I knew that if I was to trade the NZD/USD on that release that it would be very little better than a gamble but I didn't expect such a move against me.
Trade lesson number one is anything can happen and why we have "protective stop". Lesson number two is if the trade is a little better than a gamble, why is your risk initially set at 2 %? If your main reason is to engage and learn than the objective is to learn at minimal risk.
I have had previously pointed out to you that you are taking on too much risk per trade which you have pushed back.
The NZD had a neutral status according to DailyFx, so that's probably my first mistake. I was reading about uncertainty/instability within the NZ government and considering the USD was bullish I took the trade to the downside.
As previously pointed out, all sentiments have a shelf life. Sentiments must be reflected in the price action regardless of what you think or what others say. If the do not reconcile then something else is going on.
I was trading the NZDUSD in the past several sessions, and it was obvious two way trading was coming in. This means the negative sentiment was dissipating and the negative news were beginning to be priced in at those levels. It would need fresh news to move valuation one way or the other.
The most basic question you need to address is what was your overall trade plan and the trade rationale behind that trade plan?
I also traded the NZDUSD prior to the release of the employment data. My thought process and trade rationale was the following.
1)Valuation is at equilibrium because prices were ranging with supply and demand coming in at those ranges
2)Is the market looking for a reason to buy or to sell?
3)The employment data would be a reason for such a catalyst.
4)Although prices are ranging, I was still leaning to a 60/40 that the market was looking for a reason to sell.
So on that basis, I opened a short position prior to the employment data. Obviously I was wrong and was immediately stopped out on the news release
There were 4 or 5 employment data points on that day and I had a hard time figuring out why the market reacted so positively. As it turned out, the unemployment print was 4.5 % vs 4.6%. However that is not immediately important. A trading rule is not the news but how the market reacts to the news that is important. In other words the market was looking for a reason to buy. The price spike could be a combination of positive data or short covering but the important determinant is what happens after the initial spike.
M second mistake was expecting the spike to stop and return back to initial levels and once I got stopped out my rookie instinct screamed "sell the retracement". I know this was beyond stupid but in the moment that's how I reacted. When I sold into the spike I forgot about the widening spread and got raped! When the spread narrowed back to normal I sold into it again. That position was closed later on for a loss. In all, I cost myself about 6% for those moments of stupidity.
That is the reason why I emphasize to you previously you need to focus on developing your trade process. A trade process means you need to have a trade plan and a trade rationale. What was the rationale to expect the spike to stop and return to initial levels? A trade plan forces you to stop spontaneous trade actions and to think through the whole trade rationale. I previously shared that there are three things to justify a trade (taken from Forexlive) :
1)Is it broken?
2)Has something happened?; or
3)Has something changed?
Clearly the employment data has changed the trade dynamics. Why are you still focussed on business as usual?
After the employment data, my main focus was on how prices were trading to determine if the data was short covering or actually had some legs to it. After 30 mins, the price action suggested to me that demand was coming in and a long trade opportunity became available to scalp some pips before the sentiment dissipates. My thought at that time is that the fundamentals have not changed with the advent of a labour government and its policies. The slight deviation in unemployment is not a game changer and so a long window has limited shelf life.
However I was not prepared to short because the ongoing price action did not suggest that was the direction to take.
The silver lining is, though this was fraught with rookie moves, I observed much improvement in my behaviour since the last time I made a big mistake. My risk management meant I got away with this mistake far cheaper than the 15% it cost me last time I messed up big time.
There are two problems that are missing in your comments.
(1)I think there is an emotional component in your 2nd and 3rd trade. Typically the reasons are non acceptance of what the market just handed out and/or revenge trading. The end result is that you just add on mistake after mistake. This is actually a common problem that you need to address if you want to have a lasting trading career. It is not simply about not wanting to repeat the mistake, It requires a mechanism that you must put in place to prevent your emotional behaviour overriding sound judgment.
(2)A reason why you want to keep risk per trade at 1 % or lower is to guard yourself against irrational behaviour under moments of stress in trading. If your risk per trade was kept at 1 %, then your collective loss would be 3 % and not 6 %. I guarantee you that there will be other frustrating and stressful moments where you will act outside your normal boundaries. The safety nets are built to protect your account during abnormal moments and they will present themselves as night follows day.
Anyway, I just thought I'd ask you two gentlemen about how I could have known it was going to go this way before hand. I am aware that recent figures of other releases can indicate such things at times...
I don't believe the main issue is whether one can predict the outcome of data releases or is it necessary.
