Forex Trade

17 March 2010 26 Comments

Missed a Trade – What Now ??

Obviously, what ideally you want to do, is catch the calls when they first come out, at the top of every 4-hour bar. But let’s be honest, sooner or later we’re all going to miss one now and then. Some more than others . . .

So how do you stick to the trading plan if you missed a call?

Begin by understanding the nature of the FirePips’ calls. Always, he is calling a buy trade if price reaches up to a certain level, and/or a sell trade if price reaches down to a certain level. Those types of trades are called “stop” orders on most of the platforms I have ever used. You use a “buy-stop” or a “sell-stop”. Some brokers may call it by different names, but what it is is an order to sell at a price lower than the current price, or buy at a price higher than the current price.

It is intended to wait until (or unless) price moves ahead to the trigger point, and only then get in the trade.

So if you miss the call, but see it later, there are three things that can have happened:

Price has not yet reached the entry price given by FirePips.
Price HAS reached the entry price given (and a trade would have been entered), but price has now retraced back behind the entry. A trade that had been entered would now be somewhat in the negative.
Price HAS reached the entry price given (and a trade would have been entered), and price has continued in the same direction. A trade that had been entered would now be in profit.

Scenario A:

This one is real easy. If the entry price that was called by FirePips has not yet been reached, then unless he has already signaled in the next bar to cancel the order, just put in your order(s) exactly like you would have done if you had seen the call on time.

Scenario B:

This one is a lot of fun! If you see the trade call late and price has already passed the entry point, but has now retraced into negative territory (and has NOT yet reached the price of the stop loss), you now want to get in with a market order. That is, buy or sell at the current market price.

THIS PART IS IMPORTANT. You compute the stop loss price and the take profit prices from the entry price called by FirePips. NOT from the entry price that you got when you placed your market order.

Example: FirePips called 135.50 for the entry price for a buy trade, with a 45-pip stop loss, and targets of 40-80-120 pips. When you saw the trade call 2 hours later, price has been as high as 135.65, so you missed the entry; but now price has retraced and is at 135.30. You then buy immediately at market price. But you still set your stop loss at 135.05, which is 45 pips from the entry price that was called. And you still set your first target at 135.90, which is 40 pips from the entry price that was called. Second target will be 136.30, third will be at 136.70, same as if you had been there on time and traded it normally. Now if the trade stops out at the levels called, you will only lose 25 pips instead of 45! And if it hits the first profit target, you will make 60 pips instead of 40! And so on.

So whenever you see one like this, you get lucky. If it still turns out to be a loser, you lost less than everyone else. And if it turns out to be a profit, you make more.

Scenario C:

The third scenario is not hopeless. Not yet! If you see the trade call late and price has already passed the entry point, and has now continued into profitable territory, it may seem like you just missed this trade. That is not yet always the case. For this situation (if price has NOT yet reached within a few pips of the first target), you want to use what is known with most brokers as a “limit” order. You use a “buy-limit” or a “sell limit” order. It’s an order to BUY at a price LOWER than the current price, or SELL at a price HIGHER than the current price.

It is intended to wait until (or unless) price retraces back to the trigger point, and only then get in the trade.

So you put in a limit order to enter the trade at the called price. In practice, I will sometimes let it be as much as 5 pips worse than the called price, because I don’t want to miss out, and 5 less pips is acceptable. Whatever price you enter, if the current price retraces back to that price, then you get in the trade at or nearly at what was called.

THIS PART IS IMPORTANT. Again, you must compute the stop loss price and the take profit prices from the entry price called by FirePips. Not from the entry price you might get with your limit order.

Example: FirePips called a 1.5000 for the entry price for a buy trade, with a 60-pip stop loss, and targets of 50-100-150 pips. When you saw the trade call 2 hours later you have missed the entry, and price is at 1.5025. If it has NOT yet reached within about 10-15 pips of the first target (in this case 1.5050), then you put in a “buy-limit” order for 1.5000 (or as high as up to 1.5005 if you like). Still set your stop loss at 1.4940, which is 60 pips from the entry price that was called. And you still set your first target at 1.5050, which is 50 pips from the entry price that was called. Second target at 1.5100, third at 1.5150. Now, if price retraces to the entry point, you get in the trade at the same place you could have if you had seen the call on time. VERY IMPORTANT: If price reaches the first target before enough retrace, and your entry has not been triggered, then you cancel your “buy-limit” order, and ONLY THEN have you really missed that trade. But very often you’ll get it, so it’s important to know this method.

And lastly, here is a piece of trading psychology, which as usual I’m going to tell you is more important than the rules of the trade. Most of all, DON’T beat yourself up about it if you miss one. Trades are like buses. If you miss one, another will be along shortly. Yes it does suck to miss the single highest-profit trade of the week, I know, I’ve done it. But it also is a blessing sometimes when you miss the worst loser of the week. I’ve done that too. Now it’s important you never let that be an excuse to just schlock off your rules and just miss trades. But as long as you trade with discipline and stick to the plan, you do need to not let it eat you up inside if you miss a trade.

That leads to one of the best things I’ve heard FirePips say: “Trading should be boring.” Seriously. You get that way by doing it with discipline to the best of your ability, learn from a mistake, and just keep moving forward. No one trade will EVER make you or break you.