Week 6 - Wed- Current Equity: $528.45

I'm not sure I have mentioned on this blog what the very first rule of successful trading is.

SURVIVE!
If you can survive trading each week, you have the real opportunity to make it into markets that can enrich you. This week gives us a good lesson of why it pays to watch what's going on, and an old but durable way to minimize your risk while allowing large gains.

I am still short GBP/JPY and USD/JPY from early Monday.

I got stopped out on my long EUD/USD, long GBP/USD and short USD/CHF within a day or so of entry. Almost every trade taken this week had great profits for at least an hour or two. For a while, all the trades were very profitable at the same time. And then it became obvious a new direction was being taken by the main pairs.  And in the case of GBP/USD, virtually no trend at all to take advantage of.  Anyone trying to force a trend trade in that pair this week has died a miserable death.

The Japanese yen pairs got strong in the direction of the Japanese yen. The Euro and the Swiss side of currency pairs got weaker. And the dollar got stronger too, and so far, just not as strong as the yen.

Anyone who has been following this Forex Challenge has probably noticed that FirstStrike entries tend to be good for at least a short term pop. Almost 90% of them get ten to twenty pips profit after entry before they do some retracing. (That fact has given some short term traders ideas--) Some, like the GBP/JPY this week, just keep cruising for a day or two.

After having almost $30 in profits very early in the week, then seeing similar and correlated pairs failing one by one tells you that a change is in the wind.

Note: trend weeks start out like this one..., but keep on going. If the various pairs start pooping out, warning bells go off!!!

Getting stopped out (losing money) always gets my attention. Like a slice of a Dominos pizza with burnt crust. Don't like it, never will.

After having over 500 pips profit in the short GBP/JPY last night, seeing the market reverse strongly and persistently along with the USD/JPY pair told me that maybe too much of the forex fraternity's money was now at risk. I covered half of my short GBP/JPY @ 209.66 (see explanation below) and placed a breakeven stop at 212.37 where I entered. And in the USD/JPY I remain short but am also at a breakeven stop @ 108.15 where I entered.

I have a rule of thumb that when risking 60 pips, if I have 180 pips profit at any time, I can move the protective stop to breakeven. When you have gained 3 times your risk, it is illogical and mathematically unsound to take a loss after this point. And after 300 pips of profit (5 times your risk) I can exit half of my position if the market takes back 50% of its maximum profit position and go to a breakeven stop on the other portion.

By the way, this rule is just a slightly modified form of risk protection I learned from veterans in the Chicago trading pits. Pit traders don't last too long if they let big winners evaporate to nothing.

This isn't a necessary or absolute rule to follow. I will always take advantage of a reasonable opportunity to protect my profits when I can see a strong potential for a major turning point because of the inconsistency of the other markets I am watching and trading.

Even the original currencies of gold and silver are giving up ground to the dollar.

This should prove to be a key week in forex.

Have a good night.

Joel Rensink
www.infiniteyield.com

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: newsletter@infiniteyield.com and tell me to which address you would like it sent.

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