So Much for the "Good Start"

I sabatoged myself.  I took a loss of $3400 last night!  Ouch!  That one still stings.

So how did this happen? Monday morning I had been scalping along and I had been doing well going LONG the Kiwi.  I felt like the rise of the Kiwi was peaking.  So I went SHORT around 9:00am.  I thought that it could move a lot so I set my take profit (TP) at 40 pips.  It only went about 15 pips and then reversed, I had manually moved my stop up and I was stopped out at +1.5 pips, so I still made a small profit on that trade.

Over the next couple of hours the Kiwi kept moving up and I read some analysis reports that sounded favorable to the Kiwi continued rise, and I bought into the sentiment.  This was my first mistake, listening to a "talking head" rather than doing my own analysis.

Next, I second guessed my own analysis that the Kiwi had peaked for the short term, I reversed my own sentiment and opened a LONG position in the Kiwi.  This is mistake number two.  I had a TP of 25 pips and stop loss (SL) set at 17 pips. 

Mistake three is that looking at the charts, the RSI was still positive but the MACD was muddled and according to my own rules this was not a valid signal, so I had ignored my own trading rules, in addition I was also trading at the worst time of the day.  I initiated the trade around 4:30pm (AZ time).  I keep telling myself not to trade the Asian session unless I get in after about 6pm when Japan and China are in full swing because the volume just inn't there.

Well this trade immediately turned on me and the Kiwi started dropping.  As it got near my stop, I was hoping that it would reverse and keep my win streak alive and then I made the biggest mistake and I removed my SL.  STUPID! STUPID! STUPID!

To make a painful story shorter, I started using "happy hope" that the market would reverse and come back up, but then some real news came out from the Reserve Bank of Australia (the Kiwi does whatever it's big brother does and tracks it tick for tick most of the time and this time was no exception), and they said they were keeping interest rates the same but would think about reducing them in August.  To add to this the RBA governor said he thought the Aussie dollar was still overvalued.  This send the market into a tailspin and before I knew it I was -60 pips.

I decided to hold one through the Europe session.  It did make a modest recovery and I got back to almost even, but was still -15 pips by about 1am.  I should have got out then and taken my loss, but no!  Happy Hope was still swirling in my brain and the US session killed me.

I rode it all the way down to $.7715 from $7830.  I semi-panicked when the Europe session started again and closed my position not wanting to suffer any more losses. 

There was a big international conspiracy.  Everyone was waiting for me to close my position so that they could stick it to me.  As soon as I closed my LONG postion, I went short (because the "trend is your friend" and that is what all the talking head analysis was saying that it was going to go lower still).  This triggered a reversal in the market and the Kiwi rose all the way back up to $.7790 (-40 pips from my original trade, I could have gotten out with only this weeks gains as a loss).

Of course since I was "mad trading" at this point, I didn't have a stop in so now I'm sitting on a trade and I'm -65 pips.  Grrrrrrrrrrrr!

None of this would have happened had I stuck to my rules of engagement.  Instead I'm kicking myself in the head over what could have been.  Who knows, if I was an "obedient trader" I could be up another two or three thousand more dollars in my account. 

More valuable lessons to learn as a trader.

Good Start to this Week

I started out this week with a few trades.  I'm trading 30 contracts of Kiwi (NZD\USD) right now.  Each contract is 10,000 units of currency.  I have banked 47 pips for $1400 profit.

One may be asking, "Why trade the New Zealand dollar?"  It's simply mathmatics.  I can trade more contracts of Kiwi for the same amount of money.  Kiwi is valued at about $0.78 to one US dollar.  A mini-contract is 10,000 units and I am trading on 50:1 leverage.  Here is the math:

$0.78 x 10000 = $7800

divide by leverage value to get how much money you need to put up to buy one contract

$7800 / 50 = $156 (per contract)

Multiply by the number of contracts traded

30 * $156 = $4680

When trading a mini-contract (10,000 units) on 50:1 leverage, each pip is worth $1.00, so if I trade 30 contracts then each pip equals $30.

If I were to trade Euro's (EUR\USD) which is about $1.30 for every US dollar then my cost per contract would be about $260 per contract, so 30 contracts would cost me $7800.  Almost twice what it cost to trade the same amount of Kiwi!

So why would anyone trade Euro's when Kiwi is almost half the price?  One reason why is becuase of the spread between the bid and ask price.  Euro spreads are typically 1 to 1.5 pips and Kiwi spreads are typically 3 to 5 pips with my FX broker, Oanda.  So if I am trying to get 10 pips, the Euro has to move at least 11 or more pips from my entry price so I can cover the spread and get the 10 pips, the Kiwi has to move 13 to 15 pips to get the same 10 pip profit.  Another reason is the volume of trades, more Euro is traded than any other currency (that is one reason why the spread is so low) and seems to be a little more predictable.

So why am I trading Kiwi right now?  With the size of my account at this time I can can make larger gains.  With a balance of $8000 in my account I certainly can't trade 30 contracts of Euro and have any risk tolerance to think of, it only leaves me $200 of margin to work with.  So effectively I could only trade 15 contracts of Euro, but with Kiwi I can trade 25-30 contracts.  If I capture 10 pips of Euro in this example I would only make $150 for a 1.8% return.  With Kiwi, these same 10 pips would get me $300 for a 3.75% return.  Same pips, same dollar amount risked, same amount of margin and leverage used....twice the return.

I'm using this to quickly build my account base up and then I anticipate going back to the Euro which will be a little more predicable in it's direction and movement and the spreads are thinner.