Tuesday, October 13, 2009

Yesterday I posted that I bought AUDUSD when it hit the bottom of a channel. I commented that it was an easy trade at the channel bottom. That trade worked in that it not only went back to the top of the channel but has since broken above. It’s up 112 pips as I write this.

On the hourly chart below you can also see where I took a second position this morning when it dropped back to the top of the channel. Why did I feel OK taking a second position?

One reason is that the pair is in an overall uptrend. Trading is about probability and if a pair is in an uptrend the likelihood is that the trend will continue. It’s the line of least resistance as I believe Jessie Livermore said. A second reason is that this was a smaller trade size and I had the first, larger one in profit enough to cover any small loss I might take on this one. My initial stop loss was just below the upper channel line although I have now moved it to breakeven. Third, I liked the way that RSI didn’t drop too much on the pullback. That said to me that momentum was still there. . Fourth, and finally, the bearish candle ended at the channel top with no upper wick and the following bullish candle was strong. The two together may form some sort of double bottom. I’m still not thrilled with the break of the trend line yesterday on the short tern chart but for now this is the right position to be in. Here’s this morning’s hourly chart:
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

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