After being triggered into a trade, three scenarios are likely:
- Price shoots in the direction of the trend and into swift profit giving us opportunities to compound.
- Price heads towards our stop and stops us out for a small loss. (NEVER RISK LARGE.)
- Price goes against us first before moving into profit allowing us to the compound.
The first scenario is what people hope it would be. The second scenario is what people fear it to be. The third scenario is what it is and what people never give it the time to be.
Scenario 1 can indeed happen but it is not a usual occurrence. Scenario 2 can not be avoided as losses are part and parcel of trading but that is where good risk management comes in. I'd even go further to say that risk management comes secondary to understanding high-probability environments first. The third scenario is what we tell our community members to accept each and every time a trade is placed.
The GBPUSD is a perfect example of that. After first being triggered into the trade, price moved into profit but pulled back to the entry and at times in negative. To avoid the risk of being spiked out too early, we use wide stops based on a formula unique to the currency, stock or commodity we are trading.
The GBPUSD is now showing strong signs of recovering having moved 400 pips since the last post and taking our trade back into positive. Price is now also trading above 1.4000 support.
Price, however, needs a breakout of the high of January and a move towards 1.5000 to suggest a trend continuation and when we will take advantage of compounding opportunities.
Patience needed for now.