Friday, February 29, 2008

EURJPY scalp trade - 29 February 2008

I just got out of this trade here at 00:00 GMT - 2 AM o'clock local time.
A pretty nasty selloff in the Yen Carry crosses induced by the breach of the 105 Exporter defended level -- the rumored stops sub 105 / 104.90 were triggered leading to an extended plunge of the pair to 104.70 in a swift manner.
Playing with the drop in EURJPY I decided to enter a swift counter trade at the previous Resistance level around 159.50 - which coincided with 50 day MA on 4-hour chart.
My Initial idea was to get out fast if I see a breach there.
Well so much for discipline and cutting loss early :>> I averaged down at 159.30 level --- here by mistake I was trying to buy 1 standard lot but I actually sold I one and took some little 20 pip loss but the dynamics of the trade were going even lower.
Then I checked the Daily chart presented above --- the 159.22 stood for the 50 day MA which I started to believe that will make the drop at least stall or pause (no matter it would reverse or continue even lower).
I want to make sure I never forget this insane scalp trade as it was ultimately risky and it exposed the whole week's labor at a plain collapse. Actually the whole equity was at stake.
My view that I still could exit at least at Breakeven led me to add more longs at 159.23 >>>
a that point I guess I touched the largest leverage I ever used - 7 standard lots with average trading location at 159.35.
I swiftly covered 3 lots at 159.43 at the first bounce. Then it broke sub 159.25/29. So on the next quick bounce I saw 159.42 I immediately squared the last 4 standard lots and went flat with a little gain to make up for the emotional strain and clearly irrational use of leverage.
......... .......... .......... ............ ...........
What is worse is that I had an excellent trade location around 160.70 at the start of the European session - I closed it with 30 pips since it was a bit sluggish - but I should have locked in initial profit and run stops above clear level indicated by the Descending Triple top formation quite evident on the 4-hour chart -- Daily is seen as 3 candles with lower highs.
So this is just a mark to remember that good trades demand CONVICTION, PATIENCE, PROPER MANGEMENT and certainly stop and limit. Those 30-40 pips with 1 standard lot are nice but what makes trading professional is going with a trend and managing the trade properly - otherwise it is plain gamble - let's face it!
:: After it bounced to 159.42 it went straight down to 158.70/80 - it would have just wiped me out completely!!!
>>>>>>>>>> Now regarding conviction - this is what Stanley Druckenmiller recalls:

Soros came into my office, and we talked about the trade.
"How big a position do you have?" he asked.
"One billion dollars," I answered.
"You call that a position?" he said dismissingly. He encouraged me to double my position. I did, and the trade went dramatically further in our favor.

Soros has taught me that when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage. As far as Soros is concerned, when you're right on something, you can't own enough.
And another classic - this is from the Interview with Paul Tudor Jones in Market Wizards by Jack Schwager:
JS:: What are the trading rules you live by?

PTJ:: Don't ever average losers. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well. Never trade in situations where you don't have control. For example, I don't risk significant amounts of money in front of key reports, since that is gambling, not trading.
If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in. There is nothing better than a fresh start.
Don't be too concerned about where you got into a position. The only relevant question is whether you are bullish or bearish on the posi­tion that day. Always think of your entry point as last night's close. I can always tell a rookie trader because he will ask me, "Are you short or long?" Whether I am long or short should have no bearing on his market opinion. Next he will ask (assuming I have told him I am long), "Where are you long from?" Who cares where I am long from. That has no relevance to whether the market environment is bullish or bearish right now, or to the risk/reward balance of a long position at that moment.
*** The most important rule of trading is to play great defense, not great offense. ***
Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible drawdown. Hopefully, I spend the rest of the day en­joying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.
Don't be a hero. Don't have an ego. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead.
Jesse Livermore, one of the greatest speculators of all time, report­edly said that, in the long ran, you can't ever win trading markets. That was a devastating quote for someone like me, just getting into the busi­ness. The idea that you can't beat the markets is a frightening prospect. That is why my guiding philosophy is playing great defense. If you make a good trade, don't think it is because you have some uncanny foresight. Always maintain your sense of confidence, but keep it in check.

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