Today I wanted to talk about system failures and how a set of rules is very important to every strategy.
I missed out on about 30 pips today, all because I did not have a clear set of rules for this part of my system.
As you may or may not know, I trade support and resistance.
The issue today was, when is resistance broken to become support?
Yesterday, price spiked through 1.2800 that I set as resistance.
I waited to manually enter after price retraced back down. But I failed to realize 1 thing.
If price had reached 1.2850, doesn't that mean that resistance has broken to become support?
Even though it was just a spike up, I knew that 1.2800 was a MUCH stronger support than resistance level.
If I had set the rules to be clear when support/resistance is broken. I would've entered long instead of shirt and would walk away with 30 pips. Now I just walked away with 21 and you can say well that's still a nice amount, but if I had paid just a bit more attention to the charts and had set rules to abide by, I would never had entered short.
So basically if you had a choice between not paying attention and 21 pips, or paying a little attention and 30 pips. Who would've chosen the first....? Exactly. That's my point.
The chart above displays what happened.
News came out, price went as high as 1.2850 then retraced, when it came back to 1.2800 I entered short, but with the set of rules and a little attention to the spike, I would've realized 1.28 was now support instead of resistance and look at the candle's of missed profit. Even worse, if I had walked away from my platform and didn't exit at 1.2779, I would get stopped out a few hours later and would have lost 40 pips!
Hope this helps you realize how rules are important to every system,
Merritt
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