October 1, 2015Daily Analysis

10/1 Analysis: A Losing Trade

A Losing Trade

Today, I want to show you an almost perfect example of what we look for on the indicator to enter a breakout trade. This trade actually was a loser which I think is important to show. If you want to become a professional trader, you need to know the odds and probabilities and accept the inevitable losses.

Several minutes into the London session, the CAD (green line) which has been the strongest currency for some time starts turning up with momentum.

At the same time, the GBP (red line) becomes the weakest currency with a very steep line down indicating huge momentum in the market.

  • GBP/CAD SELL

I highlighted the opening price bar which corresponds to the momentum we saw on our indicator.

From there, price drops 17 pips which is not enough to get the 20 pip profit target we go for with this simple breakout strategy.

The good thing is because price went in your favor, our stop loss trails and you would have only taken a loss of about 7 pips compared to a full 20 pips.

Losing is inevitable even when conditions seem perfect. All you can do is improve your decision making and manage the trade properly so that you can maximize your gains and minimize the losses.

Watch the entire video analysis below:

[00:00 – 05:45]

[slide]              [black indicator, green / orange / yellow up, rest below zero]

                        Hello, I’m James Edward from CompleteCurrencyTrader.com. Welcome to today’s Currency Strength Analysis training video and today, I have an example of a break-out trade that is exactly what we look at, in terms of the momentum and steepness of the currency lines. But this one turns out to be a losing trade; it doesn’t move far enough into profit, and I think it’s important to show you these kinds of things when they happen because it’s one of the vital characteristics of being a professional trader. That ability to understand odds and probabilities and accept the inevitable losses because there is absolutely no way to avoid losses because anything can happen at any given time in the Market and just because you get a good entry signal doesn’t mean you are guaranteed to get a winning trade and realize a profit.

So, let me walk you through this one. This is what the indicator looked like at the London Open today. You don’t have anything particularly fantastic today, but the (green) Canadian Dollar (CAD) is the obvious strongest currency. The weak side is a little bit messy, but you have the (green) Canadian Dollar (CAD) moving up to strength and the (orange) Australian Dollar (AUD) is also moving up at the moment. (That would be something that I would keep an eye on.) And, perhaps, to the weak side, the (red) British Pound (GBP) is likely starting, just now, to move down a little bit.

But, if I fast–

[slide]              [2nd view: <20 seconds rt, green / orange up, red / blue down]

(continues) … forward through this by just a few seconds, actually, just less than 20 seconds into the Market, you can see how the (red) British Pound (GBP) actually takes over as the weakest. (That now starts to move much more steeply.) And the (green) Canadian Dollar (CAD) is also continued up to strength.

So that should be an early warning for you and, then, if I push it up to this point–

[slide]              [3rd view: 58 seconds rt, 3 dancing citrus lines above zero, blue / red down]

(continues) … which is just less than one minute after the Open, more like 58 seconds after the Market is Open, you now have a really good pattern on the (red) British Pound (GBP) and this is exactly the kind of thing that I stress over and over again that you should look out for as the ideal opportunity. The steepness of the line [circles blue dive down, far rt] over here on the right-hand side the higher probability that you are going to get a winning trade because that means you have the momentum behind you.

So, at the moment, there is a lot of momentum on the (red) British Pound (GBP) spiking down to weakness. So that is a really strong cell currency.

Over to the strong side, [points green, right] you have the (green) Canadian Dollar (CAD) that is moving up. Now, what’s interesting on this particular image is that you don’t have a mirror image. (Sometimes, when I show you these examples, you’ll see one currency moving down like this and, on the strong side, there’s a currency doing almost exactly the opposite. And, when you get that situation, you are in a very strong position to get into a trade.)

We don’t have that today, but nevertheless, this is a good entry. The (green) Canadian Dollar (CAD) is strong and strengthening and starting to move more steeply over here and pair that against the (red) British Pound (GBP) which is weak and weakening and, more importantly, is almost vertical (over here), [indicated] that is a good signal. That would be the sort of break out I’d recommend you take at an Open.

Let me go–

[slide]              [B&W vertical line GBPCAD.MS]

(continues) … over to the chart now. This is the five-minute chart on the Pound / CAD pair and you can see there’d been a trend between those two currencies over the previous hour leading into the London Open. And this price bar [points ctr longest, lowest bar] indicates you have that burst of momentum from [creates cross point] from the open [top same bar] it shoots down very quickly [draws line down bar] a total of 17 pips.

But, of course, that isn’t enough to hit your 20-pip profit target today, although you get the perfect entry (or very strong entry) and you could’ve entered that trade, you would’ve actually taken a losing trade. It wouldn’t have been a full loss because, remember, you are employing a trading stop-loss. So, as the Market [draws pointer down length same center bar] moves into profit, and I don’t know where you would’ve got[ten] in on this price bar, but perhaps you’d have got[ten] in sort-of 10 pips below the Market Open [indicates area of bar] and, from there, the price has still moved down another seven pips, which means your stop-loss actually closes up another seven pips. So, when the Market does, then, fully reverse, you’ve taken a 13-pip loss rather than a 20-pip loss. So, it would’ve been lost but it would’ve been a–

[slide]              [previous 3rd view: 58 seconds right, 3 dancing citrus lines up, blue / red down]

(continues) … smaller loss than you are prepared to take. And, why it’s important is, as I said at the start of the video, is understanding odds and probabilities.

When you enter with a high-probability trade like this [points far rt] which is what we’re looking for, for the break-out with the momentum. It is a high-probability trade, but that just means you have a higher probability of it winning and a lower probability of it losing. Nothing is guaranteed. Anything can happen in the Market at any given time and those probabilities will only balance out over the long term. Each individual trade is fairly random and it can turn around very quickly. And it does sometimes happen like that–

[slide]              [previous B&W vertical line GBPCAD.MS]

(continues) … which is exactly what we’ve seen today, and you end up with a losing trade.

[slide]              [previous 3rd view: 58 seconds right, 3 dancing citrus lines up, blue / red down]

(continues) … That doesn’t mean that the system is broke[n] or you’ve traded badly. It just means the Market has changed direction, which it can do at any moment and, as a professional trader, you need to accept that and learn to live with it and just understand that, as long as you keep exercising the same strategy day after day and executing the entry consistently you will be playing to the advantage of the odds on your side. And, over the long term, it will balance out and you will end up a profitable trade up by winning more often than you lose and having larger wins than your losses, thanks to that trailing stop system.

So, hopefully, that is a good example, to show you that even when you are entering with all the odds on your side and it is a good entry, that that doesn’t guarantee it will be a win and that is perfectly normal and you shouldn’t get too worried about it because there’s always tomorrow and you trade another day and another day and so on.

[end]

(5:45)

You can see that our Currency Strength Indicator is an effective tool for picking out the highest probability, lowest risk trade set ups while avoiding market conditions that aren’t favorable. If you keep using this tool every day along with our daily Forex analysis, you will increase your win rate and be on your way to becoming a profitable trader long term.

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James Edward
James Edward has been a successful Forex hedge fund manager & educator for over a decade. He founded Complete Currency Trader, a London based firm that has consistently trained individuals to become professional and profitable traders long term using the individual currency strength analysis methodology. CCT is an elite Forex educational firm and has a reputation second to none with over 90 positive reviews and an overall 4.538 out of 5 rating on the third party verification site Forex Peace Army. James’s affable personality, expert knowledge, notoriety for getting results, and steadfast dedication to his clients, has secured his position as one of the most trustworthy, liked, and in demand authorities in the industry.