Why Trading Was Bad Last Week

My Forex trading results from last week were a bit of a disappointment to the Asian Breakout strategy I'm currently using. The GBP/USD was hurt the most, and after reviewing the past couple weeks of trading, it's pretty clear why. The Asian Breakout strategy is a solid one, but it is not immune to the technical players in the Forex market. One big one in that regard that was a major player last week was that of Support and Resistance.

I'll get right into it. Here's a chart daily chart of the GBP/USD leading up to last week's trading:


On it, the orange lines represent, from top to bottom, downtrend resistance, downtrend support, and horizontal support. The light blue lines are lines that have been tested at both support and resistance. Generally speaking, these lines will be strongest over the long term. As a general rule for drawing support and resistance lines, you can draw a line with two points touching it, but a line with three or more will be stronger and more reliable. You can see some lines on the above chart have been tested five or more times. Note also for horizontal support the tendency of lines to show up at psychological levels. The three I have drawn above are quite close to 194.00, 195.00, and 196.00. (You'll also see these lines at .25, .50, .75, especially on the JPY pairs...but that's a post for another day.)

OK, let's compare how trades set up two weeks ago on the GBP/USD, when I was profitable every day, to last week, when I was on the losing side almost every day on that pair. Here's one trade from the profitable week:


It's a 30 minute chart, a smaller timescale view of the chart above. The area between the vertical yellow lines was the region I was looking at to set up the trades, putting a buy stop 4 pips above the high for that period and a sell stop 4 pips below the low for that period. (Ignore the horizontal gray and white lines...they're just current price when I took a picture of the chart). Note how there are no support or resistance lines to be found anywhere on the chart. This means that there should be pretty normal price motion, and I should be able to set up my take profit:stop loss levels of 45 pips:30 pips, as usual. As you can see, the price first moved down and continued to my take profit level, then reversed up, activated the buy, but then came down to my stop loss. Given my TP/SL levels, though, I still ended up 15 pips on the day.

Let's look at another trade from the same week:


This time, we see a resistance line creeping into the picture, but it's still around 75 pips below the level of my breakout sell point. As my take profit is 45 pips, and still 30 pips from the support line, it still would have been safe to place that trade. The trade above would have also been considered valid. That day prices moved down and continued down, triggered just the sell side of things, so I finished out up 45 pips on the day.

Now, let's compare that week to last week. Here's an example of one trade:



Pay close attention to the scale, as it's different than in the above charts (you can click on them for a bigger view). Upon setup, we see that a resistance and support line are binding the range within just 100 pips. Setting the breakout levels as usual, that leaves less than 25 pips up to the resistance line, and less than 25 pips down to the support line. Price action triggered both buy and sell orders, and as my TPs were still set at 45 pips and price wasn't successful at breaking beyond the S/R levels, I got stopped out of both orders, for a loss of 60 pips on the day.

Here's another trade:


Note that we're still in the same 100 pip channel that we were on the previous trade. Upon setup, that left less than 35 pips up to the resistance line, and less than 25 pips down to the support line. Again, price broke out in both directions, but both the resistance and the support held (Note how well the lines were respected this time). Again, I got stopped out of both trades and ended up down 60 pips on the day.

So, what have I learned? In short, that I need to be paying attention to Support and Resistance lines, as they are certainly big factors in the highly technically driven Forex market. I'm not quite sure how I'm going to implement it yet, but I'm almost sure it will become part of my strategy.

For now, I'm still not going to make any changes to my original strategy. I want to watch the charts for at least another week before I do. I will likely either not take trades on the days when I would be trading into a line as in the last two examples above, or perhaps shoot for a more modest target (i.e. try to scalp 10 pips on the breakout). We'll see in time, as I'll be paying attention to it, and posting about what I find, of course.