Forex technical education: Do you see what I see in the USDJPY 5M chart?

Author: Greg Michalowski | Category: Education

Knowing the risk is step 1.

If I had an option to know risk or reward, it is always risk.  

Trading is about taking your account balance and making it larger (the reward). However, you can also have a negative reward. That is you can lose money too.   

I don't want to lose money.  The problem is I know that I will lose money in trading.  I have no price moving power (I can't move the price 1 single pip). I don't have a crystal ball on what the next headline might be.  I can't pinpoint what the NFP will be tomorrow (and neither can any of you out there). I have ideas but I really don't know for sure.  So I know losses are inevitable.  That will never change.  

So instead of saying I don't want to lose money, I change it to say "I don't want to lose a lot of money".  That is, I want to limit my risk.   

If I know what my risk is, I know what I stand to lose. If I am not "risked out"  - that is my risk level is not broken - I win. I will have a reward.  

For me, the risk is the given and the most important thing. The reward just happens if "the market" (that is all those traders who collectively move the market price), agree with what I see.  i.e. the "market" does not "risk me out".

"What I see?"....What does that mean?

What I see is from the price action and tools applied to that price action.  The tools I use are technical tools like MAs, trend lines, fibonacci retracements.  Those are the tools I use.   Why do I use those tools?  Because I find, "the market" uses them too and I want to trade with "the market". They - collectively - move the price. 

Does "the market" use the tools 100% of the time?  No. There is no "perfect" in trading, but I find they (i.e., "the market") use them a lot of times (and I write about it AND show it every day on FXL).  

Looking at the 5-minute chart in the USDJPY below, what do you see?


I know what I see.....I see buyers leaning against the 100 bar MA (blue line).  There have been 7 different tests of the line and 7 bounces. There was a tiny break below (just before blue circle 7) but it was only a couple pips.   Not a lot of traders were scared out of their positions on that small break, and immediately after, the MA line reestablished the level as support.  

If that pattern exists I believe, have faith, will bet, that if the price stays above, I will not be "risked out" of a long trade.  That is the right way to be. 

Do I care about reward?  Not really.  

Now I will have targets. Those targets are like exits on a highway. If I get past them, the reward can go on. I can also move my risk level to a new level.  If I can do that - that is get past targets that allow me to move my risk level -  I can be "risked out' and still make a reward.  PS I may also get out at a key target (I write and show that too on a daily basis on FXL every day). 

So what do I see in the 5 minute chart?  

I see a risk level to lean against.  If the price stays above the blue line (100 bar MA line) I won't be "risked out". If I am not "risked out" I will be rewarded, and my account balance will increase.  

Why do I want to put my faith in what I see?  Because others....others who collectively can move the price  - have done that same thing at blue circle 1,2, 3, 4, 5, 6 and 7 and none of them were "risked out" and all of them are making money.

I want to do what they do.   I want to make money too.  I also want to limit my risk and keep most of my account balance.  That line defines my risk so my account balance does not lose a lot when I am wrong (and I will be wrong).

The good news, is I can see what they are doing. It is right there at the blue circles...And that line says "risk".  The other good news is everything above it, says reward.  The not so good news (but not horrible) is if the price does go below, I lose a little, but losing a little is better than losing a lot. The upside is I have to potential to "make more than a little".  I like the sound of that.