Why am I losing money?

Beginner Questions
#1

I’ve recently started trading live with 200GBP in a micro-account, trading lots of size 0.05 units. My method so far has been the following:

[ol]
[li]Identify the current trend direction on the H4 chart. Trade only in the direction of this trend.
[/li][li]Switch to the H1 timeframe and wait for a retracement on this trend.
[/li][li]Identify an area of supply/demand at this level, at which the main trend may resume.
[/li][li]Use price action (candlestick and pattern recognition) to see whether this level holds, and enter in direction of main trend if it does.
[/li][li]
[/li][/ol]

The first main problem with this method is that it seems to give off very few signals. This means that when a signal is given, the trading opportunity must be high probability, to make it worthwhile. However, I’ve not found much success with this method. For example, I made the following short trade of GBP/USD today, based on this method:

[ol]
[li]Bearish trend on the H4 timeframe - looking for a short trade.
[/li]

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[li]On the H1 timeframe, we can see an increase (retracement) in price.
[/li]
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[li]There apears to be an area of supply (resistance), indicated by the blue rectangle.
[/li][li]Within this rectangle, a doji formed, indicating a potential reversal of this short term uptrend, so I expected the current trend to resume.
[/li]
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[li]
[/li][/ol]

I also noticed that the bodies of the 4 bullish candles (on the H4 chart) before the Doji, were getting smaller and smaller, suggesting decreasing upward momentum. Based on this, I entered my sell order just after the doji formed. After this however, price continued to increase. Was my analysis good? If not, why not?

Thanks

#2

Any response you get here is more likely than not going to be worthless, because it’s too easy for all of us to provide feedback AFTER THE FACT, as to why the trade didn’t work out.

For starters:

  1. Realize that you won’t “win” every single trade. You need to ensure that you have an edge before entering (Are your risking 10 pips to make 10 pips? Or- Are you risking 10 pips to make 40 pips). If it’s the latter, chances are, other market participants may “see” this, and take the trade with you.
  2. How are you identifying trend?
  3. You sold into a pretty classic/basic bottoming pattern. You’re still learning. I’m still learning. You’ll learn something new every single day, and when you think you’ve learned it all, the market will remind you who’s the boss. Additionally, price just crossed over two of your H1 moving averages- that’s pretty bullish, and an indication of counter-trend buyers.
  4. Just b/c price stopped @ a level, then retraced to it does not mean you have an edge. Nor, does a “doji” candle, or “smaller and smaller” candles.
  5. Price already retraced to your blue “supply” zone twice on the H1 chart. The #1 rule of supply zone trading is to only take the first pullback.

Keep at it- no one is perfect.

Jake

#3

I think your post has proven that the responses given here are not useless! I really feel that you’ve unbiasedly pinpointed many of the errors I have made, and helped me to avoid making these mistakes in future. A few more questions though…

  1. Realize that you won’t “win” every single trade. You need to ensure that you have an edge before entering (Are your risking 10 pips to make 10 pips? Or- Are you risking 10 pips to make 40 pips). If it’s the latter, chances are, other market participants may “see” this, and take the trade with you.

I’m still unsure as to how people effectively gauge the risk to reward ratio behind a given trade. Personally, I’ll put a stop loss near an S/R zone “just in case”, but usually just enter the market when I see a likely price increase, and try to exit it manually when I see the move run out of momentum.

  1. How are you identifying trend?

Primarily visually. Price starts at the top right of the screen and ends at the bottom left. Also, the gradient of the 200SMA is almost always negative.

  1. You sold into a pretty classic/basic bottoming pattern. You’re still learning. I’m still learning. You’ll learn something new every single day, and when you think you’ve learned it all, the market will remind you who’s the boss. Additionally, price just crossed over two of your H1 moving averages- that’s pretty bullish, and an indication of counter-trend buyers.

I see what you mean - I’ve just noticed the bullish (inverted) head and shoulders pattern on the H1 chart. I need to be sharper with these things!
With regards to the moving averages being crossed with price, I hope you won’t mind me disagreeing with you on this one. Personally, I’m sceptical (rightly or wrongly) as to the use of indicators in this sense. You could probably adjust the settings of the SMA to make it support either argument. For example, it could be made to appear to be a S/R level at this point.

  1. Just b/c price stopped @ a level, then retraced to it does not mean you have an edge. Nor, does a “doji” candle, or “smaller and smaller” candles.

Would you mind elaborating on this? Many of the basic principles behind price action suggest that this may indicate the end of the current trend, so surely (if this is true) it gives a valid entry signal, and thus an edge?

  1. Price already retraced to your blue “supply” zone twice on the H1 chart. The #1 rule of supply zone trading is to only take the first pullback.

I was unaware of this rule (can you link me to more information on this please), I thought that support/resistance levels became more and more reliable, the more price responds to them?

Again, thank you so much for your advice, it’s been invaluable!

Josh

#4

Hi
First let me tell you that trading in the direction of the trend will increase your edge. So you strategy of rading in the direction of the 4h chart and then switching to 1h is a very good strategy. Your problem is that you are triying to pick up tops and bottoms on the 1h chart. If you continue to do this you will burn your account. A candelstick doji doesn´t mean that price will reverse. You are trying to enter when the price momentum is going against the trend, and this is one of the biggest mistakes newbies made.

My suggestion is that you wait for confirmation on the 1h chart that price is resuming the trend. For example you could wait for a break of the two previous candle low to put a sell order. Look at your 1h chart left and see all the opportunities you missed of entering short. Look al the ride you missed since february 18.
Another thing, if you want more timing on your entries you can use lower timframes for confirmation that price is resuming the trend.

And one last thing. Do yourself a favour and trade 0.01 with a 500 account. 0.05 is way too much risk for that account size. Even 0.01 is a little big for the account.

#5

Very good strategy, I am also like with looking the trend use four hour timeframe for short term trend, but will look on weekly timeframe to analyze major trend, analyze naked chart analysis more simple in view than using complicated indicator

#6

Start with the weekly chart go down to the daily then to the 4 hours charts and - if you want - to the 1 hour chart.

The guys above said it right, you are trying a trend following strategy, so when you enter at “zones of reversal or contiuition” you should first wait for a solid confirmation of your plan/direction. If you enter to early it is not a trend follow system anymore it is simple picking bottoms and tops - and that wrecks all accounts sooner or later.

For example, the 1 hour doji you put a red cirlce around. In a confirmation you could wait for the next 1 hour bar to finish, if it finishes red you can go in and put the stop loss above the previous 1 hour chart doji, this gives you a bigger stop loss and better chances to not be stopped out earlier, the risk/reward calculation can be done floatingly like: 1 hour doji TOP minus Entree after confirmation bar = 30 Pips (or whatever) so minimum take profit if you target a 1:3 you should set on 90 Pips etc. this gives your trade place to breath and gives you a good gain after your plan suceeded.

Another example which is highly usefull at least for me:

you do your analysis based on

1st weekly
2 daily
3 - 4 hours
4 - 1 hour

but you base your entree point only on the 1 hour chart.

Try to do the following: identify changes/confirmations on the 1 hour chart, then go back to the 4 hours chart and see if the next or actual 4 hours bar confirms your idea, and only based upon the 4 hours price action enter the market.

At the end of the4 hours session you choose to be a good entry pointyou can set your stop loss at the extreme end of the 4 hours session (in a long position you set the stop loss at the lowest point the previous 4 hours session was, at a short at the highest point of the previous 4 hours session) then you calculate your stop loss lets say 45 points, and then you only start calculating how much money you want to risk on your trade… 500? ok then set the trade volume adjusted to 500 diveded by 45 points stop loss = how many contracts you need to buy. next step calculate your take profit (RR 1:4) 45 times 4 = 180 point take profit.

#7

In my experience the 1-hour candlesticks don’t necessarily give very reliable signals. Sometimes they work out, sometimes the signal is totally false. 4-hour and daily time frame signals are much more reliable. I would wait for a doji or hammer candlesticks on the 4-hour charts, if it were me.

#8

Yes dianajs is right.

i just checked your trade on the 4 hour chart, check it yourself and you will see there was no point in going short as the 4 hours cancle before you went short was a very strong marubozu showing strong upward momentum.

#9

Thanks for the response, and the words of encouragement. You say that I’m trying to pick tops and bottoms on the H1 chart, which admittedly looks to be the case. However, I felt that this was justifiable if it meant picking points where the main (H4) trend was likely to continue. In future, I may only take setups where the trend is the same on the H4 and H1 charts - do you think that this is a good solution?
You also pointed out that I entered the market at a point in time where price momentum was moving against the trend. Although this is true, I felt it was okay because the bullish momentum seemed to be dissipating. As I pointed out before, I saw that the candlesticks running up to the resistance zone on the H1 chart were increasingly less bullish, and then were followed by a doji within the resistance zone. To me, this suggested that buyers were slowly becoming exhausted, and that the main H4 trend may be about to resume.
I agree that additional confirmation is a good idea, and will try using your suggestion of waiting for a break in the high/low of the previous candle. However, do you not feel that lower timeframes give less relaible signals, and are therefore harder for a novice (like me) to benefit from?

#10

there is no “guaranteed” system, just high and low probability ones.

your account balance will zigzag a lot just like the price does.

#11

There are some great suggestions and answers for your original post.

What I would recommend is to print out your post, the one I quoted. At this time you think it all makes sense what you wrote. Maybe in a couple of months or a year, you can read again your printed out post and if you see the mistakes in it, you will realize you made the necessarily steps to become a winning trader.

There are some good points in your post, but maybe the emphasize is on the wrong parts of it.

I can of course help with suggestions, but if you manage it on your own to see it from a different perspective a bit later, then you will know, you reached another level of trading and most likely you will have a lot higher probability to become a winning trader.

You are lucky, you got some experienced traders to write answers so you can take with you some ideas from almost every post.

#12

I completely agree, as an addition I think drawing a simple resisting trend line would have sent alarm bells ringing one price broke past 20% ATR level.

#13

Losses are a part of forex trading, don’t stress too much on one single losing trade. What counts is your overall performance after 6 - 8 months or a year. If you are profitable after one year, one trade result ave no bigger value.

#14

Nice said ,we can not evaluate our trading performance in some days it need months to see how much we are talented in forex trading…Loosing and winning is a daily routine of a trader do not get tension of loss if occur in some trades you can learn art of successful trading slowly.

#15

Loss sometime inevitable, and as trader they must accept these risk as part in trading, because not always as trader able making accurate analysis, and as trader also need pay atention wth the risk and having plan trading that included use risk management or stop loss to manage thase risk.

#16

I personally believe you can see holes in a trading strategy after just a handfull ( 10) trades. To wait for a year to come to the conclusion your strategy is a losing one, is really a waste of time and effort.

There is not leniency across time frames either. The higher the time frame, the more obvious your plan will prove right or wrong.

Even with scalping, wheather taking small profits (3-5) or medium range profits ( 10-20 ), the room for error is quit large, and if your 20 trades in, and its not showing potential, fix it till it does.

Throw out the, " its going to take years to get it right", because that is false. First thing needed worked out, is YOURSELF, Your Routine, Your checkboxs, How are you going to attack the day, before how your going to attack the charts.

You loss 3 ways–A, Lack of preparation, B, Lack of following a plan exactly, or C, Price moves against you.

Notice those have nothing to do with the strategy itself?

You can cut losses by 75% by self discipline alone.

Good luck Bud, wish you the best on your journey.

#17

You can lose your money by spread reason and by unprofitable trade strategy reason. I suggest to apply any trade copier with reverse options to your account. If the 2-nd account wil lbe profitable then you will be sure that not the spread is the reason.

#18

Those inevitable losses are OK but most of the traders lose money because they don’t have any plan of trade. They also trade without any strategy and thus lose unnecessary money.

#19

Hello JRC and welcome.

Diana, Jake (Forexunlimited), Turbonero and Gasanvill have all given excellent answers; I would add that you could use real volume if your broker provided it, as a measure of the truthfulness of a particular price move.

For example, looking at the 2nd March move in GBP/USD that you highlighted, I made a screenshot from my platform (FXCM) showing the hourly chart with volume bars below; as you can see, as price rallied up to that doji, volume bars increased in size but price candlesticks became progressively smaller: this is one case of a false move, where there is a mismatch between volume and candlestick size…A true move would see increasing volume accompanying candlesticks the (body) size of which remains approximately equal or increases through the move.

Screenshot_2016-03-09-08-56-49.jpg394×700 29.4 KB

Although there was a strong green candle accompanied by strong volume after that doji, you see how immediately after that there was a drop in volume and price went flat for a few hours… You would only see this if you patiently waited a couple of hours after the top of the initial move, so, had you gone short at the doji, you would indeed have been caught out… However, even with all the confirmation in the world (of price moving back in the direction of the trend), markets can still behave irrationally and do some unexpected things to price, as others have already said before me…

Beware also, that the above is FXCM’s own retail trading volume indicator, as forex trading does not have a centralised volume ticker like in the currency futures market, so you are seeing a large view of sentiment among retail traders rather than anything else, but it may still be worth using it.

You may like to read more on volume in this thread;

http://forums.babypips.com/forextown/66260-brief-share-questions-around-volume-any-contribution-welcome.html

Best of luck, and, as my signature motto goes,

Happy Trading.

#20

Thanks for the response. Volume is definitely a concept that I see value in, and wish to apply more in my trading. However, I’ve struggled to find in depth and unbiased information on it. Can you recommend a good place to start with this?