Following my previous posted paper trade, here’s another great setup.

My histogram indicator flags the setup to go short on completion of the 11:00am 30min bar. This means I place my order to open (paper traded) at approx 11:30am.

Again, this setup looks excellent from the outset because the 30 minute and 15 minute moving averages are showing good direction. See the first image for how the setup would have looked at the time. (Note: the image was taken after the day, so the hourly and daily charts also show data after 11:30am, but the 15min and 30min charts are an accurate representation of what you would see at trade-time!)

Moving Averages Showing Good Direction = Great Setup

I would like to remind myself here that you can never tell how far a trade will run. Ordinarily, I might be put off because the hourly chart is showing that the market has already fallen quite a way. And yet, this consideration is not part of my trading plan! I don’t know why my brain keeps bringing it up!! You can see from this second image that this was a nice, easy trade. Profit target was hit within an hour with no whipsaw (draw down) at all. Gotta love that.

I love it when my CFD Day Trading System Produces a Win in One Hour with Zero Draw Down. Sweet.

In my previous post, I mentioned the importance (lesson #4) of not trading when moving averages are flat. This trade demonstrates how successful a trade can be when moving averages are showing good direction.

In the first image you can see the setup as it would have looked. My histogram Inside Bar (ISB) indicator gives me a setup on the 11:00 30 minute bar – which means I would be placing an order to go short at 11:30 am. The ISB breakout occurs during the 11:30 bar and quickly goes on to hit the profit target of 12 points – and more.

I remind myself that whilst it is tempting to take more than my profit target, I need to stick to my plan. I have back tested my plan using detailed spreadsheets and the 12.5 point profit target with a 12 point stop works well for this market, this 30 minute timeframe and this system. Remember too that these are short-term day trades designed for quick (1-2hours max) profit.

CFD Trading System - Works Best when Moving Averages Show Good Direction

The second image shows how easy this trade was, with the profit target (taking spread into account) being hit during the 13pm bar. Approx 2 hour trade all up, with no whipsaw. Nice.

CFD Trading System - Moving Averages Point to a Winner

Here’s a fantastic example of a losing trade that can teach me many things. There’s always a lesson in a loss. In fact, I hate calling them “losing” trades because overall it’s just part and parcel of a winning system. When trading CFDs or any other system, every winning system has a percentage of losers. It’s unavoidable. Anyway, let’s see how this one pans out…

The day is 3rd December 2009. You’ll see on the 30 minute chart that my personal indicator (the histogram at the bottom of the chart) gives me ISB (Inside Bar – slightly different to the standard ISB) setups in the morning. Because the moving averages are up before 12pm, I would only take long entries. On this day, none of the ISBs broke out to the upside (long) and therefore no long trade would occur.

Then, in the afternoon, I see a setup to go short. My ISB is formed at 14:30pm (I only trade after 14:00pm, so discount the ISB at 13:30) and due to moving averages pointing down, I’m looking to go short on breakout of the 14:30pm ISB. Breakout occurs during the 15:00 bar.

Thursday Afternoon CFD Short Setup

Following my trading CFDs system, I paper trade an order-entry at 15:00 to go short on breakout of the ISB with a target of 12.5 and a stop-loss of 12 points. The first few minutes look OK, but almost immediately the trade begins to reverse. Now, if I had chosen to walk away and leave my stop to protect me, I would be stopped out at maximum loss of 12 points. If however, I was sitting checking my 30 minute chart with every half hour, I would notice the hammer formation on the 30 min chart – a clear reversal signal. At this point I could exit at approximately break-even (depending on my timing), or a slight loss – perhaps 1 or 2 points loss due to the spread.

Lessons I Learn From This Losing Trade:

1. Follow strong candle signals (such as the hammer shown) to get out of a losing trade before it hits maximum loss.
2. Where possible, always check the 30 minute chart every half an hour. (NB: sometimes this is impossible when I am doing school pickup/dropoff, which is why it’s very important for me to have stops in place.)
3. I remind myself that even if this had hit maximum loss of 12 points, I would still be in profit as part of my overall system.
4. Trading CFDs when both moving averages are flat (colour changing) and not showing any clear direction is dangerous! This is probably the most important lesson I could take from this paper trade. I plan to avoid these types of trades until I build my bank account up. Once the trading account is healthy, I would be prepared to take riskier trades such as these (where the moving averages are flat).