Tuesday, November 29, 2011

Fear and an Earlier Counter-trend Entry on EURUSD 1Min ...creates a Reverse Trifecta.

"You can use your fear as a cue to examine your trade more deeply and adjust your confidence in the idea, up or down."

Brett N. Steenbarger
The Daily Trading Coach: 101 Lessons For Becoming Your Own Trading Psychologist, 2009, (Wiley Trading)

I have been working hard at reducing fear when I take my trades. Fear creeps up on me - usually after a losing streak. Come to think of it, even after a winning streak because I am wondering when I will give it all back.
About 4 weeks ago, I did a couple of major boo-boo's by random trading and revenge trading. Right after a good week of profits. I went crazy. Yeah - it still happens. So naturally, my account suffered an awful drawdown. The funny thing was that, it all happened in that one week. That was depressing.

So I went back to looking for clues in my own behavior, trying to face up to the painful fact that I just didn't like following rules. And yes, I did stop trading for awhile, and I just started looking through my favorite books, searching out new books and a lot of trading videos. You could call it "Forex Trading Immersion 101".

Back to the topic, I am making this month my Bossilator-Trifecta trend trade month. Meaning, I wanted to be sure whenever I took a trade, that I was going with trend on a higher level timeframe. I find that this works better for me. And that I do love looking at multi-timeframe charts to time my 1Min entry.

So higher timeframe is usually 1Hr and 15M charts - since my entry is always on 1M charts. It's just too difficult for me to sit around and wait for setups on anything longer. Contrary to that, I am working on trying to sit in on profitable trades longer. Don't know if that is something that can be done, but it's something I would like to work on. So far, I have been able to sit through and look at 5M exits so it looks like I am heading that way.

Yesterday's trade was an entry on the 1M $EURUSD (which is all that I am looking at for now). I was waiting for a Trifecta setup. This means  Bossilator of 200 or more, and a Fib-23 (23% Fibonacci Level) retrace in the direction of the trend back to the Fib-0 (0% Fibonacci Level).

Just after London open, EURUSD jumped up almost 130pips to 1.3440, hit that resistance and just decided to retrace. I came to my charts when Boss reading were 96. It was a nice high reached and a nice place to draw the Fibs. So all I had to do was wait for the Bossilator to hit 200.

EURUSD 1M with Trifecta Fibs

Guess what happened?
Yup, you can see it on the chart.

EURUSD hit the Fib-23, came back up about 15pips and fell back down into Fib-23 and broke it. Usually I would be tempted to go into the trade on the first bounce - guns a-blazing. But fear kept me watchful and rightly-so. Also Bossilator was not at 200, so I waited. And I was waiting for a stochastics cross.

And then, it did it again at Fib-38. Bounce in and whoosh back down. Playing my patience card, I was thinking, oh yeah.... just let it bounce off the 200SMA. Then I can get it when it hits the right Fib level and then I can trade it back to Fib-0.

Suddenly, it struck me.  I have seen this kind of behavior before on EURUSD.
There are times the market just decides to give back all its gains, and go against the recent major move of the day. This was one of them. So I put on my thinking hat and decided to check a few timeframes higher.

EURUSD 5M and 15M with Bollinger Bands

Would you look at that?
5M charts showed this nice stair-like pattern travelling down the Bollinger Band
15M chart showed these strange indeterminate candles(doji?) at the first Bollinger Band. And it had this looong (26pip body length) black candle that came in from the second Bollinger Band. After having hit the 1.3440 resistance. 2 candles stalled around 1.3410 and 1.3420 before that black candle.

EURUSD 5M with Bossilator
And guess what?
5M stochastics had crossed out of overbought and were heading back down!

The Change in Plan
I looked for an entry at the break of 1.3380 (key support level) or at the Fib-50.
As you can see, (back at the first chart - EURUSD 1M), I entered my trade at 1.3379. At the break of the resistance test of 1.3390. And the break of the inside-support of 1.3380. I used a 12-pip stop loss because all I wanted to make was 2:1 in this trade and it would take it just pass Fib-62. And just before 1.3350, a major support.

The Trade in Play
After what seemed like an 11mins(!) wait, it went broke Fib-50 to hit 1.3370. Then pushed it all the way through to 1.3360. Break-even was set just as EURUSD went pas 1.3365. There was a harrowing moment when it came to look like I might get stopped out at break-even. Many times in these cases, I wished I could have taken half off, but I managed to hold on to it longer because I was looking for a sign of exhaustion on the 5M and 15M charts.

In the end, I took it out at just past 2:1 at 1.3355 - which is at 24-pips. That odd candle around Fib-62 level spooked me. You can see this on the 5M chart, it's a 30pip candle with a 20pip body, and long head and tail. But I did make 2:1 so I was happy.

Post-Mortem Notes
In hindsight, this trade was just like using a reverse Trifecta to get back to the SMA800. I wonder if it's something I can use consistently.

I like using multi-timeframe charts.
I like looking at it using the Fib-Trifecta levels.
I will still have to wait for a Bossilator reading of at least 100 and a significant high.
The Fibonacci range must be at least 100 pips and more to get a good risk/reward.
Stochastics of the higher timeframe (5M/15M must be in the same direction of the trade).
Keep setting stops at break-even, and if it is at all possible to get to 2:1 without chewing off all my fingernails - then I should let the trade run for a wee bit longer.

Food for thought.

Happy Trading!