Forex Beginner’s Luck: Dodgy Rationale Pays Off

The USDCHF chart featured in yesterday’s post – an introductory post of sorts – I screen-snapped soon after my price target (green tag) was hit. (I was quite chuffed by it!)

Continue reading for a larger chart

The August 10 candle still had room to move during the day, and as you can see it kept going up to test a resistance level before plummeting back to close lower and form what looks, to my inexperienced eye, like a pin bar. (I’ve set another demo trade to short this pair, but that will be the subject of another post when the result is in.)

I wasn’t particularly confident with this set up going in and thus I probably should not have gone for it. Thankfully, for the virtual balance in my demo account, it turned out okay.

So what was I thinking?

1. Since about mid-July the USDCHF had been trading sideways.
2. The 360- and 180-day simple moving averages (the fine maroon and blue lines, respectively (chart below) were converging and flattening out. At this point I’m not sure if that’s of any significance at all! Any comments appreciated …
3. Prices lower than my arbitrarily placed support line had been tested and rejected three times in quick succession (the red crosses).

What made me doubt the setup?

1. Between early June and mid-July there was a strong trend downwards. So I was betting against the previous trend, probably a no-no for a newbie like me.
2. The June 6 candle showed price rejection at both ends. It didn’t look anything like a pin bar!
3. Furthermore, the June 6 candle closed markedly lower – the lowest closing price since January.

Having written that down, I am now quite sure that I should NOT have entered that trade. There was not enough in the set up to my newbie eye to justify it. Lesson learned. (This trading journal thing has merit.)

Despite the rationale it worked out. I entered the trade at the then market price (blue tag), set a stop loss (red tag) of a few pips below the June 6 low, and made sure that the target (green tag) was both achievable and offered a good risk/reward ratio – 64 pips risked for a 156-pip gain.

Pity about the dodgy rationale.

Disclaimer: Nothing in this post or anywhere on this website should be construed as “advice” in any legal sense of the word. (I am not “qualified”!) You make your own decisions.

Luckily for Mr Newbie, the stop loss (red tag) wasn't even threatened!