GBP/JPY Short Trade 28 Mar 2011

I was home when I made this trade. The time is shown in GMT+8.

GBP/JPY made a daily stochastic bearish reversal on 25 Mar 2011 after correcting 76.4% of its previous decline (yellow line 1). I was expecting a continuation of the decline and a strong one too because the 20 SMA line was declining. A sell signal would be given when GBP/JPY made a stochastic bearish reversal on the 3-hour chart.
GBP/JPY made a 3-hour stochastic bearish reversal on the 28 Mar 2011 18.00hr 3-hour bar giving a sell signal. I decided to use the 30-min chart to time my entry in order to get a better entry price.
GBP/JPY made a 30-min stochastic bearish reversal on the 28 Mar 2011 22.00hr 30-min bar after correcting 76.4% of the previous decline (line 1). I placed two trailing 1-bar low sell orders, which were filled at 130.738 (orange triangle icon) at the next 30-min bar. I placed the initial S/L order at 131.17 (above 28 Mar 2011 13.30hr 30-min bar swing high) risking -43.2 pips. The T/P order for the 1st unit was placed at 130.30 (above 28 Mar 2011 16.30hr 30-min bar swing low) giving a +43.8 pips potential reward.

GBP/JPY did not decline as strong as I expected. On the 29 Mar 2011 08.30hr 30-min bar, GBP/JPY made a bullish piercing line candlestick pattern near the Bollinger lower band. I decided to reduce the S/L order for the 1st unit to 1 pip above the 29 Mar 2011 08.00hr 30-min bar high and the S/L order for the 2nd unit to almost break-even.

The S/L order for the 1st unit was triggered at 130.634 (orange circle icon) giving a modest +10.4 pips gain on the 09.30hr 30-min bar and the 2nd unit at 130.722 (orange circle icon) giving an almost negligible +1.6 pips gain on the 10.30hr 30-min bar.

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and any information presented in this blog.

The Business of Trading - Managing and Controlling Risk

All business involves risk. As for the business of trading, there is no method with 100% certainty that could allow us to buy cheap and sell dear all the time. The way that the financial market work we could not tell for sure whether the market is going to go up, down or sideway. The best we can do is to do our due diligence to study the market fundamental and technical and take a calculated risk when the potential reward is higher than the risk.

We therefore need to manage and control our risk so that we do not put our trading business at undue risk when our analysis turn out to be wrong.

How do we manage and control our trading risk?

The best advice I have read on the subject is the 2% and 6% money management rules given by Dr Alexander Elder in his best-selling book "Come Into My Trading Room".

How would we apply the 2% and 6% money management rules to trading?

Let's look at my EUR/USD long trade on 17 Mar 2011 as an example. See my earlier posting for detail in http://swingtrader188.blogspot.com/2011/03/eurusd-long-trade-17-mar-2011.html

The entry was made at 1.39291 and the initial stop-loss order was placed at 1.38600 giving an initial risk of -69.1 pips. The 2% money management rule means we should not risk losing more than 2% of our trading account size per trade.

Let's say you have a USD10,000 in your account. How many units of EUR/USD should you buy to limit your risk to 2% of your trading account size?

The maximum loss per trade calculation is shown below.

Maximum loss per trade = USD10,000 x 2% = USD200

The pip value of EUR/USD is USD10 per lot (100,000 units) per pip. The risk assumed for this trade is -69.1 pips. The maximum lots allowed = USD200/(69.1 pips x USD10/pip) = 0.28943 lot = 28,943 units.

This means that with your USD10,000 account you should not buy more than 28,943 units for this trade so that you would not lost more than USD200 per trade.

Can you buy 28,943 units? Yes, if you use OANDA FXTrade. Otherwise you have to round it down to 2.8 mini-lot (28,000 units) or 28.9 micro-lot (28,900 units) depending on what is allowed by your brokers.

The 6% money management rule means two things:

1. You should not risk losing more than 6% of your trading account size for all your opened trades.

2. Your maximum allowed loss per month is 6% of your trading account size.

With a USD10,000 account, the maximum allowed risk for all opened trades and the maximum allowed loss per month is USD10,000 x 6% = USD600.

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and any information presented in this blog.

XAU/USD(Gold) Long Trade 22 Mar 2011

The time is shown in GMT+2. I was abroad when I made this trade.

XAU/USD daily stochastic has been bullish since 17 Mar 2011. On 22 Mar 2011, I was expecting XAU/USD to make an upward swing. A buy signal would be given when XAU/USD made a stochastic bullish reversal on the 3-hour chart.

XAU/USD made a 3-hour stochastic bullish reversal on 22 Mar 2011 18.00hr 3-hour bar giving a buy signal. I decided to use the 30-min chart to get a better entry price.

XAU/USD made a 30-min stochastic bullish reversal on 22 Mar 2011 21.30hr 30-min bar. I placed two trailing 1-bar high orders, which were filled at the next 30-min bar at 1426.95 and 1426.94 (cyan triangle icons). I placed the initial S/L order at 1419.475 (below 22 Mar 21.30hr 15.00hr 30-min bar swing low) risking -747.5 for the 1st unit and -746.5 pips for the 2nd unit.

I placed the T/P order for the 1st unit at 1434.90 (below 21 Mar 2011 21.00hr 3-hour bar swing high) for a potential +795 pips gain . It was triggered at 1435.19 (green circle icon) on 23 Mar 2011 15.00hr 3-hour bar for a +824 pips gain.

I placed a T/S order for the 2nd unit after the 21 Mar 2011 21.00hr high 3-hour bar was exceeded. The T/S order was triggered at 1437.5 on 24 Mar 2011 12.00hr 3-hour bar for a +1056 pips gain.

Summary of Trade:

Entry date: 22 Mar 2011

Entry price: 1426.95 and 1426.94

Initial S/L: 1419.475

Initial risk: -747.5 for the 1st unit and -746.5 pips for the 2nd unit

1st Unit:

Exit date: 24 Mar 2011

Exit price: 1435.19

Profit: +824 pips

2nd Unit

Exit date: 23 Mar 2011

Exit price: 1437.5

Profit: +1056 pips

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and any information presented in this blog.

EUR/USD Long Trade 17 Mar 2011

The time is shown in GMT+2. I was abroad when I made this trade.

EUR/USD daily stochastic has been bullish since 14 Mar 2011. On 17 Mar 2011, I was expecting EUR/USD upswing to continue. A buy signal would be given when EUR/USD made a stochastic bullish reversal on the 3-hour chart.

EUR/USD made a 3-hour stochastic bullish reversal on 17 Mar 2011 03.00hr 3-hour bar after retracing 76.4% of its previous upswing (yellow line 1).

I placed two trailing one-bar high buy orders (cyan square icon) and they were filled at 1.39291 (cyan triangle icon) on the next 3-hour bar. I placed the initial S/L order at 1.38600 (below 16 Mar 2011 18.00hr 3-hour bar swing low) risking -69.1 pips.

I placed the T/P order for the 1st unit at 1.40000 (below 15 Mar 2011 21.00hr 3-hour swing high) for a +70.9 pips potential gain and it was triggered at 1.40001 (green circle icon) on 17 Mar 2011 09.00hr 3-hour bar for a +71 pips gain.

I placed a trailing stop order for the 2nd unit after EUR/USD almost reached the Fibonacci 161.8% external retracement of the down swing (purple line 1) and 161.8% projection level (yellow line 2). I placed the T/S order such that the profit for the 2nd unit would be at least 2x the initial risk. The T/S order was triggered at 1.40725 (orange circle icon) at 18 Mar 2011 03.00hr 3-hour bar for a +143.4 pips gain.

EUR/USD moved +100 pips higher after I closed my trade!! Nevertheless it was a good trade.

Summary of EUR/USD Long Trade:

Entry date: 17 Mar 2011

Entry price: 1.39291

Initial S/L: 1.38600

Initial risk: -69.1 pips

1st unit:

Exit date: 17 Mar 2011

Exit price: 1.40001

Profit: +71.0 pips

2nd unit:

Exit date: 18 Mar 2011

Exit price: 1.40725

Profit: +143.4 pips

Disclaimer:

Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and any information presented in this blog.