Here we have United States dollar against Canadian dollar on a daily chart.
It's easy to see that the price is in a strong downtrend.
The buyers tried to break this down trend here but now the price is going down again.
Switching to a 30-minute chart, I have identified this down channel that incorporates price movements
for the past two weeks. Since I have a down channel,
the strategy is quite easy:
I'm going to look for a bearish signal at the top of the channel. Right here,
I have three good candles.
I have a doji, followed by another doji, followed by a long red candle that forms a bearish engulfing
pattern with the previous candle.
So I'm going to open my position right after this bearish engulfing pattern.
This is my entry
at 1.2530, then
I want to place my stop loss outside the channel.
So 1.2555 should be ok, because I also want to place my stop loss over this
high here.
Following my tips about the take profit, I start to place my take profit here
at 1.2480,
so I have a risk to reward of 1:2.
Of course the price can reach this level, so there's no point to decrease my take profit.
But maybe I can increase it, because I'm still far from the bottom of the channel. So I'm going to move
my take profit by other 25 pips, at 1.2455.
Let's analyze what happened to our trade on United States dollar Canadian dollar.
You can see that it didn't go very well and I lost my position in a couple of hours.
I'm glad that I took this trade for three reasons.
The first one is that I don't want to give you the idea that it is easy to make money on forex trading
and that you will always win your trades.
This is not my first losing position and it won't be my last one.
You need to accept that from time to time you will lose your trades.
You can't be right 100 percent of times.
The second reason is that you can see the importance of the stop loss.
Without it, I would still have the position on the market with a loss that is at least twice the one that
I had. Last reason is that I made a mistake and I'm glad that I can share this mistake with you so you
can avoid it in the future.
I simply didn't have a look at the economic calendar for today and I forgot that there were two important
news for the dollar right after my trade.
You can see that the news were pretty important and they were positive for the United States dollar
so I didn't have many chances to survive with a stop loss of 25 pips.
So going on OANDA Web platform, I have my trade here and you can see that it didn't go very well this
time.