AUDUSD is a good pair. It behaves according to plan most of the time unlike GBPUSD that can show tantrums and make violent moves hitting your stop loss. FOMC Meeting this week was a game changer. After many years, Federal Reserve finally decided that US economy needed a break from very low interest rates. Unemployment figures are going down, economy is heating which is a sure signal to raise interest rates. So it was being rumored in the financial media, Federal Reserve will raise the rates during this FOMC Meeting. This is precisely what happened. We were waiting for the opportunity. Just 1 hour before the FOMC Meeting, AUDUSD H4 candle closed and gave us the signal for a imminent breakout in the down direction. After all when FED will announce the interest rate increase, it will make USD strong and send AUDUSD tumbling down. Did you watch the documentary on the life of a millionaire forex trader? Take a look at the following AUDUSD H4 chart screenshot.
You can see the red arrow in the above screenshot. This is the signal. We entered into a short trade with 20 pip stop loss and 200 pip take profit target. We had analyzed the daily and the weekly charts and we thought 200 pips profit target is reasonable. So we opened this AUDUSD sell trade and then went to sleep. FOMC Meeting takes place at 2:00 PM EST which is midnight our local time. So no need to watch the charts and see price go up or down. We have opened the trade. Risk is 20 pips and take profit is 200 pips which gives Reward to Risk of 10:1. Either the stop loss will get hit and we will lost 20 pips. You never know in trading what happens next. FED can decide to pend interest rates till next meeting. Risk taking is what makes trading a dangerous game. So always make sure your risk is very low. Don’t try to open trades with 50 pip stop loss. Watch this webinar recording on how to trade naked.
Next morning when we checked the charts AUDUSD was trending down nicely and our trade was in a profit of 120 pips. We again analyzed the chart to make sure that there is no chance price is going reverse. Made the trade breakeven and closed the trading station. Today when we checked AUDUSD had hit the stop loss and went down more. We have made 200 pips profit. The trick is to keep your reward to risk consistent if you want to make your account grow consistently. Our stop loss is now most of the time between 10-20 pips. Read this post in which we explain our candlestick trading system that most of the time gives us 10-20 pip entry trades with 100-200 pip profit targets. We analyze the daily and the weekly charts. Then we use H4 chart for making a low risk entry. Keep it Simple Stupid! This KISS is our trading philosophy.
Trading is all about managing the risk before you think of taking profit. You have no crystal ball with you that can tell you how much the market will move. You are just using intuition in your trading decision. So focus on risk first. Make sure your entry has low risk. Then leave it on the market. If the market wants it will give you the profit that you had wanted. Otherwise close the trade when it is still in profit next day when you find the market changing direction once again. Read this post on our double in a day trading strategy that can make 100% return in 1 day.