EURJPY scalp trade - 29 February 2008

I just got out of this trade here at 00:00 GMT - 2 AM o'clock local time.

A pretty nasty selloff in the Yen Carry crosses induced by the breach of the 105 Exporter defended level -- the rumored stops sub 105 / 104.90 were triggered leading to an extended plunge of the pair to 104.70 in a swift manner.

Playing with the drop in EURJPY I decided to enter a swift counter trade at the previous Resistance level around 159.50 - which coincided with 50 day MA on 4-hour chart.

My Initial idea was to get out fast if I see a breach there.

Well so much for discipline and cutting loss early :>> I averaged down at 159.30 level --- here by mistake I was trying to buy 1 standard lot but I actually sold I one and took some little 20 pip loss but the dynamics of the trade were going even lower.

Then I checked the Daily chart presented above --- the 159.22 stood for the 50 day MA which I started to believe that will make the drop at least stall or pause (no matter it would reverse or continue even lower).

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I want to make sure I never forget this insane scalp trade as it was ultimately risky and it exposed the whole week's labor at a plain collapse. Actually the whole equity was at stake.

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My view that I still could exit at least at Breakeven led me to add more longs at 159.23 >>>

a that point I guess I touched the largest leverage I ever used - 7 standard lots with average trading location at 159.35.

I swiftly covered 3 lots at 159.43 at the first bounce. Then it broke sub 159.25/29. So on the next quick bounce I saw 159.42 I immediately squared the last 4 standard lots and went flat with a little gain to make up for the emotional strain and clearly irrational use of leverage.

......... .......... .......... ............ ...........

What is worse is that I had an excellent trade location around 160.70 at the start of the European session - I closed it with 30 pips since it was a bit sluggish - but I should have locked in initial profit and run stops above clear level indicated by the Descending Triple top formation quite evident on the 4-hour chart -- Daily is seen as 3 candles with lower highs.

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So this is just a mark to remember that good trades demand CONVICTION, PATIENCE, PROPER MANGEMENT and certainly stop and limit. Those 30-40 pips with 1 standard lot are nice but what makes trading professional is going with a trend and managing the trade properly - otherwise it is plain gamble - let's face it!

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:: After it bounced to 159.42 it went straight down to 158.70/80 - it would have just wiped me out completely!!!

>>>>>>>>>> Now regarding conviction - this is what Stanley Druckenmiller recalls:

Soros came into my office, and we talked about the trade.
"How big a position do you have?" he asked.
"One billion dollars," I answered.
"You call that a position?" he said dismissingly. He encouraged me to double my position. I did, and the trade went dramatically further in our favor.

Soros has taught me that when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage. As far as Soros is concerned, when you're right on something, you can't own enough.

>>>>>>>>>>>

And another classic - this is from the Interview with Paul Tudor Jones in Market Wizards by Jack Schwager:

JS:: What are the trading rules you live by?

PTJ:: Don't ever average losers. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well. Never trade in situations where you don't have control. For example, I don't risk significant amounts of money in front of key reports, since that is gambling, not trading.

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If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in. There is nothing better than a fresh start.

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Don't be too concerned about where you got into a position. The only relevant question is whether you are bullish or bearish on the posi­tion that day. Always think of your entry point as last night's close. I can always tell a rookie trader because he will ask me, "Are you short or long?" Whether I am long or short should have no bearing on his market opinion. Next he will ask (assuming I have told him I am long), "Where are you long from?" Who cares where I am long from. That has no relevance to whether the market environment is bullish or bearish right now, or to the risk/reward balance of a long position at that moment.

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*** The most important rule of trading is to play great defense, not great offense. ***

Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible drawdown. Hopefully, I spend the rest of the day en­joying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.

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Don't be a hero. Don't have an ego. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead.

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Jesse Livermore, one of the greatest speculators of all time, report­edly said that, in the long ran, you can't ever win trading markets. That was a devastating quote for someone like me, just getting into the busi­ness. The idea that you can't beat the markets is a frightening prospect. That is why my guiding philosophy is playing great defense. If you make a good trade, don't think it is because you have some uncanny foresight. Always maintain your sense of confidence, but keep it in check.