Even though you may have developed a trading methodology with a strict set of rules and parameters, there are sometimes grey areas that you had not considered, and a trading call has to be made.
I came across one such grey area today in one of my live trade reviews (the one on the GBP/USD pair), and I had to make a call (which I unfortunately got wrong). But even if you get these calls wrong, you should still learn something and thus, be able to tweak your methodology or system for the better.
For me, my problem was that what the chart was telling me on the 4-hour timeframe was not exactly the same as it was telling me on the daily chart and read in Prof FX.
The 4-hour chart was telling me that price had broken through a significant area of support/resistance to the down side, and more importantly, price had closed below that level; so when that happened and a bearish pin bar formed penetrating this level, I opted to take a short trade.
However, on the daily chart, price had not yet closed below the important level of support/resistance, and as it turned out, at the close of the candle, it could not get below the support/resistance level and our stop loss was subsequently hit.
What we can glean from all of this is that the support/resistance levels on the higher timeframe charts are more important than the levels on the lower timeframe charts.
In this example, the daily level of support/resistance proved to be stronger and more relevant than the level on the 4-hour timeframe. As such, we must use the higher timeframe charts as a guide when trading off of the lower timeframe charts, and to use this information to our advantage.
The general rule must be that the higher timeframe charts are more relevant than the lower timeframe charts, and we must trade with this in mind.
A drawdown of say, six or eight percent can sometimes feel like the end of the world to new traders and can really dent your confidence, but these kind of drawdowns are a part of the trading process and must be viewed as a simply the cost of doing business.
Of course, if your drawdown gets really large in a single month, such as fifteen or twenty percent, then you really should start to worry, as this would represent significant damage to your trading bank and you should perhaps review your methods and results to see if you are doing anything wrong.
In summary, drawdowns of any nature are always hard to take, but with experience, they get easier to handle. When your confidence is grown over a long period of time, it takes more than a minor drawdown to significantly knock it, so rest assured that as you get more experience, trading will get easier and less painful.
It is so important to try to control your emotions when trading forex, and experience and ‘screen time’ will help you to do exactly that.