ForexSpirit

This past week encapsulates in many ways how my trading is going overall. The five days are almost a microcosm of how my trading performance is over the longer term. There is plenty of good that permeates my trading activities most of the time. There is also the occasional rash or impulsive decision that hasn’t been thought through properly that can end up sabotaging hard won profits.

In the zone
From Monday to Thursday I was very much in the zone. The trading decisions I made were effortless. I was not searching around, hunting for a trade to take. I felt like I had my finger on the pulse of the market and was able to feel which way the momentum was flowing.

Tuesday was a prime example of this. Tuesday morning before the US Trade Balance which was to be released at 8:30am EST I was poised to trade long the US dollar. When the Fed put out the news of the raise to $200b and the euro dipped I entered short EUR-USD.

I had an outlook for the day. A stimulus affected the market, which ended up moving in the direction I was anticipating. I went with the flow and took my profits quickly as this was a counter-trend move.

By Thursday night I was quietly confident and even slightly impressed with the trading decisions I had made so far during the week. I very much felt like this is what being in the zone is. I made a mental note of the feelings, the calmness, confidence and the ease with which trading decisions were arrived at. The lack of internal struggle and worry.

Out of the zone
Things began to become unstuck Friday morning when I made several trade entries that were not as well thought out as I would have liked (in hindsight this is now rather obviously). At the time, I think my prior ‘in the zone’ realisation had meant I got slightly cocky and I went with the first trading idea that entered my head.

I’d had plenty of profitable trades already that week. I was in the zone. I didn’t need to worry or fret about the downside to any trades I placed. Nothing could go wrong. Right?

I didn’t take the proper time to mull over the US CPI data that was released showing no inflation for the month of February.

Rather than seeing how the market would interpret this as the Fed not having to worry about inflation, and thus increasing the likelihood of a 75 (or more) basis point cut next week, I fixated on a sell-the-fact scenario.

The sell-the-fact scenario is something that definitely has to be considered as the dollar selling has been a one way street for the past few weeks. The dollar negative news just keeps on coming. When we run out of dollar bulls even another piece of bad news won’t cause any more dollar weakness.

My idea has a sound foundation, I just think I was too early in implementing it, especially at the rather high leverage level I used before seeing valid confirmation of renewed dollar strength.

By lunchtime both my euro and yen positions were just over 100 pips underwater. I knew that my rationale for placing those trades was not happening and so I closed out all my open trades. In doing so I wiped out all the profits I had generated earlier in the week.

I’m not entirely sure if what I did next was due to a desire to immediately make back what I had just lost, or if I was acknowledging that I had been going against the market flow and had no problem in cutting my losses so as to switch my trading direction. A mix of the two I think.

I entered new trades, going 2:1 long EUR-USD, 3:1 short USD-JPY and 2:1 short USD-CHF.

With all three currencies ending the week at extremes that seem to point to continued dollar weakness next week I’m not entirely dissatisfied with the positions I’m holding. I just wonder if I rushed into flipping my positions too quickly. Friday afternoon is never the most active time of the week in the currency markets (or just about any other financial market). Would it have been so bad if I had just waited until the start of next week before entering any new positions?

Probably not. I think I was just a bit too impulsive, as well as being angry with myself for having entered those trades early Friday morning without thinking things through properly. Rather than stepping back and taking time to let my emotions dissipate I switched my trading direction and dove back in.