Going over my trading journal and trades I made this week, I confirmed a huge error I made on Monday while trading EUR/USD.
In my discretionary trading account, I usually like to trade aggressively with the intuition playing a major influence on trade selection. Last week as the market opened on a Sunday gap up, I expected the closing of the gap before market moved to test 1.4800 levels. So when the market did not show much movement strength, I initiated a number of sell orders around 1.4650- 1.4660 levels while keeping my stop loss at 1.4708 point.
As the day was progressing and the market was constantly dipping, I was taking small 8-12 pips profit on part of my position, just to initiate a trade again as the market would go up. Since I was looking for the price to test 1.4550 levels, I was just not ready to exit my trade completely. Even as the market was getting ready to close its New York session, I left part of my position on. I realized that the gap will not be closed, but the market would certainly dip few points before it starts to rise. So I set a profit taking at 1.4645 as the market closed Monday session at 1.4648.
Well, just by writing this, you can quess what happened. The price never dipped, and when I got up, I was looking at my stop loss to be executed!?!
First of all, while I look back at this, I have to realize I was fighting the prevailing trend. Much easier money was being made on buying on dips in a bull market (which is actually my favorite way to trade).
The second and equally important point is that I was trying to squeeze that last pip out of the market as if my whole life depended on it which was completely unnecessary. It seems that the money I was trying to make for that day was playing a crucial role in deciding when to exit my trades. I stopped paying attention to the market reactions and was only projecting my wishes and expectations. That resulted in a 40 pips loss from that should not have existed in the first place.
So what saved me, and was there anything I did right?
Well, I closed all my positions on Tuesday based on my risk tolerance level for that trade. If I dragged initial Monday trade over, I would be looking at multiple times losses as market went over 1.4800 on Thursday.
So really, trying to get every last pip out of the market did not work out for me, but disciplined exit certainly had.
Related Posts:
- Mid Week Update on EUR/USD
- Market Update – Trend Confirmations
- Week Ahead for Forex
- Trading psychology
- Trade Example
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