Forex Trading Review – Week 28

This week was yet another rough one, making it THREE in a row.

Every trade I took this week lost except for one, which broke even. I have to admit, the past two weeks have been mildly uncomfortable, but this week was extremely uncomfortable. I’m starting to wonder if I’ll ever win a trade again!

My losses this week put me into an unbroken 10 trade losing streak. That’s on par with my worst-ever losing streak since I began trading live, and not something I’ve experienced for several months.

It’s not fun. I can safely say this is the worst part of trading. I can handle drawdowns, but once they enter the double-digits and last for a month or longer, it feels brutal.

All I can say is that I followed my plan this week without making any errors, so I can’t beat myself up over it. I did however fail to take a trade that I should have taken out of fear. That trade won, of course, and it would have been a +1.5% alleviation of my drawdown and broken my losing streak which would have been nice.

So although I have been following my plan, there is definitely a lack of focus seeping in that is beginning to affect my decisions. I need to be on guard against the fear of losing affecting my trading decisions. The last thing I need right now is to allow my emotions to interfere with my best judgment.

8th July – 12th July

Trade #121

Reflection:

This was a trade from last week, and my only two target winner for this month so far.

But it was a decent one. Once price got to a 4R profit and approached a significant low on the Daily chart, I trailed my stop loss as tight as I could using structure on the 15M chart.

That locked in a 2% gain on my second target, making this a +2.6% winner overall which has helped to slow down the depth of this drawdown.

Trade #123

Reflection:

This was a good trend-continuation opportunity that unfortunately did not play out as well as I hoped.

Price rolled over to hit my first target after putting me through some pain, and then retraced to stop me out for break-even on my second position after that.

This is a frequent occurrence for my strategy so I am very accustomed to it, but I have to admit it does feel worse during a drawdown. Price eventually rolled over to test 1.12 before reversing trend.

Trade #124

Reflection:

Another false breakout trap.

I’ve been getting caught in a few of these lately, and I am wondering if maybe I need to develop a filter to avoid these types of weak breakout setups.

But according to my rules this was a valid potential trend-continuation opportunity, so I did the right thing by taking this trade despite my skepticism.

I expected this to turn into a potential build-up break-out trade, which it did – but not before making a deeper retracement that stopped me out by a few pips of course.

Trade #125

Reflection:

This was a solid trend-continuation setup (on this timeframe), so there’s not much to say about this one. The breakout failed yet again and stopped me out for break-even.

But we had a break above structure in trend on the 15M chart, followed by a pullback into the 50-EMA and an entry reason that I’ve backtested and discovered to have an edge.

That makes this a Good Trade that met my rules 100%.

Trade #126

Reflection:

This was a momentum trade on the 15M chart (my Pullback X strategy – single position, single target).

I took it late in the day and the setup did not play out until well after I’d gone to sleep. I woke up around 5:00AM the next morning and saw that price had hit my break-even 1R target and then failed to break out.

If I’d been awake to manage the position at the time it hit my 1R target I would have moved my stop to break-even and been stopped out when price lost momentum and began consolidating, meaning that I should no longer technically be in this trade.

So I exited the position at market for a 0.5R profit and went back to bed, rather than hang on to it any longer and expose myself to any undue risk.

Trade #127

Reflection:

This was a great intraday setup. Unfortunately it was only a single target winner, but there were a lot of factors in confluence backing this trade which made it a fun one to watch play out.

In fact I made a video on YouTube explaining what I was seeing out of this market at the time. If you are interested in learning more about how I analyze price action to find these trading opportunities, then here you go:

Video Analysis

Trade #128

Reflection:

This trade technically met my systematic rules, so I can’t criticize it too much.

But I will say that the price action pattern preceding this setup (a descending wedge) typically breaks out to the up-side, so I think that during my next backtesting round I will consider adding a rules-based filter to exclude these types of setups from my strategy.

I had a strong feeling this trade would lose because I’ve seen this pattern unfold countless times, but I was forced to take it regardless because it met my trading rules 100% and I do not like using discretion to overrule my trading plan in situations like that.

I do not feel I’ve earned that level of skill yet given that I’ve only been trading profitably for 12 months. Discretion in trading is dangerous for inexperienced traders, so I try to avoid it as much as possible.

So I wrote this up as a Good Trade – but I admit I have some study to do on these market conditions to see if I can further enhance my edge.

Trade #129

Reflection:

This was a hard trade to take, but again, it also met my rules.

The reason why it was hard to pull the trigger is because of the double-bottom that occurred at 1.24500. That thin black line is the lowest Daily candle wick since January.

You can see that price very weakly broke and closed below that wick on this timeframe, then double-bottomed before retracing into a major Daily resistance zone and giving me a valid pullback entry.

This is a similar situation to the previous trade. Because I’ve seen these types of false breakouts and double-bottom reversals play out countless times over the past 3 years, I had a strong feeling that this setup would lose – especially given the size of the green candle preceding my entry reason.

But I have not backtested these situations enough to discover whether or not taking this trade has a negative expectancy, and given the fact that the Daily trend was looking like it was about to enter trend-continuation mode, if this trade had played out profitably it may have been a huge winner.

So again – I can’t simply use my discretion to not take this trade because that may sabotage my positive expectancy over the long-term. So I need to get back into backtesting – this time instead of testing entry conditions and reasons, I need to test trade exclusion filters.

I know now when I should use my strategy, but now I should explore when not to use my strategy. It sounds like the same thing, but it’s definitely not.

Trade #130

Reflection:

These false breakouts have been killing me the past 2 weeks. I wonder if it has something to do with the markets being slow during the American summer period. It just seems that breakouts are lacking follow-through across the board right now.

But again, I haven’t backtested seasonality’s influence on my strategy performance, so that’s purely speculation. It’s possible that I’m simply encountering a very natural and normal drawdown that all strategies endure occasionally.

It’s too soon to know for sure. So all I can say is that this trade met my rules 100% and I will continue to take them until these setups begin working again or I hit my maximum drawdown limit (20%) and go back to the drawing board.

Trade #131

Reflection:

Similar to the EUR/USD trade (#128), here was have a descending wedge pattern unfolding right before I get a pullback entry.

Descending wedge patterns typically imply a slacking of momentum to the downside, which often leads to a bullish pop such as this one.

So again, this is something I need to get backtesting on. I need to go through the charts and look at every occurrence I can find where this price action pattern occurs and then track the statistical probability of the setup losing.

Once I have that information, then I can know for certain whether or not I should continue to take these trades. But for now – this was another Good Trade that met my current trading plan’s rules.

Trade #132

Reflection:

The final trade for the week was yet another loser, and my 5th losing trade in a row. The past two weeks have been pretty brutal, I’m not going to lie. It doesn’t feel great.

But all you can do in these situations is keep pushing forward.

I don’t know when these setups will begin winning again, but I know that it’s statistically unusual for them to lose this often and that over the long-term they have a solid edge over these markets, so I feel that if I keep executing consistently to the best of my ability then things will turn around soon.

The tough part is not knowing when, but continuing to trade anyway. That is the challenge of trading. Winning is easy – it’s continuing to follow the plan while you’re losing that is hard.

Weekly Reflection

Annual Return: +18.71% | Drawdown: -7.68%

Last Week’s Goal: Execute my plan flawlessly.

Overall Grade: B

The past 2 weeks have been rough for my trading results, and I have a lot of reflection to do to work out how much of it is my fault and how much of it is out of my control and the result of natural market forces.

I’ve had a lot of visitors over at our house the past two weeks (including my girlfriend’s nephews who are 7 and 11 years old and full of more energy than I’ve ever had – so you can imagine, I was pretty distracted for those few days).

I showed the 7 year old how to place trades on a demo account because he was curious about the charts. For some reason he really likes corn – and he’s more aggressive than George Soros. I’m currently long 1.6 million contracts of corn on my demo account.

I’ve also had some family issues to deal with. My grandmother has dementia and we’ve been trying to get her into the best care possible – which we have now, and she’s doing better, so that’s one less thing to distract me emotionally.

All of these things impact my trading, and that is why I am mentioning it here despite the fact that it’s quite personal and some might argue irrelevant information.

But it’s not irrelevant information. These distractions have definitely impacted my trading in a negative way, which is important to recognize.

I have missed several trades that I should have taken that would have definitely alleviated my drawdown, so that has added salt to the wound as I go through this drawdown cycle in my trading.

It’s one thing to lose trades, but it’s even worse to lose trades while you miss winning trades. It’s ok to miss some trades sometimes, we’re not all perfect and sometimes we must adjust our priorities based on things outside of our control. So I don’t brood over every trade I miss.

But I feel I’ve missed a lot of winning trades than I should have been involved in over the past 2 weeks and I don’t have a good enough excuse for it other than a lack of focus. I need to make sure I am staying focused on my process at all times, and when I’m not, then perhaps I shouldn’t trade at all.

In any case, because I am still uncomfortable with losing money to the markets (who isn’t?), I’ve been researching how other reputable and experienced traders deal with the harsh omnipresent reality of drawdowns.

I came across a great blog post and video by discretionary trading legend Peter Brandt who exclusively trades classical chart patterns as a technical analyst – very similar to the style of trading I am most drawn to, which makes his advice very relevant to me.

The blog post is titled Lessons From A Difficult Year of Trading, and it has inspired me to write a long article on the subject, so I expect that to be published soon. It will cover this topic in much, much greater detail.

But in the meantime, if you are interested in learning how to cope with drawdowns and manage your emotional capital, check out that article (and this other post by Peter called Discussion On Trading Drawdowns).

I’ll leave you with a quote from him:

The best thinking by traders occur during periods of adversity. It is during these periods that traders think most deeply about their trading and risk management protocols and practices, about market behavior and about the human dimension of market speculation.

Peter Brandt

Next Week’s Goal

Execute my plan flawlessly.

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