September 27 Forecast Comments
To lose $1200.00 or make $225.00, that is the stop loss dilemma.
The other evening I mentioned that I took the usd/nzd on a rather "blahhh" Monday evening. Last night I finally took a profit of 21 pips plus the swap after being down $1200.00 at one point. I could have made more if I was not in bed when the pair jumped back into profit.
So there are 2 issues here. How the Forecasts work, and when to place stop losses.
The Forecasts hit the vast majority of times within the first 24 hours. However, on the days that they don't hit, they have a remarkable track record of hitting within 24 -72 hours. It is during those times that you must be patient and determine whether a catastrophic event is happening. That is not to say you won't hold onto a position longer. (I have a gbp/jpy position open since September 8)
I explained the use of my daily chart set-up yesterday, and I used this set-up in conjunction with the forecast to monitor the situation. If the "magic" lines (rsi/ma) had started to go strong parallel against me, and the forecast looked bleak I might have changed my conviction. But I felt fairly comfortable that I did not have to hit the panic button. I had plenty of money in the account, only 1 trade and plenty of room to stick to my guns.
Now the stop loss. Had I put a stop in, I would have lost $1200.00 the first night, no ifs, ands, buts or maybes! Was it worth risking $1,200 to make $225.00. To be honest, that could be debated and i would probably lose. But I am a firm believer that the risk reward ratio in the Forex is unlike any other market. And fear of the loss, along with over trading and insufficient capital is the achilles heal of the new trader.
In the past, I have made 2 grave errors with stops.
In riding trades into deep profit you would think," How can I lose?". Inevitably you see your account spike up to a desired level, quickly retrace, and in your mind you feel if you sell now, you have lost that extra profit. Before you know it, you can be wiped out and then some.
Thus, I now swear by the trailing stop. Once I am into profit, I let my stop move from my original profit level and push further into profit. I let the stop trail by 15 -25 pips depending on the currency pair, and if it backs up on me, so be it. I take the profit at that point and run.
The other error I used to make is the panic stop. Jumping into a trade, putting a stop on in case it backs up on me right away, and then losing 10, 20, 30 pips. This practice will slowly bleed the life out of you.
Was I lucky the other day with the nzd/usd? I would take the position that luck is the residue of hard work. And this Forex stuff is hard work!
Have a great weekend. We survived another month. I think October should break us out of this choppy market. Until then trade with a tight profit margin in place, and don't be afraid if your trade does not hit in the first 5 minutes. This is a game of mental endurance.
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