This pair was
traded on my real account in accordance with the forecast made a few weeks ago at the turn of the
New Year. As predicted in that forecast, the Japanese Yen continued its
downward trend against the GBP as it did against the Euro and the CHF in the
last few days. Although the trade was successfully executed to generate a
213-pip gain near the 117.70 area, the most important aspect was the discipline
to stick to two of my most important rules –



 



1.      Not watching the trade



2.      Exiting at the right target



 



Since most of
our trades tend to wave towards their respective targets instead of shooting to
them directly, it requires a lot of patience and confidence to leave them until
they are completed. If this is done on a regular basis especially for swing
traders, then success is likely to become the rule instead of the exception. However, because of the emotions that tend to ´get in the way´ whenever we choose to watch our trades or become greedy for more money than the trade can give, this success can become much harder for us.



 



THE FORECAST



 



To briefly
review the forecast, the GBP JPY had just broken out of a consolidation pattern
on the Daily Chart to signal the start of another bearish trend. This was
within the context of an overall downtrend on the Weekly Chart which gave the
forecast added support. In addition to this, the Weekly Chart had also just
U-turned after testing the Support of the broken range which is usually the
last step before the currency resumes the breakout from the range over the next
few months.



 



The Support
price of 116,48 was expected to be the next major target for the currency, but
along the way, it was likely to pullback temporarily at the 117,70 area which
coincides with a major downtrend line that began at the high of 251,10 in July
2007. It was also the area representing the end of the 500-pip average Weekly Range
of the GBP JPY - the average short-term distance and a good exit point.



 



 



DAILY CHART






 



WEEKLY CHART



 






 



THE TRADE






The trade itself
was executed by entering on the 30 Minute Chart following the break of a Range
pattern after the Daily Chart´s signal. With the stop placed above the resistance of the range, the trade was
left open for several days as the currency gradually declined to the short-term
target of the opposing trend line at 117,70.



 



30 MINUTE CHART







 



DAILY CHART



 






 



TRADING RULES







  1. Avoid
    Looking at the Trade



 



Taking a closer
look at the trade using the graph below, we notice that there were 3 instances
when the market pulled back very close to the Entry and Stop Loss points that
could easily have tempted a trader to prematurely exit the trade. Such a
decision would probably have seemed reasonable especially on the 3rd
occasion when the strength of the rally led to a bullish Daily signal,
indicating a possible reversal.




30 MINUTE CHART






 



DAILY CHART



 



 



Not only would
it have been tempting to exit at this rally based on the technical signal, but
there were also some fundamental announcements earlier in the month that could
have led a trader to believe that the Japanese Yen should not have been rising.
With the Japanese economy struggling to recover from the effects of the tsunami
that had crippled production, recent monthly data did little to change the
economic outlook that was already bleak because of a stronger Yen, the European
Debt Crisis and a decline in demand from its export markets.



 



On the day
before the breakout from the Daily Chart’s consolidation, it was revealed that
household spending year-on-year had declined by 3.2%, monthly preliminary
Industrial Production was down by 2.6% and Retail Sales declined by 2.3%
relative to 2010.  Combined with the data
earlier in the month that revealed a deteriorating trade balance and manufacturing
activity, one would have expected that the Japanese Yen would be declining.



 



However, a
technical trader realizes that there will always be temporary pullbacks based
on short-term fundamentals that are not likely to alter the main trend once the
signals on the larger charts are strong enough and in sync with each other. By
not looking at the market waves, this trader is avoiding the stress that comes
with these pullbacks and possibly erroneous decisions that compromise his
profitability.



 



2. Exiting at the Right Target



 



Sticking to your
take-profit rule is also an extremely difficult decision since this tugs at the
ruinous emotions of greed that lurks within all traders. This is especially
true when you have been on a losing streak and are eager to make up for it with
the next profitable trade. For me, this was the situation heading into the GBP
JPY trade as my rate of return for the month was below my target because of a
recent spate of losses. However, once your rule is supported by research,
back-testing or technical signals, standing by it all the time will keep you
out of trouble more often than not.



 



For my trades,
the general rule is to always exit at the price that coincides with the average
Weekly Range of the currency pair that I am
trading. In the case of the GBP JPY which has a range of 500 pips, this exit
point would be the 117.70 area as stated earlier. Initially my take profit was
set to this area, but because I expected the Yen to eventually appreciate
beyond that price to the Support of 116,48, I decided to extend the Limit Order
to that area in violation of my rule. However, once I began to remember the
losses over the years that stemmed from disobeying this rule, I wisely exited the trade when it reached the end of the Weekly Range. As you can see from the chart below, this indeed was the correct thing to do.



  



DAILY CHART



 




 



CONCLUSION



 



Emotions are an
inevitable part of trading because of the ability to see your money literally
moving up and down in front of your eyes every single second. However, by creating and
obeying rules that reduce the time you spend looking at your charts, you would
have taken a big step towards keep your trading as objective and profitable as
possible.

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