EURO USD TRADING GAIN AHEAD OF STRONG REVERSAL
The EURO USD provided us with a small trading gain of 46 Pips on Thursday as we took advantage of the sharp Bullish Reversal that was predicted in December 2015. The original trading target was 165 Pips but by the end of the Holding Period established for this trade this had not been hit, obligating us to close our trade for the smaller profit. During this trade, a sharp bearish pullback had threatened our Stop Loss, coming within 5 Pips of taking out our trade.
This pullback would have tempted many to exit the trade for fear of being stopped out. However, thanks to the rule that we have of never looking at our trades while they are open, we were able to capture this trading gain as the market u-turned and rallied once more. As a result, this trade, combined with the 138 Pips from the GBP USD, has now given us a good start to 2016 with a Rate of Return of 9.4%.
The screenshot below is taken from the Private Video Analysis we did for the EURO USD in December which predicted the sharp rally.
As can be seen from the current patterns for this pair, this was exactly what occurred in the last few days. This provided us with the trading gain as we entered at one of the Bullish Candlestick Signals.
The chart below shows our Entry Setup on the 4 Hour Chart, including the original target that was set at the Resistance Boundary of the Range.
Entry and our Stop Loss placement were done using this ABC setup - a setup that was predicted a few days earlier...
Now this is where it got interesting. For traders who choose to follow their trades, the pullback that took place after entry would have led many to close the trade as the market began reversing towards the Stop Loss.
This would have led to an unnecessary loss instead of the trading gains offered by the rally that eventually took place. The temptation to monitor our trades while they are in motion is very common. It is very natural to want to ensure that our trades are heading towards our targets without any pullbacks that threaten our Stops. While this can prevent some losses, it is a habit that can affect our long-term profitability.
The Forex, like all markets, has a natural tendency to move in waves towards its daily, weekly, monthly and yearly targets. This reflects the changing value of currency pairs in response to changes in economic fundamentals and investor sentiment. It is therefore necessary for us to expect this for all our trades and not interfere. This is why it is crucial to adjust your platform so that you do not see the chart of the trade open nor the balance but only the tab that shows you whether the trade is still open.
Another important issue related to this trade was the Holding Period. Keeping our trades open for too short a period can curtail our profitability while having them open for too long can expose us open to unnecessary volatility. It is for this reason why a specific time period is used for each type of trade to establish a balance between these two extremes.
When the Holding Period for this trade had ended, we had to close the trade regardless of the floating profit/loss at the time. This decision was later proven to be accurate as you can see from the pullback now taking place.
This trade highlighted many of the important things we need to succeed at trading over the long-term. These relate to the technical factors that determine our decision to execute a trade but more importantly the emotional aspects of trading - the trader's Achilles Heel.
Watching our trades can feel like the right thing to do to ensure profitability given the volatility of this market. However, this can be a serious hindrance to success if this leads to the habit of constantly closing trades before they have a chance to hit our targets. By adhering to the rule of not watching your trades and obeying the Holding Period, you will be assured of maximum gains for each trade ahead of sharp market reversals.