ForexSpirit

Today was an incredibly educational affair with plenty of lessons learned on how to better manage my scalping positions.

The educational aspect comes from the fact that I had three losing trades today; two of which hit the pre-determined maximum stop loss allowed of 250 pips while the third was manually closed out for just over a 200 pip loss.

My first major mistake was in determining which direction to trade in. Yesterday I highlighted my view that the probability for a dollar correction of some sort was increasing. Today’s London and early NY session provided no real direction for the day, with price rangebound on all three pairs that I scalp in. If anything there was a slight euro and sterling long bias based on the bounce from the Asian lows.

There was probably nothing wrong in still going with a dollar bull viewpoint (until proved otherwise) but my trade management given that viewpoint was definitely subpar.

My first trade of the day was a breakout short on EUR/USD. After going into positive territory for a fleeting few minutes this trade then meandered into the red for hours. In hindsight the prudent thing to do would have been to prune it at as close to breakeven as possible after two to three hours.

The lack of any dominant US dollar bull pressure was giving early warning signals that a retracement was on the cards.

The next mistake was in allowing similar sorts of positions be opened in GBP/USD and EUR/JPY while things remaining pretty rangebound across all three pairs.

My third mistake was in not adjusting the stop loss levels of all three open trades to limit my maximum loss to 7% across all open losing trades. This mistake was compounded by the fact that the GBP/USD and EUR/JPY losing shorts were opened using limit orders while I was away from my computer in meetings, and the resulting moves that took that deep into the red happened quickly.

The lesson here is to not have multiple limit orders in place, especially ones that are the in similar vicinities to price when there is already a position open.

I need to be able to encounter, manage and deal with the large losses that this scalping approach advocates to make sure that I am comfortable handling them and that they do not erase any edge I might have.

For that reason I’m extremely grateful that I had these losses today. They give me a good starting point in how I need to be able to improve my management of positions while holding a losing trade.

This is the reason why I’m demo trading.

Trade 1
Short EUR/USD
Entry: 1.2455
Exit: 1.2659
Pips: -204

Trade 2
Short GBP/USD
Entry: 1.5598
Exit: 1.5848
Pips: -250

Trade 3
Short EUR/JPY
Entry: 120.98
Exit: 123.482
Pips: -250.2

Trade 4
Short EUR/USD
Entry: 1.2598
Exit: 1.2588
Pips: +10

Trade 5
Short GBP/USD
Entry: 1.5795
Exit: 1.5784
Pips: +11

Trade 6
Long EUR/JPY
Entry: 123.97
Exit: 124.072
Pips: +10.2

Trade 7
Long EUR/USD
Entry: 1.2652
Exit: 1.2662
Pips: +10

Total daily pips: -663

After my GBP/USD and EUR/JPY shorts hit their stop losses I manually closed out my first EUR/USD short which is denoted with a dark blue triangle in the above chart.

The first sterling short was at just below 1.56 which had seen some rangebound action for a few hours. As does happen I chose to short it when the rangebound action was all but over and a long move was kicking off.

The second short was at the 1.58 level, which had been decent resistance on Sunday and acted so again here, providing a brief pause in the upward march of this afternoon’s sterling action.

The EUR/JPY short entry was a particularly badly chosen entry point as there was no real resistance or price action around the 121 handle. There was basically free space between 121 and 124. It would have been better to place a short at 124 where there had been decent support action on October 22nd and 23rd.