6 March 2012 - AUDJPY, GBPUSD, silver finish in the black

I opened three trades last Friday and Monday and all closed in profit. However, all three were closed when my trailing SL was hit.

AUDJPY

Profit = 38 pips.

A textbook pinbar formed around resistance on Friday's close. I decided to put a pending short on the break of the pinbar, which was triggered on Monday. My TP was the next level of support below it.

For this trade, I decided to use a trailing SL equal to 50% of TP. Essentially, once my trade is halfway towards my target, my SL would move to breakeven, making the trade riskless. Any further movement in my favour would pocket some pips.

However, there is always the chance of a retracement taking out my trailing SL before price reaches TP. This is precisely what happened, if you look at action over the 4HR time chart. My SL was hit, and then downward movement continued.

Daily Chart:

4HR Chart:

GBPUSD

Profit = 49 pips.

It's a similar story with the GBPUSD. My trailing SL was hit, but retracement has been much more significant. Price fell short of my TP by about 7 pips before reversing and hitting my trailing SL.

Silver

Profit = 20 pips.

Price moved a little over halfway towards support before retracing and knocking out my trailing SL. My profit was about 20 pips. Since then, price has begun moving downward again. My belief is that it will continue to trend downwards but anything can happen.

Thoughts

Trailing stop losses do increase your vulnerability to retracements, but it also minimises your losses if price truly turns against you and converts a losing trade into a (slightly) profitable one. A trailing stop loss also helps to maintain a reasonable R:R ratio as price moves towards your take-profit target.

Suppose we look at the following USDCHF chart and decide to trade the pin bar formation. If we use a static stop loss and price moves towards our take-profit, you'll see that our risk expands while our reward shrinks. A trailing SL will move our SL as price moves in our favour, helping to keep our R:R in check.

1st March 2012 - USDCHF hits SL, pinbar on GBPUSD

USDCHF

I was feeling a little uneasy when price continued to meander around support. The support level held and the bulls eventually won, hitting my SL.

The trade was offering a good reward-risk ratio so I can't complain. One likely mistake that hindered probability was the fact that I was trading the break of the inside bar INTO a support level, rather than PAST it. A better entry may've been the break of the first bearish candle that had hit support (24th Feb). An inside bar that falls short of support or resistance is a sign of market hesitation / consolidation. Either the market doesn't know what to do or the big buys are accumulating positions for a reversal. Thus an inside bar that falls SHORT of a support or resistance level may be traded as a reverse signal, rather than a continuation. If the break of an inside bar occurs BEYOND a support or resistance level, then it should be traded as a continuation signal. My lesson for the day.

GBPUSD

A textbook pin bar formed overnight on the GBPUSD. The pin bar's sticking out like a sore thumb as both a rejection from resistance AND a significant numerical benchmark (1.6000). I've decided to split my order into two, with my first take-profit at support level #1 and my second take-profit at support level #2. I'll be using a trailing stop-loss so both orders will move to breakeven once they are halfway to their target. My initial stop loss is set at the 61.8% retracement level of the pin bar.