Forex Trading Insights Mar. 9th – What Do You Do With Bad Trades?

This week I’m going to discuss something that has probably happened to many of you before and something that just happened to me a couple days ago.

The Two Trades

The NZDUSD had just dropped three days in a row, shedding 300pips in the process with each candle selling off fiercely and price breaking and close below the daily 20ema for the first time all year (actually since Dec. 2011).  I blogged about this in my price action forex setups on Mar. 7th two days ago.  In this post I mentioned how price had just formed an inside bar and I was anticipating a pullback to the .8245/50 level and the daily 20ema.  Below is the chart from that post.

price action forex trading insights chris capre 2ndskiesforex

Anticipating this pullback, and that I might possibly asleep when it does so, I put in an order to short at .8254 with a stop at .8296 and a target of .8145 giving me a 2.33 R:R reward to risk play.  Now below is a chart of what price did the next day.

price action forex trading insights chris capre 2ndskiesforex mar 9th

As anticipated, price pulled back to the 20ema, although it went a little past my entry and a little further than I had expected.   Price went up all the way to .8279, but here is where things got interesting.

When I opened my charts and looked at what had happened, I took a glance at the 1hr chart as the daily candle had pushed up quite strong and was on the highs at the time I was looking at this – all suggestive of strong buying throughout the day.  This is what I saw on the 1hr chart when I started to analyze the price action.

intraday price action forex trading insights mar 9th

Now my first thought was price is being heavily bought up, as it has just climbed for 10hrs in a row.  I started to say to myself, “10hrs, its been bought up for 10hrs straight?”  I actually did post that to myself as a question, even though the reality was in front of me.  Funny how the mind works.  Anyways, I had a tough decision at that point as my trade got triggered and literally went straight into the negative, progressively getting worse as time goes on – not my favorite situation.

I decided to let my trade play and if it hits my stop, se la vie that I needed to remain disciplined more than anything else.  Then a price action trigger came into play that changed things for me.  See the chart below.

pinbar price action forex 2ndskiesforex mar 9th

Now after having some doubts, a pinbar formed which gave me a little relief my trade my actually worked out, and that I just got in too early.  I checked on the daily charts and noticed the high of the pinbar was literally a few pips above the 20ema.  This was the original strategy of why I was getting in, a pullback to the 20ema which I even wrote about in my blog as an opportunity to sell.  So here was what I was looking for.

Problem was, I already was in the trade and realized I had a poor entry, or non-optimal.  I generally have the rule ‘never add to a losing position’ so this mantra was definitely playing in my head.  I really had a tough choice here of following an important rule which has saved me more than anything else.  So here I was deciding if I stuck to my rules and maintained the discipline, or took a new trade on a pullback from the pinbar and attempted to profit from the trigger and play I really was looking for.

I then started to do the math and realized if I took a pullback, say to the high of the bull candle before the pinbar, I could get away with a 16 pip stop and have a target of say .8224 (anticipating a pullback to the 1hr 20ema which would be rising since it was in an short term uptrend).  This gave me a 4:1 reward to risk play which was definitely worth it.

On top of it, if price did sell off from this pinbar, and went to that target, I would also be in the positive for my original position by about 30pips.  The math on the second trade didn’t pan out for me exiting at the .8224 level, but on the first it was strong.

In the end, I took the second trade, reasoning it was the entry I really wanted, and so if I was wrong on that, then I was really wrong to begin with and deserved to lose twice, but if I was right, then trusting my original analysis would pay off.  Below is what happened over the next 2hrs before I was faced with another decision.

pinbar price action forex 2ndskiesforex chris capre mar 9th

The Pinbar rejection had worked exactly has I anticipated, and price although sold off tentatively on the next candle, gave me my entry and then followed up with some stronger selling on the 3rd bear candle.  But I had a decision.  My original trade was now in a small profit, about 14pips, and I had to contemplate something that I always do in these situations.  My original entry, although part of the main plan, was not an ideal entry, and in fact was what I would call a premature or poor entry.

Anytime I find myself in a position that I do not like, or find out was a bad play, I generally try and get out of it as soon as I can.

Why?

Because I can accept the risk for a trade I did perfectly and executed exactly as I had envisioned it, but I am less likely and excited about accepting the risk and loss for a trade I did not like, nor felt like was a precise entry.  So do I bail on this one, and leave the pinbar pullback trade on, which I feel really good about?  Or do I stay in and see if I can get some more profit out of it?

Ultimately, I chose the former, as I hate losing on trades that were poor entries and never feel good about losing on those.  But when I lose on a textbook trade that just didn’t pan out, I feel ok about it as I had to take that trade, and did everything right.

In the words of the great Jean Luc-Picard (for you Trek fans), ‘There will be times, where you make no mistakes, do everything right, and still lose. That is not a weakness on your part, that is life.‘  I took this statement to heart when I first heard it, but I can definitely relate it to trading.

We psychologically are more likely to accept a loss on something we did everything right, then on a trade where we did many things wrong.  

So, I bailed on the trade for a small profit.  Here is how the trade progressed.

pinbar trading price action forex 2ndskiesforex mar 9th

Yes, I would have profited more if I kept the original position in, but honestly, I felt ok about it as again, I hate being in positions that I didn’t like the entry from the start and would rather just be out of them then take the loss on them.

My guess is many times you have been in this position, where you took a trade, then don’t feel good about the entry, it goes against you, and you have to make a decision.  Then, another setups comes shortly after where you really like the entry, but maybe are concerned about taking the trade because you are already negative, and your confidence about your original analysis may be lacking in that moment.

First off, trust your original instincts on the trade.  By doing so, this will build confidence in your ability to call good setups in the future, while not trusting it will leave doubt in your mind the next time a similar setup comes along.  Secondly, don’t be afraid to be wrong, make bad entries, and let them go.  Mistakes are a part of this game.  If you believe in the learning process and that you can trade successfully, then your brain will actually wire itself in such a way you adapt and grow from these experiences.

Third, watch your psychology after being in a losing position and notice how doubt could be influencing your decision making with the choices you face in real time.  It is highly likely you will have to make new choices while one trade is currently in the negative.  Don’t let this one trade define you and your abilities as a trader.  Be willing to be wrong, but get back in the saddle again.  By facing a mistake and still willing to make another decision (and possibly mistake), you’ll eventually build a confidence in your ability to win even after a loss or bad trade.

So hopefully this all makes sense, is something that you can relate to, and use in your personal trading.

Kind Regards,
Chris Capre

Other Related Articles:
4 Keys to Improving Your Trading
Your Brain, Trading and Finding ‘The Zone’
Building a Successful Trading Mentality

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Buddhist, Trader and Philanthropist

I'm Chris Capre, Founder of 2ndSkiesForex. I help traders of all levels change the way they think, trade and perform. As a professional trader, I specialize in trading price action. As a teacher, my passion lies in showing you how to re-wire your brain for successful trading. Want to improve your edge right now? Visit my Price Action Course page.

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  • patricia

    Hi Chris,

    thanks for sharing this. It’s somewhat comforting to know even a pro like you make those kind of mistakes on the entry too. I also had a limit short order triggered but got out of it when I realized it was still pre-mature to short before the pullback candle closed which would tell me how the 20EMA would hold. I waited for the daily candle to close and only entered a short order when seeing price action being rejected off the daily 20EMA. Would you say the second entry was the right one then ? If not, where or when do you think is the right short entry in this case ?

    thx,
    Patricia

    • Hello Patricia,

      Sure, we all make mistakes, but pros just make less of them and when they do, they cause less damage.

      I cannot say for sure about your entry since I did not see all the details, but if you were in a similar situation, then it sounds like
      it so good play.

      But again, you can use this method to find your trigger in these situations.

      Kind Regards
      Chris

  • Nikos

    The fact that an almost loosing trade turn to winner by taking another one to hedge the loss shows clearly here your knowledge about how the market moves. Thats what i am working now not waiting for the perfect setup but making everyone of it taking under logical conditions a winner by adjust it with another order if its necessary. offcourse this adds risk but if your are in the right move of the market, it works. I beleive Daily ema and almost 61% of Hourly fibbonacci swing is very good point to wait for a turning point.
    Chris, i admire your analysis and you gave me some good ideas about trading. Thank you!

    • Hello Nikos,

      it should be noted I didn’t take the second trade to hedge the first. In fact, the second trade was a completely independent signal on its own with its own trigger.

      but am glad you like the analysis and have given you some helpful ideas around trading

      kind regards
      chris

  • rafael

    Hi Chris,
    I rad and like your articles very much. although not entirely my way of trading one can only hope to learn more from people taht know more.
    One quick question.
    How did you determine the target off the pin bar trade (the second one)? is it a Fib of the swing rise?
    thanks
    Rafael

    • Hello Rafael,

      I am glad you like the articles so thank you for commenting.

      In regards to the target, in this case I used a 2:1 target or 2x target in relation to my risk which was just above the dynamic support or the 20ema.

      So hopefully this clarifies my target.

      Kind Regards,
      Chris

  • Khalid Naeem

    hi chris,
    i want to know that how to trade pin bar in 1 hour chart, when i see the pin bar on 4hr chart.

    • Hello Khalid,

      You are welcome to join my Price Action Course where I teach this directly.

      Kind Regards,
      Chris Capre