Imagine being in one trade over four days, watching your P&L go up $1,000 to even, back to up $1,000 to even as the market gyrates 40-50 pips over hours. Your long bias is still valid, so you sit in the trade, waiting for things to play out.
To compound matters, add that the last time the market did this, it was a false breakout that caused you to lose some money.
That's the scenario that Gabriele T. from Italy found himself in last week when he was long EUR/USD after it broke out above 1.1650. Yet Gabriele was able to be patient and let the trade work out, a decision that ultimately helped him profit $2,700.
In this week's The Trade, we break down the market setup and what Gabriele did so right.
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1. The Setup
Coming into trade on September 17, Gabriele, who just got into his Funded Account the week prior, was bullish EUR/USD. The prior week, he was testing the market, trading 50 mini lots at a time as EUR/USD moved between 1.16 and 1.17.
None of these trades were winning trades, but because he was testing the market in small size, he only had to take small losses. Over four losing EUR/USD trades, Gabriele lost just $154.20.
LESSON — Test the market with small size.
2. The Break
Even though the first breakout failed, the market stayed in an upward trend, making consistently higher lows and higher highs (see the 4-hour annotated chart below).This meant that when the market broke the second time, Gabriele was confident in his view. He bought two lots at 1.16492 on Monday, September 17.
Over the next three days, he saw profits of $1,000+ go back to even, back to $1,000, back to even — all before prices broke higher on Thursday. During those gyrations, he even added another lot (a buy at 1.16916). As the upward sloping black line indicates, there was a persistent strong trend.
LESSON — Stay patient in a winning trade.
3. The Cash In
When the market moves a lot in your favor, you have to start making calculations, particularly when trading intraday. Gabriele was patient in his trading, and when the market broke higher, he was well positioned to take advantage.
He sold one of his three lots at 1.1757 and then the other two lots at 1.17522, raking in profits of $2,714. Minus the carry cost he paid for two days, this one trade added $2,550.24 to Gabriele’s trading account. Not bad for four days work.
LESSON — Trade bigger size when the setups are in your favor.