Kevin and the Giant Peach

In this post and the next, I’m going to describe two forex trades that I took this past week – one that I’m winning on and the other that I lost.

Today, I’m going to talk about the loser. It involves the British Pound (GBP) vs. the US Dollar (USD).

A look at the daily chart of GBPUSD over the past year shows that GBP moved lower against the dollar from September 2008 through March 2009. From March through May, GBP retraced much of that lost ground but has since been trading in a channel between 1.5800 and 1.6800.

GBPUSD Daily Long View

The little yellow eclipse, way over to the right, is the day that I made the trade – October 20th. The next chart zooms in on this for a better view.

GPBUSD Daily Short View

This happened at 8 a.m. on October 20th. After that, the price was moving down – opposite of the direction I was going – but sticking to my “system”, I went long at 8:24. And it continued on down.

GPDUDS Hourly

When I placed the trade, I immediately placed an entry order for a stop loss at 100 pips below my entry price of 1.6467. Long story short – no pun intended – I was stopped out a little over 2 hours later at my stop of 1.6367.

Was I happy with my loss? No, but I was happy with the trade, for two reasons.

First, I took the trade based on my system signal which can be hard to do when you see the price going the wrong way. But you have to take the thinking out of the trade as much as possible and have faith in your system.

Second, I cut the loss short which can be hard to do if you still “feel” that the overall trend is still intact and you will be proven “right” over the long haul. That has always been my main challenge in trading.

In fact, the pair did turn around and go up a few hours after I was out of the trade. In the next day, the pound was up some more – but it then dropped 300 pips on Friday!

For the uninitiated, 300 pips is $3,000 if you’re trading full lots (100,000 units of currency), $300 if you’re trading mini-lots (10,000 units) and $30 if you’re trading micro-lots (1,000 units).

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