Forex Trading Review – Week 34

This week was a minor setback in my equity curve. I only took 4 trades, 1 trade hit my first target and 3 lost. But 1 of those losing trades should have been a winner, and I missed a large 2 target winning trade because I was out of the house at an important appointment.

If I had properly executed on those two opportunities then this would have been a positive week instead of a negative one. So there is a lesson in how important it is to be consistent in your trade execution in order to be a profitable trader.

Obviously I can’t be at my charts 24/7 and sometimes I am going to miss trading opportunities. But in my experience, whenever I notice that I am not executing trades to the best of my ability, there is always something that can be done about it to help the problem.

So I will reflect on the changes I am going to make to my trading process in response to this week’s insights at the end of today’s journal.

19th August – 23rd August

Trade #164

Reflection:

This was a trade from late last week that did not conclude until this week.

Price had broken up and out of a range of consolidation, indicating a potential trend-reversal on this timeframe. So when I got a valid long signal at the 50-EMA, I entered this trade.

Unfortunately price did not move far enough in my favor to lock in profits on my second target. I like to trail my stop loss 1 ATR below structure after a new high is made to give my second position enough breathing room to play out.

In this particular case, price never made a new high after my first target was hit. Price consolidated for a short period of time, which could have been an opportunity to roll my stop loss tighter and lock in at least a 1R win on my second position.

But that’s not how my trading rules are written and that’s not how I backtested this strategy, so nothing could be done in this case. Good Trade, disappointing outcome. After 2 months of drawdown I could sure use some 2nd target winners!

Trade #165

Reflection:

This was my first trade for this week. Despite the fact that the Daily chart is in an up-trend on this pair, this timeframe was indicating that price may want to head lower.

So when I got a 1-2-3 move to the downside that took out the 50-EMA and a major Daily support/resistance zone, I decided to go short on this pullback signal.

Price did in fact roll over to hit my first target, but then the Daily trend kicked back in and price re-tested the highs of the pullback, stopping me out for break-even.

Trade #166

Reflection:

After being stopped out for break-even on my second position on the previous USD/CAD trade, price then created an interested price action pattern that caught my attention.

I like to call this setup the “BOBO” trade – a Build-Up Break-Out. Price had failed at a previous high, but instead of dropping like a stone (which you’d normally see from a significant resistance level), price remains above the 50-EMA and begins to consolidate.

This trading setup is an aggressive (ie. risky) way of entering a trend-continuation breakout before the breakout occurs, giving you a great R:R on your trailing position. It’s aggressive and risky in the sense that it has about a 50% win rate or lower, so it often loses. But because I only risk 1% per trade this is no issue for me.

The reason why this is a trade worth taking despite the lower win rate is because often the second target is a very large winner. When you have the Daily trend backing you, and price has plenty of room to move up to the next resistance level, then these types of trades can be very effective.

Unfortunately in this particular case it did not play out that way. Price did attempt to move higher, but was immediately slapped down and this period of consolidation turned into a failure to breakout and I did not get what I wanted out of this BOBO trade.

No big deal, eventually one of these BOBO trades will make up for the previous losses and that’s the point of them.

Trade #167

Reflection:

This trade was a mistake. It should have been a winning trade, or at worst a break-even trade, but it ended up a losing trade.

I took this setup around 2 hours before I went to bed. I stayed up as long as I could keep my eyes open, but eventually I gave in and went to sleep. I often wake up in the middle of the night due to chronic pain issues, so I figured I’d just get up and check the trade in the middle of the night.

Of course, when I woke up around 1:00 AM and checked the trade, it had been stopped out – after hitting my 2R target and giving me my exit reason of a higher-high higher-close.

I was troubled by this when I woke up in the morning. On the one hand, I have no idea how long a trade will take to play out and no control over it whatsoever. On the other hand, that’s not a good enough reason to let a winning trade turn into a losing trade.

So after some brainstorming I decided that in the future, if I am still involved in an intraday trade when I go to bed, then I will place a take-profit order at 2R from my entry.

When I originally tested this strategy, I used a fixed 2R profit target (for simplicity and to help me become a consistent and disciplined trader). Once I got the hang of that, I changed my rules to allow trades to play out further until I got an exit reason so that I could capture even more profit out of my average winning intraday trade.

The obvious issue with this new rule is that I need to be awake and at my computer to exit the trade when the time comes. I could automate this, of course, but I don’t have the knowledge of Oanda’s API to do this on my own and I don’t have the time or money to pay someone to help me at the moment. One day I will investigate this solution, but for now I’m just going to keep it simple and use a take-profit limit order to manage my open day trades when I can’t manually manage them.

Trade #168

Reflection:

My final trade for the week was a typical momentum pullback trade. Not much to say here – price was making higher highs and higher lows above the 50-EMA and then gave me a valid pullback entry according to my rules.

Good Trade, but no dice.

Weekly Reflection

Annual Return: +9.79% | Drawdown: -14.62%

Last Week’s Goal: Execute my plan flawlessly.

Overall Grade: C

This week was not a great trading week for me in terms of execution, so I give myself a C grade. I could have done better.

Whether a trade wins or loses is out of my control, but how I manage my trades is within my control and I feel I let myself down a little bit this week. But that’s ok – it happens. What’s most important is that I develop solutions around it to prevent these things from occurring again.

The first issue was the EUR/JPY error trade (Trade #167).

That trade lost while I was asleep, when it should have been a winning trade. The solution I’ve decided to implement for now is to use a take-profit limit order to ensure that the trade is closed while I’m asleep if it gets to a 2R profit (which is enough profit to ensure that I remain profitable with around a 40% win rate or higher).

The second problem was that I missed a 3R winning trade while I was out of the house one day. This normally wouldn’t be such a big issue, but this particular day I knew that I was likely to get a valid setup on this particular pair, and I had plenty of time to get my laptop ready.

My girlfriend was driving me and we were in the car for an hour and a half. There was plenty of time to connect my laptop to my mobile phone’s hot spot internet and place the trade.

But instead I ignored the setup and simply assumed it probably wouldn’t win anyway. Thanks to messing up the EUR/JPY trade and missing this trade, I ended up making my drawdown a little bit worse this week instead of alleviating it by a few % points.

So in the future, when I know I won’t be near my computer for several hours and I’m concerned that I may miss an important trading opportunity, then I will bring my laptop whenever possible so that I can still place trades if and when the opportunity arises. It takes me 3 minutes to place a trade and I can do it anywhere, so there’s not really any reason not to take advantage of that when I can.

In any case, these two errors were not catastrophic. It certainly won’t affect my long-term outcome as a trader.

But it’s something I wanted to mention in this journal, as this is the reason I started it. I want to be transparent about the things that I struggle with as a trader in my own process, both to document it here for my own curiosity (it’s fun to look back on how far you’ve come as a trader as you progress) – but also to help other traders learn from my own struggles.

A huge part of trading is the time it takes to learn lessons the hard way. If I and other passionate traders such as my trading mentor can help new or struggling traders cut down on their learning time by learning from others’ experiences, then that makes the personal struggle infinitely more valuable and worthwhile.

Anyway that’s it for this week’s journal entry. I hope you found it interesting, and if not, then I hope you learned something from it at least!

See you next week. Good luck in the markets!

Next Week’s Goal

Execute my plan flawlessly.

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