I gave up on Trading EUR/USD, Here is why
Today I was about to violate my trading plan because of being unable to recognize when I didn't understand what price action was doing.
My trading plan stipulates that I can only trade when Higher timeframes (1D, 1W, 1M) are in alignment with lower timeframes (H4, H1, M15)
If they're not in alignment, my strategy doesn't work. I have no way of predicting price movements and knowing I'll most probably be right.
Today this alignment was not present, yet, because I subconsciously wanted my market analysis to be right, I failed to acknowledge this misalignment and tried to come up with trade ideas.
Price action kept on invalidating my trade ideas as I prepared them, and I found myself looking for new ideas.
"Since this entry scenario is now invalidated, maybe price will do this instead and I will look to enter after this scenario is confirmed"
"This scenario failed, instead of looking to buy EUR/USD today, I might look to sell instead after price rejects this level"
"Since price failed to reject this level, maybe it will reject this other level and I will look to sell there"
You get the point.
I was unable to make strong cases, my cases kept on being invalidated and I kept coming up with new ones on the go! Sort of chasing a rabbit.
Don't do this.
For example, understanding when a 1H bearish trend is a Daily timeframe pullback from a Bullish trend and having an expected level where that 1h trend and Daily pullback is likely to find support and reverse, continuing the main trend.
This stops me from entering long trades and losing because although the Daily timeframe is bullish the lower timeframes are still trending bearish which indicate the pullback is not yet finished. or from taking 1H short trades past the daily pullback target just because I saw a 1H bearish trend, failing to realize that trend might be reaching its end.
If However price pulls back past my target level, and the lower timeframe trend continues pulling back even though the Higher timeframe is supposedly bullish, then If I don't have a logical pull back target — I am effectively neutral.
In other words, I do not understand what price is doing at that point in time. It's time to step back and wait for a new development that I can understand occurs.
What happens when I am either overconfident or eager to trade is that I can get into my own head and fail to realize I'm in unknown territory.
This failure led me to keep trying to establish trade scenarios that of course kept getting invalidated because I do not know how to make prediction in such market conditions — My timeframes were not aligned.
I was able to realize this and adjust my behavior.
However, what often happens is you fail to realize this, you come up with a trade idea, and you take the trade and it ends up being a loss — Caught up on the wrong side of the market.
Or even worse, 2 or 3 trades work out, and the trader believes their strategy is good. Then get caught in a 10% drawdown because of acting on the same patterns.
My point is, that it's important to be able to recognize when market conditions fall outside the scope of your strategy and its edge — Recognize when the market is in a cycle where you don't understand how to trade profitably — and be able to sit out and say I don't know.
Don't try to find trends in the middle of price ranges.
The number one job of a trader is to Protect Capital in order to have available capital to allocate to profitable market opportunities.
Trading outside the scope of your strategy and its edge is failing to protect the capital — It's like trying to Play Soccer with a Basketball, the shots, the passes, the tricks might work here and there, but will usually come out faulty.
In my specific case, I began the week with a bullish view for EUR/USD from the daily timeframe, but the lower timeframes, where I execute and manage trades, have been in a bullish trend since Monday NY Session, So since I couldn't find long opportunities, I started looking for short opportunities, even though I had no clear rationale that aligned with the higher timeframes. My scenarios and ideas kept failing, and I kept coming up with new ones, until I became aware of the pattern due to writing down my analysis and process and realizing I actually did not understand the current stage of price action.
That's where the importance of a well-documented trading plan alongside a journal for analysis comes in.
A journal isn't just to record trades. It's also to develop your rationale and ensure you can clearly explain the why behind your actions which can then be cross-examined with the trading plan.
I have established clear rules for when to stay out of the market and sit on my hands. If timeframes are not aligned and moving in synch, I stay out — It's a non-negotiable.
Of course this is specific to each strategy, but every strategy must have an underlying trading plan with its non negotiables.
My trading plan stipulates that I can only trade when Higher timeframes (1D, 1W, 1M) are in alignment with lower timeframes (H4, H1, M15)
If they're not in alignment, my strategy doesn't work. I have no way of predicting price movements and knowing I'll most probably be right.
Today this alignment was not present, yet, because I subconsciously wanted my market analysis to be right, I failed to acknowledge this misalignment and tried to come up with trade ideas.
Price action kept on invalidating my trade ideas as I prepared them, and I found myself looking for new ideas.
"Since this entry scenario is now invalidated, maybe price will do this instead and I will look to enter after this scenario is confirmed"
"This scenario failed, instead of looking to buy EUR/USD today, I might look to sell instead after price rejects this level"
"Since price failed to reject this level, maybe it will reject this other level and I will look to sell there"
You get the point.
I was unable to make strong cases, my cases kept on being invalidated and I kept coming up with new ones on the go! Sort of chasing a rabbit.
Don't do this.
For example, understanding when a 1H bearish trend is a Daily timeframe pullback from a Bullish trend and having an expected level where that 1h trend and Daily pullback is likely to find support and reverse, continuing the main trend.
This stops me from entering long trades and losing because although the Daily timeframe is bullish the lower timeframes are still trending bearish which indicate the pullback is not yet finished. or from taking 1H short trades past the daily pullback target just because I saw a 1H bearish trend, failing to realize that trend might be reaching its end.
If However price pulls back past my target level, and the lower timeframe trend continues pulling back even though the Higher timeframe is supposedly bullish, then If I don't have a logical pull back target — I am effectively neutral.
In other words, I do not understand what price is doing at that point in time. It's time to step back and wait for a new development that I can understand occurs.
What happens when I am either overconfident or eager to trade is that I can get into my own head and fail to realize I'm in unknown territory.
This failure led me to keep trying to establish trade scenarios that of course kept getting invalidated because I do not know how to make prediction in such market conditions — My timeframes were not aligned.
I was able to realize this and adjust my behavior.
However, what often happens is you fail to realize this, you come up with a trade idea, and you take the trade and it ends up being a loss — Caught up on the wrong side of the market.
Or even worse, 2 or 3 trades work out, and the trader believes their strategy is good. Then get caught in a 10% drawdown because of acting on the same patterns.
My point is, that it's important to be able to recognize when market conditions fall outside the scope of your strategy and its edge — Recognize when the market is in a cycle where you don't understand how to trade profitably — and be able to sit out and say I don't know.
Don't try to find trends in the middle of price ranges.
The number one job of a trader is to Protect Capital in order to have available capital to allocate to profitable market opportunities.
Trading outside the scope of your strategy and its edge is failing to protect the capital — It's like trying to Play Soccer with a Basketball, the shots, the passes, the tricks might work here and there, but will usually come out faulty.
In my specific case, I began the week with a bullish view for EUR/USD from the daily timeframe, but the lower timeframes, where I execute and manage trades, have been in a bullish trend since Monday NY Session, So since I couldn't find long opportunities, I started looking for short opportunities, even though I had no clear rationale that aligned with the higher timeframes. My scenarios and ideas kept failing, and I kept coming up with new ones, until I became aware of the pattern due to writing down my analysis and process and realizing I actually did not understand the current stage of price action.
That's where the importance of a well-documented trading plan alongside a journal for analysis comes in.
A journal isn't just to record trades. It's also to develop your rationale and ensure you can clearly explain the why behind your actions which can then be cross-examined with the trading plan.
I have established clear rules for when to stay out of the market and sit on my hands. If timeframes are not aligned and moving in synch, I stay out — It's a non-negotiable.
Of course this is specific to each strategy, but every strategy must have an underlying trading plan with its non negotiables.
כתב ויתור
המידע והפרסומים אינם אמורים להיות, ואינם מהווים, עצות פיננסיות, השקעות, מסחר או סוגים אחרים של עצות או המלצות שסופקו או מאושרים על ידי TradingView. קרא עוד בתנאים וההגבלות.
כתב ויתור
המידע והפרסומים אינם אמורים להיות, ואינם מהווים, עצות פיננסיות, השקעות, מסחר או סוגים אחרים של עצות או המלצות שסופקו או מאושרים על ידי TradingView. קרא עוד בתנאים וההגבלות.