Forex Trading Review – Week 29

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 it escalated to very 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 obviously 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. That’s two weeks in a row that I have missed profitable trading opportunities that I had no reason not to be involved in.

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.

15th July – 19th July

Trade #133

Reflection:

A nice losing trade to start off the week. This setup occurred early in the morning while I was asleep, but when the Asian market opened the market was still hovering around the entry price, so I went short.

I liked the fact that there was structure in confluence with the EMA. But the market decided to play around with the EMA for a while, stopping me out before eventually rolling over into trend-continuation.

I take these setups all the time and they have a positive expectancy, so I did nothing wrong here. Good Trade.

Trade #134

Reflection:

After price rolled over later in the day following the previous trade, I got a second pullback setup to try to ride this down to support.

Fortunately, this time price hit my break-even price before it reversed, so this trade was not a loss. Another Good Trade.

Trade #135

Reflection:

Although the daily trend is bearish and price was looking somewhat over-extended on this timeframe, on the 1-hour and 4-hour timeframes it had plenty of room to move higher.

Given the fact that there was such strong momentum on this timeframe and essentially a bullish trend reversal, I was hoping to catch one more swing out of this move.

Unfortunately price just began consolidating and went nowhere, stopping me out. Still another Good Trade according to my trading plan.

Trade #136

Reflection:

This is a great example of why you should never get over-confident in a setup.

Normally this setup has a fairly high probability of success, especially with structure in confluence with the 50-EMA and a higher timeframe down-trend. Combine that with a swing-high bearish engulfing candle and you have a delicious shorting opportunity.

But alas, the markets acted as if this price action condition was meaningless and pushed through support-which-typically-turns-resistance and the 50-EMA as if there was nothing there at all.

So this trade was a loss, but only a small loss, so it’s no big deal. However, reflecting on this trade reminded me of my past mistakes. In the past if I was in a drawdown and I saw an opportunity like this, I might have doubled-down or even tripled my position size.

I’ve since learned my lesson. No matter how good a setup looks, and no matter how overdue you are for a winning trade, anything can happen. This is a game of probabilities, and even if the probability of this setup winning was very high, it didn’t win, and I lost money.

This is a great example of the importance of consistent risk management and position sizing. Unless you have developed a money management plan that proves there is a benefit to adjusting your position size according to certain statistically-proven higher probability setups, then as a systematic trader you should never risk more on any single trade just because you think a setup looks too good to fail.

No setup is too good to fail.

Trade #137

Reflection:

This is the third high-quality setup that failed me this week.

This was another situation where previous structure is in confluence with the 50-EMA and a bearish trend (on this timeframe), yet price stopped me out right before rolling over to hit what would’ve been my first profit target.

To be fair, the black structure line is drawn at the wick of the previous low. Technically price did respect that structure zone, it just so happens that my stop loss was a few pips too tight.

That’s the danger of trading pullback entries. I don’t use structure to place my stop loss, so there are occasions such as this where I get wicked-out due to a deeper test of a structure zone.

It’s something that does bug me, but it’s a necessary side-effect of how my strategy is composed. I am planning on adding a structure-based strategy into my trading plan in the coming months which may affect how I take these types of setups in the future, but for now, this was another Good Trade with a positive expectancy that simply didn’t pan out.

Trade #138

Reflection:

And here we have a fourth trade with structure in confluence with the 50-EMA that didn’t pan out.

These setups don’t have a fantastically high win rate, in my testing I found that it has around a 50% win rate on average on most pairs. But I must admit I was surprised this week that none of these setups hit targets.

Another Good Trade that I’d take 100 times out of 100.

Weekly Reflection

Annual Return: +12.88% | Drawdown: -12.22%

Last Week’s Goal: Execute my plan flawlessly.

Overall Grade: B

I knew my drawdown could get worse before it got better, but I didn’t expect this week to go so poorly given the quality of the setups I was taking. Again, it just goes to show that sometimes the markets just don’t want to cooperate with your strategy, no matter how strong your edge is.

During these times we just need to monitor our statistics to make sure that we haven’t lost our edge (which takes a lot longer than 3 weeks to determine), lower our position size if necessary (I’m not going to do that yet), and stick to the plan despite the fact that our emotions are screaming at us to make some sort of radical change or decision to make us feel like we have control over the situation.

This is typically the time when a trader hops systems, or begins breaking their rules or revenge trading or risking too much in an attempt to make back the money they’ve lost as fast as possible.

Well, I’m not going to do that this time. I’ve been there, done that, and it doesn’t work. This time I am going to stick to what I know does work.

I will continue to trade my strategy as best I can according to the rules I defined during my backtesting process, and if I hit a 20% drawdown or worse, then I will drastically lower my position size or go back to demo trading until I have another profitable month. My max drawdown during backtesting was 15%, so until I exceed that in a meaningful way, I have nothing to freak out about yet.

In the meantime I will probably spend a few days re-backtesting my strategy both in an attempt to discover ways to improve its expectancy, and also to boost my confidence in its edge by reminding myself what it can endure.

I find that nothing soothes my nerves more effectively than spending a day or two crunching my strategy’s numbers in a spreadsheet. Sure, it bores me to death too, but seeing the numbers reflected over a large sample size always reminds me that we’re playing a long-term game here.

10 losing trades is nothing in the face of the next 1,000 trades. It’s just a blip on the radar. And unless I lose the next 90 trades in a row, I don’t have too much to worry about yet other than looking bad on the internet and opening myself up as a target to every trading troll on the planet.

Good luck with your own trading, and check back next week to see if I’m still in business.

Next Week’s Goal

Execute my plan flawlessly.

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