Patience and Discipline in Trading

The value of patience and discipline in Forex trading cannot be overstated.  In order to be a successful trader, you must possess these two traits with unwavering consistency.  As I have gone through various phases of learning, failure, and success over the past 17 months, I have had moments and weeks where I have been extremely patient and disciplined.  However, maintaining that unwavering consistency has been one of the biggest challenges in my trading.

Lately, for a little over a month now, I have finally started to exhibit some reasonable level of self control.  I realize I have not yet absolutely mastered these essential survival skills.  Even during the past month, I experienced back to back days where I allowed myself to over-trade (the only two truly bad trading days I have experienced since mid-May).  As such,  I am constantly seeking new thoughts and inspirations for how and why to maintain steadfast patience and discipline.  I believe I am starting to turn the corner.  I find that I am no longer easy prey for the market.  I now lie in wait and take quick small bites out of the market.

So, what has been working?  What is helping me maintain my patience and discipline?  I go through a routine before each trading session.  The first thing I do is look at the lot ladder.  I must warn you, without the right mindset, this can be a double-edged sword.  The lot ladder allows you enter the number of pips you expect to average per day (along with some other variables) and then see how much money you will be making each week if you climb the lot ladder one rung at a time.  The reason this is so dangerous is that you can make the mistake of raising your daily pip goal so that you can make huge money so much faster.  This is completely counter-productive as it leads to over-trading, not covering profits, etc.

However, I have set my daily pip goal at the Fx365 Institute's long-time suggestion of just 7 pips a day.  Once you have been trading on the Smart Money Profile platform for some time, you know this is truly a modest goal.  Before any trading session, I look at where this highly obtainable goal can take me.  Here is a screen shot of what one part of my lot ladder looks like:

I take a few moments to really focus on the truth that averaging just 7 pips day turns a $1,000 account into a $20,000 a month income in a ridiculously short time frame.  I mean, this is incredibly powerful stuff.  It helps me cover smaller trades rather than trying to swing for the fences.  I still need to get better at not caring if the trade runs another 30, 50, 100+ pips.  It's tough knowing that I could have made my whole week on one trade, or hearing that someone else pulled a 40 when I had better entry and only pulled a 10 or 20.  However, I come back and look at the lot ladder again and realize I only need 2-4 of my modest winners a week.  I have to always remember, trading is a long-term race.  By taking those smaller positives, I avoid taking negatives that make it harder to reach my goal.  Then, at the end of the week when I have made my goal and am moving up the lot ladder again, I am one week closer to the financial freedom that $20,000 a month brings.  Isn't that the whole idea?

My other monumental struggle has been to avoid over-trading after taking a negative.  Now, although I am making significant progress towards trading at indifference, there are still times when I take a negative trade and literally feel the stress prickling through my body (what a horrible feeling).  When this happens, I absolutely must exhibit tremendous discipline and STOP TRADING until I have calmed down.  If I look at where I want to be by the end of 2015, I ABSOLUTELY CANNOT ALLOW MYSELF TO DAMAGE MY ACCOUNT.  

At those crucial moments, I lean on something Fx365i's Head Trader Wade Guth once told me.  He asked if I was planning to trade tomorrow.  I said yes.  He asked if I was planning to trade next week.  I said yes.  Next month, next year, etc?  Yes, yes, and yes.  So he asked me, "Why on earth would you get worked up about one trade or one negative day?"  I also reflect on Shane Guth recently telling me that the biggest thing he NEVER wants to do is let one bad day cause him to lose his buying power.  Live to fight another day!

Over this past month, I have also started telling my wife how my trading went each and every day.  She has believed in me and allowed me to stay on this journey despite several months without positive results.  Believe me, it is not easy to tell her when I am down for the day.  However, when I have taken a couple of wrong trades and walked away with relatively small losses, I can proudly tell her I kept my discipline and didn't throw money out the window like an idiot.  Knowing I will have to report to my wife on a daily basis helps me maintain steadfast discipline and patience in my trading.

One last thing I think about is basically a lesson from Rhonda Byrne's famous book, The Secret."  The Secret teaches that if we want something, we have to hold it in our mind's eye, believe we have already obtained it, and be fully grateful for having received it from the universe.  So yes, I am thankful for my huge trading account.  More importantly, I am thankful for being a highly successful trader with tremendous patience and discipline.  I know I did not get to this point by getting emotional and overreacting at every unexpected twist and turn in the market.  I am thankful for the self control and confidence that made me the trader I am today.

I realize the lot ladder may not help everyone.  Of course everybody is not married or willing to discuss their daily results with their significant other.  I also know that not everyone has the same view of The Secret as I do.  That is not the point.  What is important is that I have found ways (and will continue to seek and find new ways) to exhibit patience and discipline in my trading.  If you are struggling with patience and/or discipline in your trading, maybe you can use one of my tools.  Some of you will have to come up with something totally new that works for you.  The key is to find something that truly resonates with you - something powerful enough to give you the internal fortitude to do the right thing in the face of strong negative emotion.  Once you find ways to be patient and disciplined, you will be much more likely to survive in the unforgiving Forex jungle.

Two quick notes:
1) One other thing that has helped is writing this blog.  Thank you so much to everyone who reads it and especially to those of you who reach out to discuss your own trading experiences with me.  Thank you, thank you, thank you!
2) In regards to the 7 pips, you may be saying, "Well what about the commission?"  On my personal spreadsheet, I subtract 1.5 pips from each trade to come up with what I call "net pips."  This number will vary depending on the pair you trade and whether you are in a micro account.  I can help you figure out the exact number if you need help with this.

As always, please feel free to reach out to me at pipaddict73@gmail.com.  I LOVE hearing from fellow traders!

-Cyrus Sidhwa
Smart Money Profile Trader

Fighting #FOMO

#FOMO = Fear Of Missing Out.  Fomo is a serious killer for an SMP Trader.  

When you succumb to fomo, bad things happen.  The number one issue caused by fomo is massive over-trading.  Over-trading is deadly, so always remember: TRADES ARE GOING TO GO BY WITHOUT YOU AND IT'S OK!  THERE WILL BE MANY MANY MANY MANY MANY MORE TRADES.  When you overcome fomo, you can now wait for clear market conditions with a well defined directional bias.  Once direction has been established, wait for an opportunity like a good pullback, focus on getting great low-risk entry, and just let the directional bias take the trade in your direction.

By overcoming fomo, you end up taking far fewer trades because you are not jumping at every little whiffle and tick in the market.  When you become more selective about your trading, you only enter the trades you feel most strongly about.  Winning trades happen when a trader first gains a strong understanding of the current market conditions and then develops a strong belief about what is about to happen next. 

You do NOT want to tangle with
the dreaded Fomomonster

The #fomomonster can also cause a trader to start foolishly trying to call the turn.  The reason fomo starts causing you to call the turn is that you're afraid that this one little area of resistance might be the place that the market suddenly turns around.  You start thinking, "What if this is the new low?  It could be a huge trade.  I don't want to miss out on that...."   Calling the turn against a clear directional bias is one of the most frustrating and fruitless endeavors on earth (ask me how I know). If you want to steer clear of the monster, ONLY TRADE WHEN YOU HAVE STRONG EVIDENCE TO SUPPORT A MOVE IN FAVOR OF YOUR DIRECTIONAL BIAS.

If we focus on getting great entry, we can keep our negatives quite small.  If we avoid the fomo and only enter trades when we have a strong belief about the upcoming move, we will combine smaller and less frequent losses together with larger, more frequent wins.  Now that sounds like the winning recipe for trading success to me!

I love hearing back from fellow traders!  Please email me at pipaddict73@gmail.com.

-Cyrus

Risk Management Salvaged My Week

Quick Note: I have only posted my last couple of entries onto the Fx365i website's blog.  I will be adding those posts onto this blog soon.  I will be keeping both up to date.

Risk management really saved me from having a truly terrible week last week.  My win-loss record was only 3 wins vs 9 losses.  One of those wins was less than 3 pips.  Without solid risk management, I could have seen myself down a boatload of pips.  However, I managed to keep it together and was down a relatively modest 19 pips for the week.  Obviously I'm not proud of going 3 for 12 and being down for the week, but I sure am glad I kept my losses under control!

After trading for a year, I've heard some different theories on risk management.  Some people say you have to give a trade a fair amount of room.  Trying to decide just how much room is "fair" depends on where you "know you are wrong."  I believe this is a concept that takes screen time to fully understand.  In order to avoid taking large losses with this theory, it is critical to have sharp, well-placed entries.  If you chase a trade, it can be a long ride down to find out you were truly wrong.  We'll talk more about this in a minute.

Another theory I've heard is that as soon as a trade doesn't behave exactly as you expected it to, get out of the trade.  The problem is this isn't our business - it's the market makers' business.  If we knew exactly how trades were going to behave, we'd all be batting a thousand!  However, this concept certainly has a lot of merit.  As is so often the case, it's the subtle nuances that make all the difference.  For example, in an SMP trade, if you get a market maker dot, and you expect price to hold below that dot, if price gets above the dot, Dump The Trade!  The same idea holds true for Wealth Smart traders taking a trade up against trend break.  It's so tempting to just want to be right and let the it play out further... only to watch the trade go further against you.  To be successful, you must not only plan a trade, but you must then trade that plan.

I have also heard a theory that you should run a large stop, sometimes as large as 30 - 50 pips.  The thought behind this is that if you see that the trade is going against you, at some point it will take a breath coming back your way and allow you to get out without as big of a loss.  This is one theory that absolutely doesn't work for me on multiple levels.  First of all, if you run a huge stop, guess what?  PRICE CAN HIT IT!  Ask me how I know.  Nearly every time I have taken a large risk on a trade, I have hit my stop.   Additionally, when it does start breathing back in your favor, guess what?  You don't want to get out!  You feel like the trade is finally going your way and you decision to run such a large stop is paying off.  Until 10 seconds later when price snaps hard and stops you out.  To each their own, but that style of risk management is definitely not for me.

I truly believe you have to find your own style of trading and your own style of risk management.  I like to run a tight stop.  In fact, my stop is set at just 10 pips.  On most of my trades, I will almost immediately tighten my stop up even a couple more pips.  A huge part of the reason for this is that I am absolutely useless at clicking out of a trade when it is going against me.  Whether it is pride, ego, blind optimism, or just plain stupidity, I constantly find reasons to stay in the trade.  However, if I have moved my stop to  minus 6 or 8 pips, I no longer have to worry about it.

Now, I also believe setting my stop at a place where I know I was wrong about the trade.  In order to accomplish this, I truly have to focus on my entries.  For example, I frequently want to enter close to a market maker dot (if you are a Wealth Smart trader, think about trying to get in close to trend break).  Let's say we're trying to go long.  The further price moves above that dot, or above trend break, the larger the negative we would have to take before knowing we were wrong.  Why?  Because we would know we were wrong when price moved below the dot or snapped short through trend break.  If we entered the trade 10 pips above the dot or trend break, there is too much risk.  If we entered 2 or 3 pips above, we have managed our risk much more efficiently.

Well, I hope this is helpful to fellow traders.  Find your own style of risk management that makes sense to you.  As for me, I need to consistently stick with my risk management principles.  But to tell you the truth, I'm sick of talking about losing.  I need to be more patient and find better trades.  Hopefully over the upcoming weeks, we can discuss when to exit trades for profit!

I always love hearing from fellow traders.  Please reach out to me at pipaddict73@gmail.com.  

Happy Pip Hunting!

11.13.14 - SMP Trading Rules

I was shocked by the news yesterday when I heard that the banks manipulate the Forex market.

HAHAHAHAHAHAHA!  

Yes, that was an attempt at a little currency trading humor....  It actually was really funny watching non-traders who heard the news come up to me throughout the day and ask what I thought about this terrible manipulation of the banks.  When I tried to explain that the Smart Money Profile (SMP) software actually tracks the market maker's manipulations, and that our entire trading methodology is based around understanding their manipulations, I was met with many blank stares and looks of confusion.  I am eternally grateful to Wade and everyone involved in creating SMP.  It is an absolutely amazing tool.

By the way, before we get to the main topic of the day, I want to say that I was fortunate enough to have the opportunity to sit down and pick the brains of someone who I would venture to say is well on his way to becoming one of the best traders in the world.  The funny thing is, most of you already know him.  I'm talking about Ira Barnes.  Being the humble person that he is, Ira does not frequently toot his own horn, but you should know that for several weeks now, Ira has been averaging hundreds of pips per week.  Yes hundreds.  Week after week.  These pips are all pulled by using information found exclusively on Fx365i's incredible Wealth Smart trading platform.    In one of my next posts, I look forward to sharing with you some of the wisdom that Ira shared with me. 

Well, on to the main topic for the day...

Over the past couple of weeks, I have found myself in a bit of a spin cycle caused by some serious over-trading.  This is very disappointing to me because I have been at this long enough now to know much better.  Hell, one of my first blog entries was about how over-trading got me into an epic slump.  Fortunately I did not enter those horrific levels of deep abyss this time around and I am bound and determine to control myself.  All I want to do is create sustainable winning trading habits and profitably move up the lot ladder.  Nothing else matters.

As such, I have created a new set of trading rules for SMP.  There are no earth shattering concepts here... just good trading habits and common sense.  I have pasted them below exactly as I have written them out for myself.  The real challenge of course is not in just writing them, but in following and LIVING them every single day.  That said, I am extremely glad I wrote them down because it gives me a reference point and something to live by.  I imagine the rules will continue to evolve, so I would love to hear any feedback about them.  Is there anything you would change?  Do you have your own rules written out?  If you'd like to share them, or any other thoughts, please email me at pipaddict73@gmail.com.  Happy Trading - I'll see you soon!  Here are my SMP trading rules pasted directly from my Evernote:

These rules are not made to be broken.  They must be followed.  If you follow these rules, you will create an amazing financial life.

1. LET THE TRADES COME TO YOU
2. ONLY TAKE TRADES YOU UNDERSTAND
3. LET THE TRADES COME TO YOU
4. ONLY TAKE TRADES YOU UNDERSTAND
5. PRACTICE OUTSTANDING TIGHT RISK MANAGEMENT ON EVERY SINGLE TRADE
   • You will be wrong on a decent amount of trades
   • If you keep those negatives averaging 8 or less pips, you can win big with the SMP software because you will hit a good amount of 20 pip trades and also hit some much bigger trades
     • Tight risk management is an INCREDIBLY important element in long term sustainable profitability.
6. BE PATIENT
   • Wait for something you understand
   • Everything else is gambling.
     • You are not here to gamble, you are here to profitably interact with the market makers business model
   • Until you have new information, stick with your directional bias 
   • Do not get bored / sloppy and start trading both ways
7. DON'T OVER-TRADE
   
   • Only enter trades that you believe have at least a 15 pip potential.  Ideally, look for 20+ pip opportunities.
   • Wait for what you believe is the real entry.  If you happen to miss it, so be it.  There will be many many more trades.
   • Don't shoot all your bullets at one opportunity.  If you are wrong once, twice at the most, wait for more information.  If it happens to go and you miss it, it's OK... there will be many more great trading opportunities.
     • Not over-trading is another INCREDIBLY important element in long term sustainable profitability.
8. GET GREAT ENTRY
   • When you see a set-up you understand, be decisive and act quickly in order to get great entry.  
     • For example, if you are getting in because price is going through a dot, get in as soon as price goes through the dot, don't wait for 5 pips of confirmation.
     • This allows you to maximize profit potential and run very tight risk management
9. DO NOT TRY TO CALL THE TURN!
   • Only trade in the direction of your directional bias
10. EXIT TRADES WITH SOUND REASONING
    • If you are up in a trade and the trade stalls / reaches a decision point / reaches a point where it is likely to take a breath:
      • Move your stop so you have zero exposure.  This means setting your stop at +1.5 pips so you are able to pay your commission and still walk away with no loss.
      • Once you have moved your stop, decide if you think it is likely that price will move back to reach your stop.  If you think there is a decent likelihood, then take your profit before it starts to breathe against you
      • If you believe you are just dealing with a breath in what can potentially turn into a much bigger trade, and that price is unlikely to come back to your stop, stay in the trade.  If you are wrong, you take a zero.  If you are right, this is how you pull huge trades.
        • NOTE: Do NOT get out just because price action is making you uncomfortable or you will be minimizing your profits.  Do NOT watch the trade stall, decide you're going to stay in the trade, let it back up 10 pips, and then get out.  Either let the trade play out, or get out at the stall, but don't let the market makers manipulate you into giving up 10-20 pips and then get out just when the market is about to turn back your way.
        • IMPORTANT: If you get new information that tells you you are more likely to be wrong, then get out of the trade with as much profit as possible - there is no reason to let it go back to your stop if you have new information
    • If you did not get great entry in a trade and it is stalling at a decision point, you did not earn the right to stay in that trade.  Take the profit and get out.
      • The only exception to this is if your intuition strongly tells you that the trade will keep going your way.  Make sure your stop is in a place where you have very little to no exposure.
11. USE YOUR INTUITION
    • If it makes sense, but something tells you it's not right, don't take the trade.  Be patient.  There will be tons of great trading opportunities over the coming days, weeks, months, and years.  Let them come to you.  If you miss a trade, you miss it... so what?  There will be tons more trades.
12. LET THE TRADES COME TO YOU
13. ONLY TAKE TRADES YOU UNDERSTAND
14. LET THE TRADES COME TO YOU
15. ONLY TAKE TRADES YOU UNDERSTAND
16. LET THE TRADES COME TO YOU

10/16/2014: Great Day of Trading Despite a Mistake... The Debate That Raged Within

I am thrilled to be able to say I was up 56.4 pips today (Thursday)!  As someone who has struggled mightily with my trading, I now feel that I am starting to turn the corner and become a consistent, disciplined, and profitable trader.  It feels GREAT to have made my goal for the week.  

I took three trades today (Thursday morning New York session).  All were to the short side.  I took a +19.7, a +6.1, and a +30.6.  I could talk for ages about all three of these trades, but this post will focus on the first trade of the morning.

I had tried to trade the Aussie session from around 6:30 - 9:00 on Wednesday night and it was flat as a table (by GBP/AUD standards).  One of Wade's great pieces of advice about the Smart Money Profile (SMP) software is to pay close attention to where the market is at in the volume curve.  Usually the market is pretty wide awake during that Aussie session.  However, while I was watching, the volume on the hour stayed almost exclusively dark blue.... ice cold.  This really helped me stay out of the market.  Sure there were some pips to be had as the market rolled back and forth in a 30 pip range, but I stayed true to my trading plan, exercised some discipline and stayed out of the market.

This morning I got online at around 5:05 am pacific time.  The first thing out of my mouth was, "Ohhh Nooo!"  Why?  I saw the market had run up over 200 pips!  I was ticked off.  On Wednesday morning I had seen an excellent entry, but didn't pull the trigger on a trade that would have paid at least 50 pips.  On Wednesday evening, there was nothing to trade.  Now I come in on Thursday morning and the market has already made it's move?  What??

I realized had a decision to make.  Was I going to be an idiot and stay upset, or was I going to exhibit some emotional intelligence and get ready for the next move?  Thankfully I chose the latter.  I pulled out Wade's awesome Trading Questions and started evaluating the market.  Here's what I noticed (see screen shot below):

1. As the market continued to run up, price on the buy side went above 1.8400 to open up a bunch of retail trader longs.  The market makers then snapped it short by about 18 pips to stop out all the longs that opened up at the double zeros.  Then they took the sell side up to about 1.8408 to open up a bunch of longs again.  Then the market makers snapped the market short all the way down to 1.8357.  If the 18 pip stop taking didn't get you, the 51 pip smash definitely knocked you out.
2. At this point, my intuition told me that I should be looking for a retracement so I could get in short.  I was conflicted because the market had pushed up for several hours and I felt like I was trading against the overall trend.  However, I trusted my instinct and looked to see if we would get a retracement back close to the market maker activity dot from 5:45 at 1.8389.  I wasn't sure if price would go there, or go all the way back up to the blue liquidity line at 1.8402.
3. Price hit 1.83988 on the 6:20 candle and turned - basically right at the average price.  However, because I wasn't sure where price was going to turn, I was nervous to get in right away when price started to turn down off the average price dot.  

• I finally got in going short at 1.8380 - not great entry, but not terrible.  It was pins and needles for the first 7 minutes because price actually went back up.  It got as high as 1.8391.  However, because price had not really cleared the average price dot, I did not have any confirmation that I was wrong in the trade.  I am proud to say I did not allow the fact that I was uncomfortable with price get me out when the overall story had not yet changed.  After a few white knuckle minutes, price pushed down nicely for me and quickly reached 1.8350.  
• As so often happens around power numbers, price then backed off.  This is where the debate started raging in my head.  Once we hit the power number, things seemed to be happening at warp speed.  Although not terrible, I did not exhibit the best decision making here.  Here were my options as I saw them:

• Option A: Move my stop so that if price backs all the way up to 1.8380, I get out with a zero.  In actuality, this was my original trading plan and I had already moved my stop to 1.8380.  I had no risk of losing anything of significance and the potential upside to staying in the trade was huge.  My target when I got in the trade was the yellow liquidity line all the way down at 1.8280 - so I had a legitimate shot at a 100 pip trade!  Obviously the market is going to breathe during a 100+ pip run, so the fact that it took a breath at the power number was not a surprise.  If I'm ever going to learn to pull 50's, 75's, and even 100+ pip trades, I have to learn to stay in the trade and be willing to take the chance that the trade doesn't pay me at all.
• Option B:  Get out right when price started to hesitate after hitting 1.8350 and book 30 pips.  There certainly is nothing wrong with booking 30 pips!  My goal for the week was 35-50 pips and, after a slow week, I could have reached the low end of my goal with that one trade.
• Option C:  Options A and B were both pretty good.  Unfortunately, I went with option C:  Let the market breathe back and once the price action makes me uncomfortable, allow the market makers to bully me out of the trade.  Yes, this is the exact behavior I managed to avoid at the start of the trade.  
• Now, don't get me wrong, I was pretty happy with my 19.7 pips.  However, it turned out to be dumb because the market only breathed back about 1 more pip before it took off again (doff of the cap to the market makers for their skill at getting people out of trades).  
• Now you may say that hindsight is always 20/10 in the market and you'd be right.  The real reason it was dumb was because I gave up the upside AND gave back 10 pips for no reason.  If I'm not going to have the stomach to stay in the trade, then as soon as price starts stalling, especially around a power number or another sticky point like average price, then I should just get out of the trade.

So, other than sheer panic, why did I actually get out?  Here's what I was thinking in the moment.  I knew that when the market makers tapped 1.8350, there was a chance the market could breathe back significantly.  Knowing that the target for the trade was over 100 pips short from the start of the move, I felt there was a good chance the market might breathe back much more than 10 pips.   I thought it very possibly could breathe all the way back to 1.8375.  

Now, remember, my entry was 1.8380.  If price did retrace back to 1.8375, there was a great chance it could stop me out and I really didn't want to end up with a zero or 5 pips.  Thanks to both Shane and Wade's teachings, I am constantly asking myself, "At what price will I know that I was wrong about the trade?"  In this situation, I would not have confirmation about being wrong until price would have gone north of the original average price of 1.8389.  This means I would have been forced to have my stop up over 1.8390 in order to truly know that I was wrong about the move.  There was no way I was willing to see a +30 in the trade and take a negative 10-15 pips.  

So in my mind, it didn't make sense to risk letting the trade back up to 1.8375 because I wouldn't even know that I was wrong yet.  I also wasn't about to set my stop up over 1.8390 and take a big negative.  As I look back now, this tells me that the best option for that trade would have been to take the 30 pips.  Now, if I would have had truly pristine entry up around 1.8388, then I would have had the ability to let it breathe back to find out if I was wrong without taking more than a 5 pip negative. 

I hope and expect it will soon be a common situation where I am up a significant amount of pips and then have to decide whether to stay in a trade or get out.  Right now, it's tough to imagine being up 20-40 pips and being OK with giving it all back.  As such, I believe I may err on the side of caution and book those profits (hopefully without giving back 10+ like today).  While I definitely want to pull bigger trades, I am also highly fearful of losing those pips because it is not yet commonplace for me to be up 30+ pips in a trade.   As I gain more experience with SMP, I believe I will start encountering this situation more frequently.  As such, I hope over time it will become easier to stay in the trade because I will have the confidence that I will be up 30 again soon.  

Well, it sure is awesome to have made my goal, made 56 pips, AND learned a valuable lesson all in one morning session.  What a great day!  I'm planning to watch the market tomorrow, but I'm not pulling up my rate indicator.  Heck, if I'm tired enough, I might just sleep in like a wild man until 6am (welcome to the west coast student trader's lifestyle!).  On a serious note, I hope your trading is going well.  If you are struggling, please reach out to one of the instructors.  These guys know their stuff, but they can only help you if you are open and honest with them.   Also, please feel free to connect with me any time at pipaddict73@gmail.com.

All the best!

10/8/14: PM Session, Pulled the Trigger... but Made a Very Costly Error in Execution.... Another Lesson to Learn

There was extremely high news this afternoon at 5:30 pacific time when the Aussie unemployment figures came out for the month.  I wasn't sure if I'd find something to trade, but I sure did!

Take a look at the 5 Minute Chart.  The first thing to notice is that in the roughly 45 minutes preceding the news, the market makers created a long belief.  In fact, they took price just north of 1.8300 to open up what had to be a ton of long trades sitting at the double zeros.  Their next move was to challenge that belief.  Although it doesn't look like much on the chart, in the last 6-8 minutes before the news, they actually moved the market down by 17 pips.  So, very subtly, they opened up a ton of trades and also stopped out a ton of those traders out with a nice little liquidity swap.

Then at 5:30, it was time for the fireworks!  With absolutely no fake short, the market spiked up 71 pips within the first 2 or 3 minutes of the 5 Minute Candle (maybe even quicker).  This was very difficult to interpret.  Except for one thing.  Take a look at the Hour Chart and notice that the amazing SMP software had thrown up both a dot, and more importantly, a blue buy-liquidity line.  Incredibly, during this wild push up, SMP's brand new liquidity line was spot on.  In fact, price only crossed the line by 4 pips before price started pushing down.

I was still a little unsure about what was going on, but price fell pretty far short.  It came back up and was pretty whippy - all during that first 5 Minute Candle.  I remember looking at the clock and laughing because it was only 5:32 - let me tell you, the adrenaline was flowing!  After a little while, I realized that the since price wasn't pushing back past the blue line, we had already received a pretty strong clue that the market might push extremely hard to the short side.  I was hoping it would breathe back and give me a decent entry.

Luckily, price did breathe back up and I finally got in a short trade at 1.8339. The trade never went against me and I was soon up roughly 15, maybe 20 pips.  I had some phenomenal potential profit targets as indicated by the arrows I have drawn that are pointing at the yellow liquidity lines.  I knew that if the market makers manipulated the market that hard, it was a great opportunity for a HUGE run.  For risk management,  I had moved my stop so that the worst thing that would happen was I would break even.  So far... great job Cy!  But then, at the first sign of adversity, I fell apart.

The market breathed back.  I got out of the market with an 8.8 pip trade.  I have to tip my hat to the market makers because they are damn good at scaring woosy little traders like me. The amazing thing about this is that I literally got out at the exact very tip top of the breath.  How exact?  Within 0.1 pips.  Yes, if I would have had one tenth of a pip more guts, I would have pulled at least a 60 pip trade... in 15 minutes.  I honestly don't really fell like I pulled an 8.8, I feel like I left 50-110 pips on the table.  

The Trade Exit section of Wade's Trading Questions asks, "Do I have a sound reason to get out, or am I just feeling uncomfortable due to the current price action?"  It also asks, "Am I exiting this trade based upon emotion or based upon a sound reason looking at the current chart content?"  It is amply clear that I got out of the trade because I felt uncomfortable and WOOSED OUT!  

So once again, the SMP software showed us an amazing entry into a trade.  The lesson I must take from this is if I have excellent reason to believe there is a possibility to pull a monster trade and the worst thing that can happen is I'm going to take a zero... STAY IN THE TRADE!!!!!  I hope anyone reading this can learn the same lesson without making the same dumb mistake.  I must say I am glad to be reading the software reasonably well, but I clearly need to work on my execution.

As always, I'd love to hear your comments.  You can comment on the blog, or reach me at pipaddict73@gmail.com.

10/8/14: Arrgh, Missed My Entry On a 40 Pip Trade... Lesson Learned

Well, I sure blew it this morning  The one good thing about the morning session is that I read the market correctly.  The bad thing was I tried to be too exact with my entry.  I think anyone trading SMP can benefit from reading today's post in order to avoid making the same mistake.  In fact anyone trading the WealthSmart suite can apply the same concept to a pullback getting close to trend break.  Here's what happened...

We started watching the market on the Smart Money Profile (SMP) Webinar at 6:00 am (as represented by the purple line on both the Hour and the 5 Minute charts).  As you can see from the hour, we were clearly only looking for long trades.  When the market pushed short and then showed us the green dot followed by the yellow sell liquidity line (shown by the arrow on the 5 Minute), I was looking for the classic 1,2,3 market maker move of creating belief to the long side, challenge of that belief, and then the real move in the original direction.

In the screen capture below, you can see that all three of the phases happened very quickly (please forgive my rudimentary numbering).  This should have been a really easy trade for me to get into.  1: Price pushed up to create the long belief, 2: it snapped short exactly to the yellow liquidity line, and then 3: BOOM! It took off long.   

My problem was that I was looking for price to snap short about 5 pips below the yellow liquidity line before I was going to enter.  As you can see, price never went much more than a pip (if that) below the line.  Now, there is nothing wrong with waiting to see if price goes a little further through the liquidity line in order to get the best entry possible.  However, my real mistake was that as soon as it started to go my way, I should have recognized that my entry was right then and there.  Instead, I kept waiting to see it back up again and go 5 pips below the line.   

By the time I finally admitted to myself that I was wrong, I was waaaay late to the party. I foolishly jumped in super late.  At that point, I had no tolerance for any type of a breath back, so once I saw my stupid little +3, I decided to take my profit.

So, the good news is that I did read the market correctly.  The bad news is that despite seeing the market almost perfectly, I failed to see that it was going my way and didn't get out of my own way fast enough to pull the trigger.  As LaCurtis and Ira have preached many times, you don't want to get married to a trade if it's going against you.  In this case, I shouldn't have been married to a certain spot in a pull back just because I thought it was going there.  The trade showed that it had turned in my desired direction and I absolutely should have entered.  As Wade likes to say, it's not my business, it's the market makers' business - what a great reminder of this fact!   I strive to learn from these mistakes and continue to do better moving forward.

As always, comments are appreciated and I can also be reached at pipaddict73@gmail.com.  Have a great day out there!