My trading in the competition for the first 4 days has been an example of just such trading. I have been of the opinion that the EURUSD was going to fall to the 1.3150 area. It hasn't, yet, but I haven't been unprofitable either. Take a look at my trading log here.
You will see several posts where I state that I am looking for the pair to fall. However, you will also notice that on several occasions I question the tenor of a trade and the direction I need to trade. In the following chart you can see the last two trades I took.
Even though I am trying to ride the price action lower, I was willing to accept that I may be wrong in the short term. The long term doesn't matter, because many things change in the long term, and I may change where I think the pair is headed. There is no magic formula, but a willingness to accept that you may be wrong is a healthy thing to have.
I use the following plan to move my positions along as price action supports or nullifies my trading scheme.
- Use longer term charts and fundamentals to form a generalized idea about the direction you want to trade, one where you think the pair is headed. I like to look at 1 day and 1 hour charts for this. I'll also consider retail positioning at this point but only if it is deeply entrenched.
- Then I move to the lower charts, generally 15 minute and 5 minute charts. Here I identify areas of support and resistance that are also validated by OB/OS RSI, long wicks on candles, specific candle formations, and custom indicators.
- I then decide if I am going to be trading reversals or breakouts. I prefer reversal trading because if you are wrong, you are entering the trade at the breakout. I would rather be wrong at a break out, I find them easier to to get out of. (just personal preference)
- Lastly I look at retail positioning, and indicators to support the trade I am looking at getting into. You wouldn't want to take a short position if the 5 min RSI is very low, waiting for even a little bounce can add 10-15 points to a trade.
The first trade above was a breakout trade and I had to ride that pullback before I was seriously profitable. The second trade was a reversal trade at the 76% fib line of the big move down immediately to the left of my entry. I even commented when I took profit on the first trade that price was headed higher.