My Millionaire Goal

I’m a student of the art of price action reading… and a hardworking one at that… So, I’m going to post some charts now and then to record down my questions and thought processes… for future reference….

Looking at the chart below, I probably won’t trade this… because I really don’t know how the price will proceed from here… Still a newbie at reading price action… I see contradicting signals… as listed below… very interested in how this pair will perform when market re-opens on Monday…

EURUSD, where next?

BULLISH

1. MACD Divergence at point A
2. A breach of support (Fibo 61.8) that failed at point A
3. Price action supports a reversal (close is relatively strong, midway from the low)

BEARISH

1. A breakout of the 1.3567 to 1.3606 trading range (indicated by the two red lines) at point B. However, this breakout seems to lack conviction because the candle reversed and closed at 1.3606.
2. Further hesitation is evident at point C.

P/S: I have a slightly bullish bias for this chart. This is because a doji (by itself) is not a good signal, unless it is confirmed by other price action)

Pinocchio Bar + MACD Divergence + Key Support Level + Fibo 61.8

The trade setup above is one of the best I’ve posted so far….

1. MACD Divergence
2. Key Support Level
3. Fibo 61.8
4. Pinocchio Bar (a.k.a. reversal bar or hammer)

This trade also demonstrates one concept… Look at the candle that is circled in orange… This candle’s low is lower than the previous two lows on the chart… Traders who trade breakouts might sell when price falls below the previous lows… In that case, they will be wrong and will be forced to buy to cover… This adds strength to the resulting rally, which probably explains why the next candle is such a strong bullish candle… The reversal bar is thus called a Pinocchio Bar (coined by Martin Pring) because it is lying to the bears that price is going to trend downwards… Bears who fall for the trick will then be trapped…

Most successful traders know that failed breakouts are always great signals… as it is in this case….

I posted yesterday about the multiple divergence patterns spotted (click here for post)… Eventually, I opened positions in AUDUSD and USDCAD…

Profits on 25th Feb

From the screen capture above, it can be seen that the first position was not profitable… I was stopped out at a loss of $700… After being stopped out, I felt that the divergence pattern was still valid, so I entered two more positions, 2 lots each in AUDUSD (bullish engulfing price action) and USDCAD (bearish engulfing price action)… These two positions were profitable with a total profit of $1845.39…

Frankly speaking, if I were trading with real money, I’ll probably not dare to bet so big when I re-enter; once bitten, twice shy… I guess I will only enter with one lot in USDCAD, maybe make enough for me to break even…. I still got a long way to go in training my psychology…

Nonetheless, I’m getting more comfortable with MACD divergence and price action trading in general… But although I have a fairly high percentage of winning trades, I know my risk management needs to be improved on…

1. My risk/reward ratio for each trade is only about 1:1, if I hit a string of losses, or if the winning percentage falls below 50%, this system is going to be non-profitable…
2. At present, I decide on the lots to enter based on instinct. I should actually calculate my lots based on my stop loss… else a single losing trade can easily wipe out profits on two or more trades….