Am I learning and understanding or gambling?

Last night after midnight EST, I was watching USD/JPY on the 5min. The pair was pretty dead, then a little momentum started. A bit later the pair moves down like hundreds of pips in a matter of minutes, and continues the trend over the next few candlesticks.

With such a large and unpredictable move, I start looking for a bottom. I know looking for bottoms is bad, but in this case it’s almost inevitable that good momentum one way usually returns decent momentum on the opposite swing. So I find a candlestick thats turning around and jump in. Indeed it travels up quite far in my direction, then comes right back down and puts me in negative. I did this twice and at one point I was -250 pips.

Now I’ve done this before, but this time I mapped out some s/r zones and created some targets. I added a t/p stop to my current positions and added one more buy position with a distant t/p at another line that I felt was significant. I went to bed without a care, confident the whole time price would reach my targets by morning.

I wake up this morning and check my trades: sure enough, I’m in profit and all trades are closed. I know searching for a bottom is bad, but I was comfortable confident for a change in what I was doing. Over the past week or so I’ve been making 80% winning trades (10-25 pips), but a small percentage of them dip real low.

Is the confidence a sign that I’m learning more and learning how my favorite pair behaves, or is this a false confidence and disaster is right around the corner? I would like to take credit for growing my account 7% more in a few hours.

Time will tell I suppose.

In my opinion, you should never feel confident trading against a trend. And to say that going long in ANY Yen cross is “trading against the trend” is an understatement. Risk aversion is through the roof, and Yen crosses are no place to be calling bottoms. Sure you can trade supports for some quick bounces, but is this the type of trade you want to focus on? Small upside potential with huge downward pressures constantly weighing on your positions?

Another thing I’d like to point out is that the USD and JPY are the two strongest currencies at the moment. It’s hard to get an edge when the two champions are fighting it out. What I mean by this is that downward moves are limited by the USD strength, and upward moves are limited by the JPY strength. This might not effect you if you are going for small targets, but I always like the idea that if my prediction is correct, that I’m going to be in for a big move. I believe this is the true application of the reward:risk ratio, rather than “my target is twice as far away as my stop”.

Thanks for the reply akeakamai,

Maybe I’m learning as much as I thought about USD/JPY. I made me choices on the trade based on the ups and downs I notice and some new ideas (to me) on support and resistance from a couple of different posters.

I’m not sure what you mean by “risk aversion is through the roof”. I know what risk aversion means, but in this case I don’t know who risk aversion is through the roof for.

And no, thats not the type of trade I want to focus on. Although I did notice the pressure last night while I was trying to squeak some quick longs on the M15 last night, until a good opportunity for a short came along.

Also, if you never trade against a trend, how do get in early on a brand new trend?

Another thing I’d like to point out is that the USD and JPY are the two strongest currencies at the moment. It’s hard to get an edge when the two champions are fighting it out. What I mean by this is that downward moves are limited by the USD strength, and upward moves are limited by the JPY strength. This might not effect you if you are going for small targets, but I always like the idea that if my prediction is correct, that I’m going to be in for a big move. I believe this is the true application of the reward:risk ratio, rather than “my target is twice as far away as my stop”.

So even though the US economy is at near depression levels, the USD is still one of the strongest? I don’t know what a big move for you is, but for me 100pips is huge, and that keeps me trying to play the valleys and troughs. I’m not sure how to jump in for a long ride on an already established trend. I also learned last night that I can’t rely on a trailing stop in MT4, so that scares me away from long rides a bit as well.

Some people always see the market as gambling no matter how much expertise you may have. The reason is that people take risk in the market because they cannot predict the moves. So you can look at it both ways

Some might speculate the USD/JPY is “unaturally” strong at the moment…

GBP/JPY is down about 3000+ pip over the last 2 weeks
EUR/JPY is down about 2000+

USD/JPY down about 700… (should be in the low 90s by now)

Though what others have eluded to, picking bottoms or tops is very very risky and i would steer clear of it, especially with the yen crosses. I tend to note when picking bottomes, they get clean blown away so i don’t. Try doing that with the GBP/JPY with a 250pip SL… lesson learned

Trade your charts and what they show you… and if your going to trade against the trend, i would be very careful and very quick.

I’m not sure how to jump in for a long ride on an already established trend.

Wait for a retrace and then get in, dont buy at a higher high or short at a lower low… Give yourself a decent SL and set no TP level, once you are some green pips ahead, move your SL to b/e or a few pips positive and then let the trade go. At that point i usually set a TP level way off… like 500-1000pips away. And then I just watch the trade, and keep moving the SL to lock in more profit, but keeping it far enough back to let the trade bounce around a fair bit.

One of my friends does something very simular, but he is a FX genious in my opinion, he will move his SL to +10pips and set his TP level and will either get his TP level or 10 pips and move onto the next trade.

The key is getting in at the right time, then removing any risk, i mean once your 100 pips up and have removed all the risk, why not just let the trade go, if it comes back and your stopped out at B/E or +10, who cares cause there will be another trade right around the corner, and you can pick-up those 200-300-1000 pip… and most importantly you haven’t lost anything.

Look at the weekly chart, then the daily, then the 4 hr… this gives you a long term look of where the market is heading, so i mostly enter my trades off the 4 hr chart, using the 5 minute chart to try and optomise the best entry

Hey Cdawg good strategy, I will try to follow it or as much as I can because it does take a long time in front of the pc, watching the trend.

Thanks Cdawg,

That is a great strategy. I’m finding it difficult at times to determine the difference between a retrace and an all out turn around. Or I’ll get into what I though was a retrace, then price goes sideways for 2 hours riding -10 pips or better. Lots to learn and learn to see.

Do you do the set your stop to B/E often? I can’t get myself to do it. By the time I’m in profit, I’d like to keep a little bit for my efforts.

Do you do the set your stop to B/E often? I can’t get myself to do it. By the time I’m in profit, I’d like to keep a little bit for my efforts.

Every chance i get. I found that as soon as i got over the expectation of winning every trade it was easy, that and of course i stopped losing money or as much money i should say, and then when I’m right, it pays off big time.

I would rather get stopped out at B/E then -50pips. I’m still learning exactly when to move my stop, I think that is an art in itself and changes daily with the volatility of the market. Move it too soon and your out on noise.

Now setting a far off TP level, of course it may never get there, so usually I monitor the trade, and if its really going well move the SL to lock in some profit, and close it out manually when i think its going to retrace. And if i cant monitor it, i put a TS on it.

Cheers

I might have to try that if it’s really doing you some good. The B/E thing that is. I know I’m not going to win every trade, but I still get mega frustrated when my losses are greater than wins. Then you look back and see that there was 50 pips a candle to made from all the back and forth action. Shoot, I could have made 1000 pips in 5 hours today if I could’ve rode each wave on the 5 minute. lol…

Aside form that, I got burned on looking for retraces today. This morning I made about 60 pips getting in on reversal candles after really long candles. Later in the day I tried to get on after retracements several times, only to lose 100 or so pips. Now looking at the chart after it’s all said and done, I there was no retracements, at least in the TF I was looking at. The trend didn’t help me this day. I should’ve just taken my 60 and left it alone for the day.

I’m not sure what I’ve learned today except thats easy to fall back into an old habit when you get frustrated (if thats what I’ve done today).