Advertisement

I made money going long the loonie – that market has turned

Just because you had success with one trade, says John C Burford, it doesn't mean you will have success again by repeating it.

The art of trading takes a long time to learn, just as brain surgery takes many years for surgeons to master. Sadly, many budding traders, armed with the latest software, hardware and with only a passing study of technical analysis, believe they can become master traders practically overnight.

But that is akin to a medical student being allowed to operate on a patient's brain in his first week at university!

Advertisement - Article continues below

Of course, the medical profession is highly regulated and there is a multi-year path of study and practice that must be successfully tested by professors before a student is allowed anywhere near the operating theatre.

In the world of trading, there is no such impediment to being allowed near the markets. Anyone with a computer can play in the operating theatre that is the markets. And the analogy is a good one, because most new traders are scalped by the pros and fail their first exam!

Advertisement
Advertisement - Article continues below

Many are called, but few are chosen. I want you to be one of the chosen.

It is my intention in MoneyWeek Trader to help those who wish to put in the time and effort to develop as true traders. That is why these postsare best seen as educational. I use my tramline trading method to show how anyone can learn how to extract profits from the markets.

Advertisement - Article continues below

Of course, not every trade is a winner, but losses are contained by use of strict money management rules, such as my 3% rule and break-even rule.

Learning self-control is key to successful trading

Let me take my recent campaign in USD/CAD as an example.

I last covered it in my post of last Friday ("I beat the herd with two currency campaigns"), where I had just completed the last of my trades.

Recall I had taken the profit on part of my long position and was looking to raise my sell stop on the remainder to take that profit. Last Friday, the market had just exceeded the Fibonacci 62% retrace and was heading back towards my lower tramline. I raised my sell stop to just under that line in case the market decided to retreat beneath it:

15-10-30-MWT-2

In fact, the market plunged below that tramline and took me out of the last portion of my long position for a profit.

Advertisement - Article continues below

But it rallied back to the tramline, kissed it and started moving lower. Of course, the ideal low-risk trade was to short the market on that kiss low risk because if I was wrong about my forecast for lower prices, a move back inside the trading channel would likely cancel out that outlook:

15-10-30-MWT-3

If you missed that entry, how would you feel? You may be luxuriating in the terrific profits you have just taken from trading the long side, and you might well be inclined to look for another long trade after all, the long side has served you very well.

Advertisement
Advertisement - Article continues below

On the other hand, your attention may have turned to another market, and you may have missed the recent action in USD/CAD. If you were to open the chart this morning, this is what you would see:

15-11-4-MWT-3

On the bearish side of the ledger, the market has fallen away from the kiss , bouncing back in a near 100-pip rally before falling back yesterday.

Advertisement - Article continues below

On the bullish side, the market has hit support at the Fibonacci 50% level and on a positive momentum divergence.

I can't see an available low-risk trade. And that means I am staying on the sidelines until I can make a solid case to act one way or the other. I am not tempted to try to repeat my former success.

Marrying a trade is no good I'm going short

But I always keep the larger-scale picture at hand and here it is on the weekly:

15-11-4-MWT-4

The bull run since 2011 is in a textbook five waves with a large momentum divergence at the wave 5 high. The bear market correction has now started and the major trend is now down.

The wave 5 high was made on 29 September and the first decline was wave 1 of what should turn out to be a five down. The rally to last week's high was wave 2, and the market has started wave 3 down:

15-11-4-MWT-5

My campaign on the long side was within wave 2, but it appears most of the profit now will come from trading the short side. And that is where I will now concentrate my efforts. Remember, if I am correct and we get a typically long and strong third wave down, the potential profits will far exceed my most recent haul from trading the long side.

Advertisement
Advertisement

Recommended

Wayfair will lose its way – short it now
Trading

Wayfair will lose its way – short it now

The share price of Wayfair – the online homeware retailer – has bounced for no good reason. Short it, says Matthew Partridge.
11 Aug 2020
The pound has been trending higher against the dollar – will it last?
Sponsored

The pound has been trending higher against the dollar – will it last?

Sterling has been rising against the dollar. Dominic Frisby sets his trend lines in the charts to see where the pound is heading next.
10 Aug 2020
Can the recent rally in sterling continue?
Sponsored

Can the recent rally in sterling continue?

A "double top"  – a very recognisable pattern – is forming in in the US dollar. Dominic Frisby explains what it is, and what it could tell us about st…
3 Aug 2020
Stuart Wheeler : the granddaddy of spread-betting
People

Stuart Wheeler : the granddaddy of spread-betting

A lifelong obsession with gambling helped make Stuart Wheeler his fortune. By using that to back the Brexit campaign, he changed the face of British p…
2 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Should you take advantage of the UK’s new breed of domestic holidaymakers?
Buy to let

Should you take advantage of the UK’s new breed of domestic holidaymakers?

With Britons choosing to holiday in the UK this year, the owners of the country’s holiday cottages are cleaning up. Should you buy in, too? Merryn? So…
10 Aug 2020
The pound has been trending higher against the dollar – will it last?
Sponsored

The pound has been trending higher against the dollar – will it last?

Sterling has been rising against the dollar. Dominic Frisby sets his trend lines in the charts to see where the pound is heading next.
10 Aug 2020