Forex Trading Review – Week 35

This week was another quiet one for my trading portfolio. I took 5 trades which is about average for a slow week.

I ended the week (and therefore the month) down slightly, which is disappointing but not entirely unexpected. My strategy is going through a fairly significant drawdown, and there’s nothing that says it can’t get worse before it gets better.

26th August – 30th August

Trade #169

Reflection:

This was a typical pullback trade.

Price was making higher highs above the 50-EMA, and then pulled back to test the EMA and put in a bullish engulfing candle which is my signal to go Long.

Unfortunately price retraced a little further below the EMA to stop me out before moving higher. I’m pretty used to this happening by now, so it didn’t really bother me. I think that’s a good thing. In the past, these types of trades used to frustrate me.

Now it’s just another trade like the hundred before it. I would’ve preferred that it won, of course, but accepting small losses as part of the game is a huge part of freeing yourself up psychologically to be the best trader possible.

Trade #170

Reflection:

This was an intraday momentum play. Price had broken up and out of a range of consolidation after testing a key daily low, and then pulled back to give me an entry reason above the EMA.

Price then failed to make a new high, tagging my 1:1 target which caused me to roll my stop loss to break-even, which protected me from a loss on this trade but made it a break-even outcome.

That’s why I have my 1:1 break-even rule – it protects me from a failed follow-through with momentum setups. So this was a Good Trade and well-executed according to my rules.

Trade #171

Reflection:

This trade was another momentum setup similar to the previous trade, but this time on USD/CAD.

This setup was extremely aggressive, having the tightest stop loss of any trade I’ve ever taken (3 pips) which made the position size pretty large even for 1% risk. But a valid setup is a valid setup, and the ATR had shrunk so much on this pair that 3 pips was a reasonable stop loss for this setup.

The spread at the time was 0.2 pips for me, which was good enough for me to risk taking this trade. I knew this trade had a higher chance of losing than usual, given the tightness of the stop loss.

But I also knew that if price happened to breakout in the direction of the Daily trend (Bullish) then I could potentially have captured a massive move out of this position size.

As you can see here, if price had broken out to the upside instead of the downside, then I could have potentially caught a 9R win out of this trade.

Of course that didn’t happen and price went in the opposite direction and stopped me out for a loss, but this is a great lesson on the importance of asymmetric risk:reward profiles.

If I had managed to capture a 9R move out of this setup, then that would have made up for over half of my drawdown in a single trade. That’s the importance of letting your winners run, and cutting your losses short.

Accepting lots of small losses over many weeks like I have been doing these past few months is frustrating and challenging. But it puts me in the advantageous position of being able to recover those losses much faster in context of the long-term.

All I need is a good week or two (which will come in due time), and then I’ll be able to make up for several bad ones in a row. The key is having the patience and the discipline to not do anything stupid in the meantime!

Trade #172

Reflection:

This was my only winning trade for the week, but it was a nice 2.34R winner.

Price had broken down and closed below the 50-EMA, then pulled back and put in a bearish lower-low engulfing candle. I went short with my stop loss 1 ATR above the high preceding my entry.

Price then meandered lower throughout the rest of the Asian session, until the European session began and momentum picked up to the downside.

I got my exit reason at 11:30PM on Friday night, and I exited the trade and went to bed, unfortunately missing out on the follow-through on this move. But a good trade nonetheless. Sometimes you catch the big fish, sometimes you only get the little fish.

Trade #173

Reflection:

This was my final trade for the week. A perfect pullback setup according to my rules, but no dice. The momentum failed and price continued to fall to retest previous structure, stopping me out for a small loss.

No big deal – I knew that if this trade lost, then EUR/JPY was likely to win, and that’s what happened.

Weekly Reflection

Last Week’s Goal: Execute my plan flawlessly.

Overall Grade: A

This week was a pretty average trading week for me. I didn’t break any rules or do anything particularly stupid which is great, but I also didn’t make a positive return, so overall it was just another trading grind.

Monthly Review

Here is my equity curve after the month of July:

Annual Return: +8.94% | Drawdown: -15.28%

Here are my monthly stats for August:

And here is my drawdown graph for the year:

This month was not as rough as last month, but still wasn’t an ideal outcome.

8 weeks of trading and not making money is psychologically challenging, but I know what I need to do. My losses are completely manageable, and I’m in no danger of blowing my account, so I have nothing to fear.

All I can do is continue to monitor the patterns in my trading statistics and try to devise ways to optimize and improve my strategies. That process takes a lot of time, and so as I’ve said many times in my previous weekly and monthly reviews, my only course of action for now is to continue trading my strategy as I backtested it.

My backtesting results say that I should expect drawdowns of this magnitude from time to time, so just because the past few weeks have not been great for my equity curve does not mean that I should radically change my approach or jump strategies altogether.

That’s the surest way to never become a consistently profitable trader. After all, the clue is in the title: consistently profitable trader. The consistency comes first. You can be consistently unprofitable, like I have been for the past 8 weeks. But you cannot be consistently profitable if you are inconsistently unprofitable… because you cannot improve what you can’t measure.

Anyway, I’m hoping that as we exit the American summer period and markets start to heat up on the higher timeframes then my 1HR strategy will begin to capture some decent trending moves again.

As for my 15M strategy, I believe it needs some work to improve its accuracy (ie. win rate). I have a bunch of ideas that I’m in the middle of backtesting, but they’re all just ideas at this stage.

Until I prove that one of them improves my edge I will not be implementing any changes to my strategy. So the backtesting quest continues…

Discipline Review

This month was a solid trading month in terms of discipline. I took 25 trades and only broke my rules once, and that was by accident (Trade #167).

Trade #167 was a EUR/JPY day trade. I left the position open overnight when I went to bed because I was too tired to stay up and actively manage it like I was supposed to.

Of course, the trade hit my profit target and gave me my exit reason, but I was sound asleep and had no idea. By the time I woke up to check the trade, it had subsequently been stopped out despite the fact that it should’ve been a winner. So that was a big no-no, and qualifies for a Very Bad (and unprofessional) trade.

I have already implemented measures to prevent that from happening again as I mentioned in the conclusion of my previous weekly review, so there’s nothing more to this issue and it will very likely never happen again to any of my trades.

I will now be placing a hard limit order to take-profit when I need to go to bed or leave the house with an open intraday trade, or if it’s a particularly juicy trading opportunity, then I will bring my laptop with me or leave my laptop in my bedroom with the sound turned up and my trading alerts turned on.

My girlfriend will hate it, but my equity curve will probably love it!

Conclusion

This month was a pretty typical losing month for a systematic trader. It hasn’t damaged my equity curve much at all, but it certainly doesn’t feel great to trade for four weeks straight and end up down 2%.

But that’s trading. That’s what we sign up for, and it’s one of the quirks of the business that we have to accept. Sometimes you need to lose a little bit of money for a little while in order to make a decent amount of money later on.

My strategy isn’t broken. Like a great employee that under-performs for a while due to reasons outside of their control, I just need to give it the benefit of the doubt and continue to let it work for me over time and trust that it will pull through eventually. It hasn’t let me down since I began trading it, and I always manage to come out of these drawdowns on top.

So this month’s review conclusion is the same as it always is: I will continue to trade my rules as I backtested them. Although this double-digit drawdown is rough, it only takes a handful of solid winning trades for my strategy to recover the previous few weeks’ losses.

And that requires me to continue to execute it consistently no matter how uncomfortable I feel. That’s the challenge of trading, and I look forward to sharing it with you guys.

Take care, speak soon, and best of luck with your own trading.

Next Week’s Goal

Execute my plan flawlessly.

Previous Week’s Review
This Week’s Review
Myfxbook Stats

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