Weekly Review #10

March 10, 2019

Table of Contents

Forex Trading Review – Week 10

This week turned out much better than my past few weeks. I have finally broken clear of my 9% drawdown for the year and I am officially into new equity highs.

I caught some great moves and performed very well according to my rules and trading process, but there are still a number of decisions I made which I am not entirely happy with.

Before I begin I should explain why this is called Weekly Review #10 and not #2. I began this Trading Journal in March of this year (2019).

As I plan to keep this journal going for years to come, I have decided to title these reviews based on the week number instead of the review number so that I am consistent with my blog titles going forward. Next year they will be in sync.

4th March – 8th March

Trade #23

This was an A-grade setup for me. This was the first trade I took this week and it felt great to start off on the right foot. It took all week to play out and required a lot of patience, discipline and confidence in my plan to just sit back and let the trade do its thing.

It was hard to pull the trigger initially. I kept thinking ‘this is too over-extended, it’s going to pullback soon for sure.’ Even after it began to work out my mind was itching to take profits and exit my drawdown.

But I knew that if I did that then I would have to write this up as a bad trade, so I used a lot of self-talk like ‘Don’t fight momentum, the trend is your friend’ etc. to keep my emotions in check. Sure enough, had I exited the position when I wanted to I’d have missed out on the majority of the move.

This was my first two-target winner for the year. This trade was pretty much textbook for me. Unfortunately, I was stopped out by the volatility caused by the U.S. Non-farm data.

I live in Australia, and I stayed up until midnight for the Non-farm payrolls release as I knew it was a major economic data release that was going to move the markets.

I considered moving my trailing stop-loss much tighter to around 1.34400 in the minutes leading up to the announcement to lock in the extra profit, but instead I decided to sit and watch the market reaction unfold and use my discretion to decide what to do.

Of course, the moment the data dropped and US jobs came out at 20K instead of the expected 180K (a huuuge miss), and CAD jobs exceeded expectations by 50k, USD/CAD dropped like a stone and hit my trailing stop so quickly that it took me a few seconds to comprehend what had happened.

This is why trading the news and opening positions right before major data releases can be dangerous. The only reason I was not more defensive with this position is because I was in open profit and had locked in my stop-loss at a very safe and reasonable place and had no reason to worry.

This was the worst case scenario, and I had planned for it and was comfortable with it.

I do regret not using discretion to move my stop-loss tighter before the release as I fully anticipated high volatility. But I am a systematic trader, and in this case I technically followed my rules to the letter and so I must record this as a good trade. I can build on discretion later.

It is definitely something for me to think about though. I need to come up with a more detailed game plan for dealing with future economic data scenarios such as this so that I do not miss out on too much profit if the data goes against me or causes erratic volatility.

Trade #24

This was a B-grade trade that met my rules. It is B-grade because of the overnight higher low before my entry. But this setup typically represents a complex pullback rather than a reversal and has a decent chance of success, so I went for it anyway.

Didn’t pan out this time, but you can’t win them all. There is nothing I could have done differently with this trade according to my rules so there is not much to talk about here.

I simply need to take the loss on the chin as the cost of doing business and move on to the next trade.

Trade #25

This trade was interesting.

I consider this an A-grade 15M setup. I managed to enter it late as the setup occurred while I was sleeping and had not yet hit the stop-loss price to invalidate the trade.

Initially I planned to shoot for my original setup’s profit target which worked out to be a 3:1RR. I enjoy doing this on some trades as it is an easy way to boost my profits without sabotaging my expected win percentage.

Theoretically and statistically speaking, I have roughly the same chance of my original target being hit (according to my back-testing results) even though I got a better entry with a tighter stop-loss.

Nothing has changed about the probabilities from a long-term perspective. Until my stop-loss is hit I still have a solid chance of my take-profit being hit.

But I soon changed my mind about that for this particular trade after I realized that if I left my target there, then it was resting below a major higher-timeframe 4HR support level and was therefore significantly less likely to get hit than if it were above that zone.

So I pulled it back to a 2:1RR which is the minimum I shoot for with day-trades, and sure enough I got it.

This turned out to be a wise decision. Price came within a pip of my original 3R target before reversing completely, which means that if I had not made the decision to be more conservative with my target then this would have been a break-even trade instead of a winner.

Trade #26

This was a single-target winner. But it was a good trade. I actually missed this setup because my TradingView alerts reset and I had not noticed, so I didn’t get an alert for it.

I happened to notice it an hour later after price had pulled back a fair amount and I got a nice late entry at a better price. In hindsight, perhaps I could have left my T1 at the original location, at 1:1 from the close of my signal candle.

That target was at a reasonable location right at a major support level which was extremely likely to be tested given price action at the time. In fact, I was as confident in this trade as I could possibly be.

In future, I would actually love to increase my risk on these types of setups once I have more confidence in my trading.

But in this case I wanted to make sure that I got out of my drawdown and stayed out, so I decided to be conservative with my initial target and pull it back to a regular old 1:1 from my entry in order to further increase the chances of it getting hit – which it did.

In any case, no matter how I approached this trade it would have been a one-target winner according to my rules so this was an A-grade trade execution nonetheless. It would have been nice to get second targets, but the markets never make it easy.

I will say that in future I need to be more open-minded about being aggressive with certain setups. This is a setup in which I could afford to shoot for that extended first target, and I think that once I have become confident in my ability to execute trades consistently this will be what I begin to work on next.

Trade #27

This trade was an interesting situation. This was similar to USD/CAD in that I was conflicted with how to manage it leading up to the notorious volatility-causing U.S. Non-farm data release.

I entered this trade because of a typical trend-continuation setup. Technically EUR/USD was in consolidation since October last year, but price was coming down hard into Daily support for like the 7th or 8th time.

It was pretty clear to me that the Euro was most likely about to break down out of this long-term consolidation. As it turned out, the ECB made some statements on Thursday that sent the Euro into free-fall for the day.

Unfortunately, because I am a systematic trader and I must trail my stop-loss above swing highs, this impulsive move left me without any structure to trail behind. So I was forced to go down to the 15M chart to find some structure to rest my stop-loss against.

Screenshot of EUR/USD Trailing Stop — EUR/USD Trailing Stop

The closest level was near 1.12400, which also happened to be a major level of previous Daily support. So I was pretty conflicted here. I didn’t want to give back too much profit if the Non-farm data release came out bearish for the Dollar and the Euro rallied back up into the consolidation range which can often happen in these scenarios.

In the end I got stopped out by the Non-farm volatility, and price has since held right at that level and appears as if it wants to move lower into trend-continuation. This is one of the frustrating things about being a systematic trader.

I must follow my rules if I want to make money, but sometimes following my rules costs me some money. The reason why I gave this trade so much room to breathe was because I had no idea how far price was going to retrace yet I was still confident it was ultimately headed lower. I put my stop-loss at my ‘worst-case scenario zone’, and the worst case scenario happened.

I will have to keep my eye on this setup next week. Unfortunately it looks like I won’t get another valid entry reason to go short according to my 1HR rules, unless we get a large rejection wick or a fast double-top on Monday
that closes back below the 50-EMA.

I am currently back-testing and developing a structure-based strategy to take advantage of situations like this but it is not ready yet for live trading.

I may use my small discretionary account next week to enter this trade short if price action confirms my thesis, but I will not be taking any trade on this account that does not meet my systematic rules.

So we’ll have to wait and see what happens Monday. Should be an interesting week for the Euro.

Trade #28

This trade was a real emotional test.

This all unfolded on Friday morning while I was still short EUR/USD.

When I woke up I saw that EUR/JPY had put in a valid 15M short signal a few hours earlier and had not yet hit the stop-loss price despite coming very close. I waited for price to begin to reverse below the stop-loss price before I jumped on it.

It started out great, but in the end I recorded this trade as a bad trade in my journal even though it was a break-even outcome. The reason for this is because I believe I sabotaged the outcome of this trade out of fear.

My rules say that I can move my stop-loss to break-even on day-trades after a 1ATR move. This is because I take a lot of day-trades and I do not want to take any losses that I can reasonably avoid. By having this rule I ensure that I mainly only catch high-momentum setups and escape reversals or consolidation with minimal damage.

On this particular day the Euro was very weak and the global stock markets were also weak. There was every reason to believe that EUR/JPY was headed lower. My bias was certainly short.

But because I was afraid of giving back any of the money I’d made this week from my previous good trades, I prematurely moved my stop-loss to break-even. Price had come within 2 pips of my 1:1 break-even point, but not quite touched it. I moved my stop-loss anyway.

As you can see in the screenshot where I left my analysis on the chart, I clearly went to some effort to talk myself out of this trade. To be fair, there were a lot of reversal signs appearing such as RSI divergence and a double-bottom engulfing candle, and other JPY pairs were rallying at the time.

But this double-bottom occurred in the middle of nowhere, not against a key structure level, and the RSI was diverging because the move wasn’t finished yet.

When the next leg lower completed, the RSI actually ended up making a lower-low, invalidating the divergence that I had interpreted as a sign of an impending relief rally or reversal.

I made this decision out of fear and not based on my trading process. If I had been disciplined enough and had the courage to let this trade play out properly, then my stop-loss-to-break-even rule would not have been triggered until after that small retracement.

It took me a while to calm down after this trade. I kept thinking to myself how perfect this week would have been if I had won this trade on top of all the other trades. I was focused on the gains and on not losing any more money, so that this week could end perfectly according to my expectations.

Of course, this is entirely the wrong mindset to have as a trader, and something I must work on. Ironically, this very thought was what led me to miss out on executing the perfect trading week.

In scenarios like this in the past I was often driven to revenge trade. Not this time though. I have kicked that monkey off my back, thank God.

Initially I was mumbling curse words to my screen whenever I looked at the EUR/JPY chart. But then I realized that it wasn’t the market’s fault that I messed up and spooked myself into exiting a perfectly good trade prematurely.

I changed my attitude from ‘F#k you Euro Yen!’ to ‘Thank you Market for giving me that opportunity to make money. I regret passing up on it, but as a result I learned that I should have more conviction in my trades and so I am still grateful.’

It actually took a few repetitions of this phrase out loud before I calmed down and began to believe it. That is the logical way of interpreting this mistake from a process-oriented perspective.

It is dangerous to personalize emotional reactions to market stimulus. It’s easy to feel like the market screwed me, but I can assure you that most of the time I do a much better job of screwing myself.

I messed up, sure, but my anger was that I spoiled a good trading week with a poor decision, and not simply because I didn’t make money on this trade.

I am on the right path with that, of course. At least I am more process-driven now than I’ve ever been. But I need to be less vague in my emotional response to these types of situations. Getting angry at myself is not enough.

My focus ought to be on neutralizing that anger and frustration, and replacing it with curiosity and practicality and the drive to do better. Why did I feel that way? Why do I lack conviction in my best trades sometimes? What is something practical I can do in the future to prevent it happening again?

It is not the fact that I missed out on making money that frustrates me, far from it. I could care less about that. It’s the fact that I let myself down. I did not stick to my process. I was so damn close to the perfect trading week. Had I stuck this trade through, I would have felt amazing.

Instead, I feel kind of shitty because I did not perform to the standards I’ve set myself. But rather than just moan about it, I plan to implement new processes to prevent me from making the same mistake again.

Now that I have proven to myself that I can handle drawdowns and that if I just follow the plan consistently then I will catch fantastic weeks like this, it is time to step up my conviction in what I am doing.

When I take a trade, I ought to stick it through until the bitter end no matter what – until my rules say otherwise.

If I had been just a little more patient with this trade and waited for it to tag my 1:1 zone instead of rationalizing that “close enough is good enough” then this would have been a winner instead of a just another break-even trade.

All I had to do was set my orders, set my alert, and walk away. But because I was playing too much on the defensive and operating out of fear I suffocated this trade with micromanagement and prevented it from playing out.

I must work hard this year to make sure that I overcome whatever psychological blocks are causing me to doubt myself and my system.

Trade #29

This was my final trade for the week.

Admittedly in hindsight I probably should not have taken this trade late on a Friday night right before Non-farm data, but this setup met my rules and I was pretty confident that T1 could be hit on this trade.

Price came within 2 pips of my target before I went to bed and I considered rolling my stop to break-even. But I had literally just done that and spoiled my previous trade, so I was determined to let the market do its thing on this one.

Sure enough, price immediately reversed to stop me out moments after I turned my computer off and went to bed. Not much I could have done about that, but as I said, I don’t think it was wise to take this trade on a Friday night even though it met my rules.

These are the types of things I really need to consider now if I want to step my game up to the next level and get to a place where I can both increase my account size and my risk %.

Reflection

This week was a phenomenal trading week for me. I know I can do better, but this was pretty good compared to most of my past weeks.

I need to work hard to keep this level of performance up and continue to make the best trading decisions I possibly can.

My new goal for this week is to develop more conviction in my trades. My only focus for the past two weeks has been to not break my rules. I am determined to make that a permanent habit, and I am getting much better at it.

But in order to do that I need to have absolute faith in my system, let it do its thing and learn to interfere and micromanage as little as possible.

This week’s performance is strong evidence that my strategy indeed has an edge, and all I need to do is execute it and do my best to stay out of its way!