From Craig Cobb at Trade with Precision:
This is an opportunity to put on your thinking cap. I am going to show you two charts that have very similar setups and ask you to create a plan. What will you trade, how will you trade it and why? Now the beauty of doing it as an exercise rather than in the markets live is that there is nothing to lose and everything to gain and it may just hone your skills for the next time you are faced with this scenario.
So read both the USDCAD and USDSGD charts and text and then write down what you would do. At the end of this piece I will provide the options of what I believe to be the best options.
The first chart is USDCAD. Have a look at how nice that daily trend looks. A great series of lower low’s and lower high’s, each time pulling back into the sell zone. The MACD and RSI are both converging very well and showing no signs of this trend losing any momentum. As far as the daily chart goes it would make sense to wait for a pull back into the sell zone, a small bearish candle and then join the trend lower. This is a correct and fair way of thinking but what would you do?
This next chart is USDSGD and it is also in a great down trend. The lower waves all seem to be pulling back into the sell zone as was USDCAD. The indicators are also very convergent and showing no signs of weakness. This chart is almost the same as USDCAD. I say almost because they have some minor differences. The same plan for the daily could very easily and correctly be to wait until the price pulls into the sell zone, prints a small bearish candle and then look to trade the break of that candle lower. But what would you do?
OK, so by now hopefully, you have had a good think and written down our plan of attack or at least what you think you would do. Here are what I believe to be your options.
Both charts are very good daily trends and may present a trade on the daily chart. What if, however, the market continues to move lower, are you left there waiting for the daily and missing out or will you move to the lower time frames? The first option is to move to the four-hour on both of these charts and see how they look. Is there a good trend and is there anything worth trading on this time frame?
If both charts set up and offer a great trade then do you take them both? If I was to do this and short both trades at 1% risk on each I must be aware that my overall risk is somewhere close to 2% on the weakening of the USD. Don’t be caught out thinking that there are two different charts so therefore the risk is spread. It is not. If this was to occur then I would look to try and find if there was a clear standout over the other and put the full 1% risk on that. If, however, I can’t pick between the two then I would be looking to split the trade into .5% risk each and take both. This way I have both charts covered but under only 1% risk.
As you can see trading isn’t just about finding a trade and jumping on board. It can take a lot of patience to wait for the correct trade and an equal amount of composure to then execute the trade in the correct manner. Always keep a level head and remember that it’s the detail that can make all the difference.