20 Jan 11 - Bearish Bat Pattern on USD/CHF - H1 Chart/ M15 Entry

This following post will serve as a reminder to stay away from taking a trade prior to a news release even if there is a valid Harmonic Setup as news releases might sometimes cause price volatility. In addition, it was also written by one author of a trading book whom I couldn't remember, where he mentioned that trading should be done when the market is quiet and that is the best point in time where you can get it and ride the waves. I guess I flouted this rule and thus this trade failed.

I was initially thinking if it was wrong for me to enter this trade in the presence of some long range bars but this point was not valid as price stopped at the PRZ and then jumped on the release of the news.

I would consider that this was a very nice setup except for the fact that the news release upset the trade's turnout. Nonetheless, a great lesson learnt and with a proper risk management in place, I got to look forward to another trade after having to return part of my earlier profits back to Mr Market.

Now, back to the trade setup observed.

The PRZ was defined by the following Harmonic Ratios:

1. 0.886 XA @ 0.96195
2. 2.0 BC @ 0.96280
3. 1.618 AB=CD @ 0.96199

Having tested the PRZ and reversed as seen on the M15 chart, I proceeded to short this pair.

Trade Details

Date: 20 Jan 11
Time: GMT 14:45
Entry Price: 0.96186 (2 Batches)
S/L: 0.96500 (31.4 pips)
T/P: 1st - 0.95900 (28.6 pips), 2nd - 0.95450 (73.6 pips)

Trade Update

The S/L was triggered for both batches on 20 Jan 11, GMT 15:09 at 0.96508, resulting in a loss of 32.2 pips.

Reflections

The setup in this case was correct except for the fact of the News Release which was due approximately 15 mins after the trade execution. This move might be considered a bit risky and in this case, it was considered to my mistake to have taken this trade. This will serve as a reminder for future trades though.

In trading, we seek to minimise our risk exposure and in this case, I have flouted this cardinal rule by taking a trade just minutes before a news release. If the trade was done probably 2 hours before the news release, it might have been different. So in future, I will have to be more careful.

I am very glad that with the implementation of this blog, it has done wonders to my Forex trading, especially in the department of discipline. It has been my routine to updated ALL my trades and be very critical of my own trades be it that they are winning or losing trades and from there improve on my trading.

I have never believed that a small effort employed in this case has gotten me such a great step forward in my trading as I started picking up flaws and mistakes in my trading which allowed me correct them.

Trading is a serious business and we should keep proper records of our trading and even our thoughts before and after a trade as some ideas may just pop out and help us better our trading just as it has done so in my case.

20 Jan 11 - Bullish Gartley Pattern on GBP/USD - H1 Chart/ M15 Entry

Was initially thinking that this would be a quiet week where all the patterns were invalidated (since I have been actively charting the patterns on potential pairs since the start of this week) when a Bullish Gartley Pattern was validated on this pair.

Since the pattern was clearly evident on the H1 and M15 charts, I decided to use the M15 chart for a more leading entry.

The PRZ in this case was:

1. 0.786 XA @ 1.59095
2. 1.13 BC @ 1.59169
3. AB=CD @ 1.59078

After price tested the PRZ and reversed, it was my signal to go long for this pair.

Trade Details

Date: 20 Jan 11
Time: GMT 07:30
Entry Price: 1.59221
S/L: 1.58800 (42.1 pips)
T/P: 1st - 1.5960 (37.9 pips), 2nd - 1.60000 (77.9 pips)

Trade Update

The 1st batch was closed on 20 Jan 11, GMT 08:14 at 1.59604, netting a profit of 38.3 pips while the T/P was triggered for the 2nd batch on 20 Jan 11, GMT 09:44, netting a profit of 77.4 pips.

Attached is the chart on how the trade played out.

Learning Points

In this case, I was quite conservative on the T/P placement for this trade was partly due to the fact that the road map for this pair is currently still down as seen on the W1 chart where a potential Bullish Butterfly Pattern is setting up it CD leg.

In addition, a check with the D1 chart will show a resistance at the 1.60182 region which happens to be the 70.7%  Fibonacci Retracement Level. With the following in mind, that was how it guided me to decide on a small and yet reasonable T/P for this trade.

14 Jan 11 - Bullish Butterfly Pattern on USD/JPY - H1 Chart/ M15 Entry

A nice trade setup seen at the end of the week which allowed me to go long on this pair and since it was a very low risk trade, I decided to go ahead to enter the trade and manage it defensively.

A confluence of 3 Harmonic Ratios were seen which points to a Bullish Butterfly Pattern:

• 1.27 XA @ 82.434
• 2.0 BC @ 82.460
• AB=CD @ 82.470

Note: Since the 3 ratios were very close together, it gave me more confidence that this is a strong support.

Once price tested the PRZ and reversed (as confirmed by a Morning Star Formation), I proceeded to long this pair on the validation of the patten.

Note: In this case, this is a counter trend trade as we can see in the H1 chart attached where the price is moving down along a falling channel. Therefore, in this case, it is also wise to be more conservative in this trade since the D1 chart is indicating that a potential Bullish Butterfly Pattern is forming its CD leg now. Once the PRZ on the D1 chart is tested, I will be more willing to go long in the long haul. (Refer attached D1 chart)

Trade Details

Date: 14 Jan 11
Time: GMT 09:00
Entry Price: 82.540
S/L: 82.250 (29.0 pips) -> A very low risk trade.
T/P: 83.050 (51.0 pips)

Trade Update

Since I was looking to trade this pair on a very conservative approach, once the floating profit was approximately 20 plus pips, the trade was set to breakeven.

The 1st batch was closed on 14 Jan 11, GMT 09:44 at 82.822, netting a profit of 28.2 pips. The basis for this T/P is the 0.382 retracement level of the AD swing.

Final Update

The 2nd batch for this trade was closed on 14 Jan 11, GMT 13:31 when the protective stop was triggered at 82.799, profiting 25.9 pips.

Attached is the chart to which shows the trade outcome. In this case, this trade demonstrated that most Harmonic Patterns will allow some tradable opportunities and it does not always guarantee a home run. Therefore, it is important to protect our trades as we move along as no one can predict what the market will do next. Thus, discipline in the absence of greed and fear is important to consistently profit from the Forex market and this is certainly achievable so long as we stick to our trading plan. There is no doubt that there will be times where we will take lesser profits or even take a loss despite strict trade management, but the key here is to look forward and keep honing our trading skills while building up our experience.

It has been a learning journey so far for me and I believe it will always be this way and I am certainly glad to come to know of Forex trading as it has allowed me to know myself better and has since built a life long passion in me to do better in Forex.

03 Jan 11 - Bearish Deep Crab Pattern on AUD/USD - D1 Chart/ H1 Entry

I was initially expecting a low liquidity day since it was just the beginning of 2011, but as I was doing the analysis for the various pairs, AUD/USD got my attention when I was looking at its D1 chart. After drawing the Fibonacci Ratios, it was clearly evident that price was testing the PRZ (See attached chart).

Then again, if we do not wish to trade an early entry, once the candle for 03 Jan 11 closes below the PRZ, it would have been a trigger to go short on the next day's open (and in this case it did!).

The following would have validated the Bearish Deep Crab Pattern:

1. A confluence of 3 Harmonic Ratios - 1.618 XA @ 1.01927, 3.14 BC @ 1.01849 and 1.27 AB=CD @ 1.02424.
2. A Doji which indicated that the upward move might have come to an end and a Bearish Engulfing Pattern on the close of 03 Jan 11 candle (Refer to 2nd attached chart).

Since there was quite a tight range for the PRZ, I decided to zoom in to the H1 Chart to look for an entry.

If we look carefully at the H1 Chart, there was an earlier entry for this trade but I missed out on that entry as I overlooked it. Then again, the later entry which I have gotten was not a bad deal after all as it was backed with basic technical analysis. In this case, when price made a new lower low, it gave me added confidence so go short on this pair as I was pretty sure that trend for the short term was a down trend (See chart attached above).

Trade Details

• Date: 03 Jan 11
• Time: GMT 14:00
• Entry Price: 1.01799
• S/L: 1.02600 (80.1 pips)
• T/P: 1st - 0.94200 (759.9 pips), 2nd - 0.8910 (1278.4 pips)

* Note: In this case, the risk/reward is extremely low since I am aiming to swing this trade. Trade management will come into play and protective stop will be adjusted accordingly as the trade continues while I target the 2 profit objectives. This is considered a swing trade.

Trade Update

As this trade continues, I prefer to lock in some profits and thus I decided to divide this trade into 3 batches.

The 1st Batch was closed on 04 Jan 11, GMT 05:14 at 1.00948, netting a profit of 85.1 pips.

07 Jan 11 - Update

The trade is still open and it has been set to 1.01700 to protect the trade and cover some of the swap incurred while I attempt to swing the trade.

Meanwhile, the potential for this trade remains strong as no warning signals are seen on the D1 chart for now and thus the trade is still ongoing. 

Refer to the 2 attached charts, one the D1 Chart and the other the H1 Chart. Do note however, since this is a swing trade, I have switched the trade management to be on the D1 Chart so that I can manage this trade properly in the absence of the intraday noise. As seen in the attached charts, if the trade was managed on the H1 Chart, there would have been many times which I would have been tempted to close my trade.

10 Jan 11 - Update

The trade is still running and I am still maintaining my bearish views on this pair. Once this candle closes tomorrow morning, the protective stop will come into play as I start to protect more of my profits. Currently, the 2nd and 3rd batches are having a floating profit of 200 plus pips each.

11 Jan 11 - Update

On the open of today's candle, the protective stop was moved to 1.00900, shading the high of 05 Jan 11 candle, protecting 89.9 pips for a start. The candle for 09 Jan 11 is not considered as it is a very short term candle. From today onwards, the protective stop will be moved progressively.

In addition to the trade update, there is another learning point worth mentioning which turns out to be a nice short term trade where I can go long on this pair. In this case, this trade was not taken by me as I was shorting this pair and with the new non hedging rule, I was not allowed to take up this trade anyway.

As seen in the attached chart, there was an opportunity to go long when price finished testing the PRZ and in this case, it was considered a low risk trade. However, it should be noted that the target objective in this case would have been max set at the 0.618 retracement level of the AD swing since we have already identified on the D1 chart that the route map for this pair was down since the larger picture for this trade was that we were selling of the D point completion of a Bearish Deep Crab Pattern. The following attached is how this trade would have worked out and as it turned out, it was a profitable trade.

From past experiences, counter trend trades usually have a high chance of hitting the 0.618 retracement level of the AD swing and in this case, it was clearly evident. Similarly, if the trade was triggered in the direction of the primary trend, i.e. the direction of the pair's road map, we can be more ambitious on the target objective where we can try to harvest more pips by setting the T/P even up to the Fibonacci Extension levels.

12 Jan 11 - Update

The protective stop has been moved from 1.00900 to 1.00300, protecting 149.9 pips this morning on the open of today's candle.

Currently, the trade looks promising as the D1 chart is showing that the pair is still quite bearish and thus I am still maintaining my bearish outlook for this pair. This is especially so with yesterday's candle closing as a long bearish candle.

13 Jan 11 - Update

The protective stop has been moved to 0.99900 today, protecting 189.9 pips. 

For learning purposes, it is worth to highlight that the previous day candle closed and formed a Bullish Engulfing Pattern. In most cases, this could have been a warning to take all profits if we would like to or in my case, I have decided to protect some portion of the profit and continue to hold and let the trade work its way out. Will update again if the trade is ongoing or that the protective stop is triggered.

It should be noted that for trading to get better as we progress as traders, we should be looking to trade better and hone our skills. Most traders will start off focusing on the monetary returns while will result in greed and fear. Previously, I would have gotten emotional about losing part of my profit due to a correction or that fear would have set in when I see prices moving against and this is worth mentioning to remind me of a lesson. Thus, today when this trade was done, I was able to execute it objectively and hold it till the trade works out. In the worst case scenario, this trade will have a profit of 189.9 pips for the last 2 batches.

14 Jan 11 - Final Update

The protective stop for the 2nd and 3rd batches were triggered on 13 Jan 11, GMT 12:24 at 0.99907. Profit for both batches were 189.2 pips each.

As it turns out, the warning signal seen on the D1 chart was clearly a strong signal and this exemplifies the strength of Japanese Candlesticks in technical analysis.

Trading Performance for Dec 2010

From my experience, the month of December is usually one of the toughest month to trade since liquidity will drop as traders start to close their books for the year and enjoy the festive season. And in the case of this month's performance, I was in the red when it comes to pip count but in the black in monetary terms with risk management in place.

The pip count for Dec 2010 was -76.5 pips and I would consider this quite a small loss already since trading towards the end of the month was tough and I was persistent in trying out new trading methods.

The success rate for this month dropped to 57%. Then again this is not surprising considering the risk I was taking.

Reflection

Since I am still new to Harmonic Trading, it has been a wonderful experience since I discovered it and studied it intensively. Considering the fact that it was only 3 to 4 months since I started trading with Harmonic Trading Methods and the results achieved with this methodology has been impressive for me since I never had such results with other methods which I have traded with when I first learn how to trade.

Therefore, this is definitely a method to keep and something which I will want to hone my skills to be more proficient with this trading methodology.

To end this note for 2010, I have noticed that Harmonic Patterns are nice patterns to trade with and they are always present when liquidity is there and hard to spot when the market is not moving (which is good since this will prompt us to sit and wait for a good trading opportunity to come). This was the result of my "School of Hard  Knocks" training in Dec 2010 which proved to me this point as I was stubbornly refusing to accept it. And yes! I did suffer in the end and gave most of my profits back to the market as a result. The market is a great place where education in on-going be it the trading aspect or the discipline aspect and it is certainly a place where I have gotten to know myself better and a place where I find myself very much comfortable to be in despite some painful lessons.

Lastly to end, this quote practically serves as a reminder for me each day as I move forward in my life and it has been moving me on until now in this tough but enjoyable yet enriching Forex journey:

"Success is often achieved by those who don't know that failure is inevitable."

– Coco Chanel (1883-1971)