First Trades
By Laetitia Vaval | September 11, 2007
Tuesday, September 11, 2007
I’ve just set up my new demo trading account and here I am with $50,000 (fake) dollars at my disposal to buy or sell a currency pair that I believe will move in the direction my combination of technical and fundamental analysis will have predicted.
The first currency pair i looked at, of course, was the EURUSD. The Euro was reaching a record high at around 10:30AM 1.38494 as you can see on the chart above.
I had seen an important resistance level @ 1.3837 and got in as soon as that resistance level was crossed. I got long at 1.3841 (where the top line is drawn). The Euro peaked at 1.3849 and traded back down to its previous levels. I sold my position at 1.3832. A 9 pip loss ($90).
Having traded previously, I can easily identify some of the mistakes I made on this trade. First, I did not clearly identify my Risk vs. Reward (and with that my Stop and my Limit). My upside was difficult to estimate since I was expecting a breakthrough all-time highs. My downside however was about 19 pips since the next closest support level can be found at 1.3822 (the bottom line on the chart). I’ve learned that a trader — especially a beginner should never enter a trade without having first identified his risk vs. reward. Had I followed this rule, I should have expecting to see at least a 40 pip upmove - since my downside was 19.
Although i’m not an expert, I believe that a 40pip upmove would have been quite important and difficult to achieve without some sort of news breaking event. I’ve traded equities before and although false breakouts exit, they seem more rare than in the Foreign Exchange market. I’m used to seeing stocks skyrocket after breaking all time highs. This didnt happen with the EURUSD — i was just the victim of a false breakout.
Another mistake I made in one of my other trades was that I got shaken out too quickly. I entered a position, the currency pair did not immediately move the way I had expected it to, and i quickly closed the position by fear of loosing too much. Of course, immediately after I got out of the position, the pair made a reversal and started moving the way my analysis had predicted. That’s most likely an old habit left from day (short-term) trading. I’m not used to waiting hours (and sometimes days) to see the results.
In my EURUSD trade, you can see that I exited my position before my stop was hit. Although it was for the best since the currency kept trading down from there, it probably shows a lack of discipline by not respecting the levels i had previously set.
For this trade i did not factor in any sort of fundamental analysis as I was looking to enter a short term position and trade a breakout.
Tags: demo trading, dollar, dow, eurusd, forex, forextrading, pips, trades, wall street warrior
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