Saturday, April 30, 2016

Week in Review: 25 April to 1 May 2016

I ended the week slightly down. There was a big move on JPY pairs, and unfortunately I was on the wrong side. However, I mitigated my risk so it could've been worse. Without further ado...


There was a bullish engulfing candle on Friday 22 April. It looked like bears were getting trapped to me, so I went long during Monday's open, with a wide stop loss at the bottom of the engulfing candle. I'd set my reward at 0.67R, just below the next level of resistance. I normally don't aim for rewards less than 1R, but my backtest has shown that this signal is still profitable with a 0.67R reward.

Just prior to the Bank of Japan monetary statement on Thursday 28 April, I tightened my stop loss to just below the mid-week pinbar. Central banks can be your best friend or your worst enemy. If the BoJ was favourable to me, then price should shoot upwards without looking back. If the BoJ was unfavourable, my tightened stop loss would get me out quickly.

It just so happened that the Bank of Japan's statement was unfavourable (hawkish for the JPY) and I got stopped out within three minutes, literally. 

My original risk was 1.5%, but due to my tightened stop loss, I ended up losing 0.61%, or 0.4R. 

Profit: -0.4R


This was basically the same trade as the USDJPY. I spotted a low-volatility pinbar touching 125.500 and figured that if this level broke, then the EURJPY should shoot upwards. However, I knew that this trade would be highly correlated with the USDJPY, so I reduced my risk (or position size) to 0.5% for this trade.

While price did break through 125.500, the BoJ statement on 28 April reversed the breakout and hit my stop loss.

What's interesting is that price came within 4 pips of hitting my profit target just before the BoJ statement. There's a lesson here.

Profit: -1R


Lesson #1: Tightening the stop loss before a major news announcement can work if placed at a logical level (a good stop loss should give price enough space to "breath" for the first minute or two after a major news release, but also get you out quickly once the market has made its decision).

Lesson #2: Sometimes close enough is good enough. Price came within a few pips of my profit target on the EURJPY before the BoJ announcement. Basically I was risking my entire trade + the floating profit, just to win a few more pips if news came out in my favour. Closing the trade, tightening my stop loss, or moving my profit target upwards would've been better options (my preference would've been to close the trade and pocket the profit). 

Lesson #3: Reduce risk when there's a good chance of correlation with existing trades. 

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