that we need to look for recent bounces prior to the break. Not solely because doing so confirms the breakout zone you’ve defined, but rather it doesn’t exhaust the market – it allows the market to catch it’s breath prior to another 50-100 pip move.

And that’s what we want as breakout traders.

We want there to be a good sized move, but we shouldn’t expect it to happen if it’s already run a marathon prior to our break.

Hopefully you understand that point. It took me awhile to understand it.

So this week while there was no trades we look at the week ahead and it seems the AUDCAD is lining up for a short trade. Preference for me would be to see a slight bounce, as the trend line has really only had two bounces so far.

Here’s the video for this weekend and I hope you all enjoyed some profits this week: