23 March 2012 - minor win on silver

Silver

This was quite a frustrating trade. An inside bar formed in what I'd call the "golden zone", an area just beyond support/resistance. It's my thinking that inside bars are best traded here as continuation signals.

Price moved to within a few pips of my TP target before reversing. Once price reversed 60%, I decided to close the trade and walk away with a minor win. I wasn't psychologically prepared to watch a winning trade turn into a potential loser. All up, made a 37% return on my trade.

I know this is a violation of my "staying faithful" policy, but now I feel like ditching it. If the market is telling you something, you need to listen. A few pinbars formed on other currency pairs suggested a high likelihood of a reversal, which compelled me to close my trade.

One thing to note is a possible improvement in placing my TP. I had set a hard TP target of 31.000. Price moved to 31.02 before reversing. 31.000 is a significant psychological benchmark and I should have moved my TP some distance before this, perhaps 31.05 or 31.07. When placing TP and SL, pay closer attention to whole numbers.

18th March 2012 - weekend setups

Two possible setups have presented themselves over the weekend.

Silver

I think this is a good quality setup. An inside bar formed on Friday's close. This looks like a good opportunity to short silver.

In favour:

+ around resistance
+ suitable R:R to next support level
+ with the trend (bearish)
+ similar signal in gold
+ break of inside bar's bottom clears resistance/support

Against:

- inside bar is not at an extreme end of the previous bar

GBPAUD

This setup is quite messy. An inside bar has similarly formed on Friday's close.

The current resistance level isn't well defined, so I've decided to use a zone instead. Going long here looks a little problematic as breaking the top of the inside bar will not put price beyond the resistance zone, increasing the likelihood of a fake-out.

In favour of a long:

+ with the trend
+ suitable R:R to next resistance level

Against a long:

- not an extreme end of previous bar
- break of inside bar's top will not clear resistance zone
- will be trading into 1.5000 (psychological benchmark)

In favour of a short:

+ suitable R:R to next support level
+ break of inside's bar bottom clears current resistance/support
+ trading away from 1.5000

Against a short:

- moving into "de-virginised" space on chart
- against the trend

This isn't a clean setup. Direction can move either way so I'll skip this one on Monday morning.

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.