Wall StreetPlus: How to Profit From Simple 50% Retracement Triggers

Remember the movie Wall Street?

You know, the one where Michael Douglas plays Gordon Gekko with his ‘Greed is Good’ mantra?
I think it was supposed to be a cautionary tale, but the 1980’s being what they were, a lot of people took it literally and the ‘Greed is Good’ become the battle cry of a generation instead.

Perhaps the filmmakers were so surprised they missed the mark, they decided to have another go at getting the message across with Wall Street 2.

I’ve just watched it… and trust me, it’s not as good as the first one.

But it did have a bit of dialogue that triggered a cringe-worthy memory…

I thought this little anecdote might make you smile (and there’s even a moral to the story at the end that should help you avoid making the same mistake as me!).

See, there’s a bit in the film where Gekko’s daughter says something like she’s “not interested in a guy whose ego is invested in his bank account”…

Why ego and trading should never mix!

It took me back to this little episode…

We’d recently moved into the house where we live now and I was doing pretty good… baby boy number one had just been born, so we were getting the expected stream of well-wishers to the house.

An ideal opportunity – I thought in my wisdom – to show how sophisticated and clever I was trading the forex markets…

Especially since a lot of the visitors were Alice’s (my missus) rather nubile and lovely looking friends.

I’d set up the full multi-monitor trading rig just in view of the hallway so I could be seen in full glory as the visitors arrived – Mr Big Shot, hard at it.

And listen to this… I’d even put in a bid on eBay for one of those stripy jackets they used to wear in London’s futures pits.

God knows what I was planning to do with it. Drape it over the back of my chair and look ‘important’ maybe?

Anyway, I didn’t win the auction for that. Something worse happened instead.

One Friday, a gang of the girls were due over before they headed off for a late lunch at the wine bar in the village.

And my plan was hatched…

I’d make a quick few quid off the back of the US job numbers (an event I wouldn’t normally trade), announce how I’d made a killing in the markets that very afternoon so lunch was on me, and then lord it up as they fawned for my attention.

(I know, I know – bad isn’t it?)

With one of them perched on the edge of my desk – I explained how I’d ‘analysed and isolated the buying intent in the market’ and stood to make a tidy sum when I got out of my trade in about 5 minutes time.

“Look”, I said confidently. “See this line here… that’s where I’ll sell”.

We entered the calm before the storm. That few minutes of tense inactivity before the numbers release.

The market popped up…

I reclined in my chair – hands behind head,
smug grin…

Until SLAM!

…it whipped straight back down through my stop-loss and sent me scrambling for the keyboard.

I tried to shrug it off with a “yeah, that does happen sometimes” but I saw the pitying shake of the head as she giggled her way out of the door.

Luckily, I hadn’t opened my mouth yet about paying for lunch because those girls know how to spend money. The bad trade was punishment enough for one day.

And off they all went, leaving me to lick my wounds. I just hope they had a good laugh about it over their first bottle of Chablis!

Lessons I Learned:

1. Ego has no place in your trading.

Casually let slip the details of your latest success to your friends and family after it’s already happened by all means. As far as the actual trading goes…if you don’t keep it in check – your ego can destroy you.

For those few hours or minutes you spend at the trading screen, can you train yourself to leave your ego at the door to your study?

2. The market will go where it can foul-up
the most people.

I had this drummed into me by my mentors (in slightly more colourful language than I present to you here) but I still made bad calls from time to time until I’d physically taken the lesson on board.

Think of this when it comes to placing orders for your own trades. Where do you think the market will target to try and cause the most damage?

No need to feel paranoid, the market’s only trying to flush out the most liquidity – all those Stop Loss orders traders leave resting at the obvious places.

Use the knowledge to your advantage instead.

3. If you really want a particular trade to work out for you – it’ll probably turn and
bite you instead.

It’s like the trading equivalent of Murphy’s Law or something.

If you really, really want a particular trade to work out … if you’ve earmarked the money off that trade to buy a new golf club for example, or you’ve got some emotional investment in that particular trade – like I did – it’ll usually find a way to humiliate you.

You need a cool detachment from each trade. Take your result – win or lose – and move on to the next opportunity with your best poker face on.

I’m kind of regretting telling you all this now – it’s made even more of the mistakes I’ve made over the years come back to haunt me!

I’ll tell you more about them another time…

Recommended Reading: The Zurich Axioms – Max Gunther

zurichaxiomsThis is the collected wisdom of a secret club of Swiss Bankers and commodity players that met in the bars and watering holes around Wall Street after the Second World War.

They lay out 12 major rules for getting wealthy and 16 minor ones and their code of conduct goes against ‘common wisdom’ – which greatly appeals to me.

These guys are all about embracing risk (managed risk) instead of avoiding it.

They argue life itself is one big gamble and encourage you to face it head on – figuring out how to manage risk and get rich from it – rather than sitting in a dark room chewing your fingernails worrying about it.

“To become a butterfly, the caterpillar must grow fat. And to grow fat it must venture out where the birds are. There are no appeals. It is the law”

It’s thought-provoking stuff and will give you an extra kick to make the most of the opportunities we all have open to us… if we have the courage.

You can get it from Amazon here

Quick Charting Trick:
The 50% Retracement Trade Trigger

On the daily charts – look out for the 50% retracement of recent movements marking a new pivotal point in the market. It could indicate a temporary pause or even a full-blown reversal.

Many schools of Technical Analysis follow the 50% level and their combined attentions can make it a powerful tool.

You can use it to guide your longer-term trades if you’re a swing, or position trader. You can also find areas of support and resistance on the day if you’re a shorter-term day-trader or scalper.

Here’s a recent example:


EUR/USD Daily Chart

You can see how EUR/USD made a move down through February and March this year. The market then retraced upwards through April and a touch of the 50% level (labeled A) marked the short-term reversal point.

It was a solid opportunity to enter new short trades – good for a 400 pip slide to the downside – and the signal to cover any long positions you may have been in.

Be on your toes… Market moving data coming this week:(London Time – BST)

Wednesday 12th June:

09:30 UK Employment numbers (GBP)

Thursday 13th June:

13:30 US Weekly Jobless Claims (USD)
13:30 US Retail Sales (USD)

Friday 14th June:

13:30 US Producer Price Index (USD)
15:15 US Industrial Production (USD)

So let’s wrap things up there for this issue. I hope you enjoyed what we covered today and can take away something useful.