A Failed Trade And How Not To Chase the Market

By | August 29, 2014

It’s not very easy to find examples of failed trades on most sites that deal with Forex trading. Considering the fact that most traders are losing money, you would expect them to be more common. Instead you find plenty of trade setups before the price starts moving, but after they are invalidated, mum’s the word. That gives a false impression to beginners, that chart patterns rarely fail. The reality is that depending on the market environment, they do fail, even a lot sometimes.

I want to show you a continuation triangle chart setup on USD/CAD that looked very promising this morning. Unfortunately, the market turned choppy and the pattern failed.

First there is an 1-hour chart to see the ‘big picture’ and then the zoomed-in failed break-out point on 15-min. Bear in mind that the failure has nothing to do with the short time frame of the charts. When there’s a lack of momentum, the patterns fail no matter if it’s 1-hour chart or a weekly one.

USDCADH1

USD/CAD H1

USDCADM15

USD/CAD M15

You can see the choppiness around the break-out point marked in blue. There is a tendency in cases like this, especially among beginners, to try to chase the market. If you lost money on the short trade, to try to recoup it by immediately entering a long trade. I believe that in most cases this type of behaviour will cause even more losses.

This type of chart pattern, when successful,  offers a tremendous risk-reward ratio. But the difference between a good and a bad trader is often not how they handle profits, but how they go about taking losses. What I’m trying to say is that even the best looking chart setups fail, and you always have to be prepared for that. Don’t bet the farm on any one trade, unless you have several farms. :)

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