The other day I had a telephone call from a dear student of mine.
He has been trading the foreign exchange market and earlier in his career the stock market for about 18 years.
We almost talk every day, discussing the markets and analyzing currency pairs when he is in doubt.
Lately he came up with a new trading system to trade EURUSD. He has been studying this pair for years and I can admit he can “smell” its next movement.
His new system is trend following of course but this time he is experimenting with lower time frames. Yes, low time frames, 1 and 5 minutes.
He starts with the 4-hour time frame to identify the trend and then he moves down to a lower timeframe like 5 mins to spot a trend reversal at key level.
His entry, stop loss and take profit levels are all based on the lower time frame, 5 mins but he insists that he is trading the 4-hour!
I tried to explain many times that this is not the case since entry, stop loss and take profit are based on the 5 mins.
No luck. I am sure he understands but he is trying hard to find lots of excuses to convince himself that he is trading a higher time frame like the 4-hour.
Today, he called again. He sounded bad. He lost few thousand dollars.
That’s not the problem he can handle it but what bothered him the most is his bad psychology, his discipline. He didn’t honored the stop loss and the take profit levels. If that wasn’t enough, he also increased the trading volume hoping to break even. It was a disaster!
I suggested that he starts trading the higher time frame to gain back his peace of mind . I almost convinced him but then before we hang up he said: “Sir, I can’t wait so long. I am a trader, I want to take lots of trades every day”.
That’s fine with me but at least follow your system!