EURCAD 1H Bearish Engulfing Trade - Win

EURCAD 1H

To be honest I'm quite disappointed with the outcome of this trade. In all honesty, my original plan was to just let the trade run as I was very confident it would hit the origin of the first compression. That would have been like 2.5R. I only decided to TP 1/3 at the S/R flip level because of my super hate to lose egoistic personality, it wasn't even a major S/R flip! In this case it worked out well but also revealed that my profit targeting skill is inadequate. I'll touch more on that in a separate post... Well I wouldn't know whether price will fall back down again but there was no way I was going to take my chances with such a strong rebound. We can only take what the market wants to give us regardless of where we think price should logically go. Here I would rather get out with my small profits first and reevaluate.

I want to just briefly describe the merits of this setup. I seriously think it is A+. Fake breakout + PA bar + Compression + Supply zone + BRN + Divergence + Double top, it is hard to beat that. When I was nearly stopped out by the triple top, I told myself this is a setup I would take 100 out of 100 times even if it ended up as a losing trade. When the triple top + pin bar formed, I was like oh man this is it, its like free money. This is something you see only once every few weeks or maybe months, and I'll be totally shocked if it failed. I discussed about this setup before here and it is one of my favorite setups. Shorting the triple top pin would have resulted in a better RR trade than mine, taking full profits at the S/R flip level would have resulted in a 1+R trade. This chart really demonstrates the potency of this setup.

EURNOK 1H Pin Trade - Loss

EURNOK Trade

Honestly I was royally pissed with the outcome of this trade. In summary, I moved my stop to breakeven once I was about 0.5R in profits. However I was hit by a broker spike overnight which took me out for a whooping 0.42R loss. A freaking 300 pip spike, insane slippage, worst I ever had. I checked with three other brokers and while some did had a mini spike, it was nowhere near 300 pips. Look at the FxPro MT4 1H chart above, notice that the spike wasn't even there!

It annoyed me big time and I was about to call up my broker when I remembered that such things happen very often and there is no way to win the argument against the broker because Spot FX is unregulated and they're protected by written agreements.

As such, all I could do was to simmer down, reflect about it, and come up with two conclusions. First of all, I'm going to switch broker. Let me first shame this broker's name, it is CMC Markets. I checked through many of their charts (particularly the exotic pairs) and was shocked to find that such ridiculous spikes are very common. It is very obvious that the market maker is trying to gun the stops of their clients, they can easily do so because our orders are on their books and they know exactly where the stops are. How timely it is that I already set up a new broker account and had planned to switch to it in June.

Secondly, I'm going to stop trading illiquid/exotic pairs. I gave some thought to it, and asked myself this question: If I had ten million dollars to trade, would I be trading illiquid pairs? The answer is no, simply because of the risk of such black swan broker spike events. When one is managing huge sums of money, risk management is paramount and there is simply no room for such crap at all. I need to think and trade like a huge account trader. The majors and main crosses should provide me with enough opportunities that I do not need to undertake unnecessary risks with illiquid pairs. I guess you could say that it is a blessing in disguise that this happened to me now than in future when I'm trading a larger account.

How I Monitor Charts

Thought I will just create a short post to describe how I monitor charts.

I'm using FxPro MT4 for my charting so I monitor almost all the pairs (60-80+ I think, can't rem) it provides.  I put them into 5 profiles, one for the majors, two for crosses, and two for exotics. I also watch the indices and commodities charts from FxPro but I seldom trade them. For the FX exotic pairs, I only trade them on the daily or weekly charts due to the large spreads which makes intraday trading on them unfeasible. As such I only need to monitor them once a day. I have my key levels and S/D zones marked out on all the pairs. I use this Alerter (http://www.forexfactory.com/showthread.php?p=233568#post233568) to alert me when price is near any of these levels.

I realized that a fast way to monitor the pairs without switching around like a mad dog is to have a snapshot of the majors. I set up another MT4 on a separate monitor to provide me with a snapshot of some of the majors. I use AvaFX for this because they provide the Dollar Index chart as well as commodity + bonds + indices charts.

Market Snapshot

So for example if I see that EURUSD is moving, I'll check out the EUR related pairs to see if there are any potential setups. Markets are usually dull during the Asian session so if I know from the snapshot that none of the pairs are moving, there is no need to painstakingly scroll through all the crosses because they won't be moving either. Exceptions would be SGD, SEK, or NOK related pairs which I still monitor if I know they're near major levels.

Hope it helps!

CHFSGD 3H BUOB Trade - Win

CHFSGD H1

Pretty much stated everything I wanted to say in the journal entry. Again do notice how sharply and quickly price shot up the compressed down leg to the origin of the compression. This is because pro money has removed all the supply on the way down and there was no supply at all until the origin of the down move. As such there is nothing to stop price from shooting up. In fact there're a few other compression examples in the same chart, can you spot them? :) Compression has changed my trading, seriously it is such a powerful tool to have. There are some more points I want to add but I think I'll mention them in my monthly review post as they are stuff I've been thinking a lot about which deserve a post of its own.

Some Demo Trades And Core Trading Rules

Ok this post is for me to brag a little, cut me some slack as I seldom have a chance to do so :P Few days ago I suddenly had this thought: Why the heck am I not demoing more? I really believe that there is a lot to learn from demo trading, and so I've started scalping and demo trading a lot more based on the lower TFs. The goal is to get consistent enough at it so I can start scalping on my live account. So my last 8 trades on two different demo accounts are all winners atm (Hopefully not a fluke)! Of course anything can change later, but I've secured profits on majority of the trades. And I did learn a lot. Every pro trader I came across on forums will preach the same thing: there is no way to get good at trading without thousands of hours and many years of chart time. And that is exactly what I'm trying to achieve.

I also noticed that I committed many common mistakes in my demo trades. As a note to myself, I want to list the core of my trading in three points:

1. Identify S/R and Supply/Demand levels
2. Wait for Price Action bar there
3. Ensure there is space for the trade (no nearby trouble area, good RR)

All three are absolutely important, most of the time when I neglect any one of the points I'll lose, and mind you that still happens A LOT even though they seem like simple points. Of course there is a lot more, higher TF trend, big picture story, chart pattern etc, but I realized that somehow those three are sufficient to make a profitable trader.

Compression Example On GBPCHF

GBPCHF M30

Just want to share another Compression example. I was watching the pink line for PA to go short on this one, pity price started free falling before even reaching there. Again notice how sharply it fell? This is because there was no more demand left to stop price. It is important to note that once price has reached the origin of the compression, there is no saying whether it'll continue to fall or rebound. As such it is important to take partial profits or move the stop then. I must say Compression is one of the most well kept secrets in the trading arena, its just amazing why books don't teach this.

Missed Trade On EURGBP

EURGBP 1H

Just want to post a setup which I spotted but chickened out from. This post will hopefully drill the potency of the setup even deeper in my mind. Basically we had a false breakout + bearish divergence + compression + 3H pin. I've seen this combo a few times and it is very deadly, especially if the false breakout is into a supply/demand zone. As you can see when prices broke down it shot through very quickly to the origin of the compression. This is very typical because there is virtually no more demand/buy orders left to stop the down move as the pros have already removed all the demand on the way up. The fake breakout at the top was the start of it all, it was where the pros gunned the buy stops of the breakout bulls and the stop losses of the bears. This gave them the liquidity to go short.

Of course all this is easy to say in hindsight. I chickened out mainly because the fake breakout wasn't into a supply zone and there was one just slightly above. I was worried that price would want to hit that zone first before turning down. Also, price was compressing down on the 5 mins chart and I didn't want to take the risk of it going higher.

EURGBP 5min

Oh well I guess the higher time frame story trumps lower time frame observations. I don't regret passing on this trade, one of my mantra is to never take a trade if I'm having that doubtful/unsure feeling. I know that I still lack experience, my goal now is to gain as much experience as possible so that with time I'll be able to nail trades like this with confidence and ease.