Weekly Review #40

Equity Curve
Annual Gain: +2.23% | Drawdown: -20.50%

Forex Trading Review – Week 40

Well, I’ve gotta be honest – this drawdown is brutal! I can’t seem to break the losing streak.

I’m confident that I’ll get out of it eventually, but it looks like this year is not going to end as exciting as I’d hoped. I was shooting for a 30% return minimum, and although I almost achieved it around June, the past few months have seen my strategies give all of it back.

I’m not at my max drawdown yet so I’m going to continue trading my trading plan as it stands. But I am in the process of backtesting changes that are designed to improve its win rate and lower its expected max drawdown. I’m also considering changing the timeframes that I trade (from the 15M and 1-Hour to the 1-Hour and 4-Hour).

That’s partly the reason this journal entry is so late this week (I’m writing this on Tuesday) – I’ve been backtesting like a machine! And it was a long weekend here in Australia with Monday being a public holiday, so I took the weekend off to be with my family and take my mind off of this drawdown and reset my mentality.

I also spent most of the weekend helping my dad build a permanent outside enclosure for me and my girlfriend’s cats so that we don’t need to supervise them to stop them from escaping. It turned out pretty good! Now I can get a lot more work done during the day without them walking on my keyboard, and we don’t have to worry about them killing local birds and bringing them home as gifts.

Anyway, I think the short break from focusing on trading worked. This week I’m ready to get back to the drawing board and start systematically improving my trading plan.

But in the meantime, please dear forex Gods… make the bleeding stop!


30th September – 4th October

Trade #200

MarketUSD/JPY
Date & Time30/9/19 12:00 PM
Daily TrendBullish Consolidation
Timeframe1HR
StrategyPullback
Result+0.50%
VerdictGood Trade


Reflection:

This first trade of the week started out great. We had a nice clean minor 1-Hour timeframe structure level in confluence with the 50-EMA and a bullish situation on the Daily chart.

When we got a higher-high higher-close engulfing candle, I was happy to take this setup with so many supporting technical factors. But then some fundamental news dropped the following night which sent USD/JPY back into a free-fall, stopping me out for break-even on my second position.


Trade #201

MarketEUR/JPY
Date & Time1/10/19 9:15 PM
Daily TrendBearish
Timeframe15M
StrategyPullback X
ResultB/E
VerdictGood Trade


Reflection:

This trade was a valid setup according to my rules because we had a 1-2-3 move and higher lows followed by a strong breach of the 50-EMA and the 118 even handle.

But in hindsight, seeing that large bearish rejection wick preceding my entry, this setup was not ideal. I’m thinking that when I’m backtesting new variations of my trading rules over the coming weeks, I should see if ignoring setups with rejection wicks such as in this example increases my win rate.


Trade #202

MarketUSD/CAD
Date & Time2/10/19 11:15 AM
Daily TrendBearish
Timeframe15M
StrategyPullback X
Result-1.01%
VerdictGood Trade


Reflection:

This trade looked great at the time, but obviously if I knew what was about to happen next I would have reversed my position haha.

On the Daily chart we had a bearish trend-continuation pattern forming, so I was expecting to be able to capture some intraday profits out of that move. Instead the market reversed in the middle of nowhere creating a funky bullish head and shoulders pattern and then rocketed higher to retest previous resistance.

That happens sometimes, and this was still a Good Trade according to my rules.


Trade #203

MarketEUR/JPY
Date & Time2/10/19 8:45 PM
Daily TrendBearish
Timeframe15M
StrategyPullback X
Result-1.01%
VerdictGood Trade


Reflection:

This was a textbook pullback setup, and usually these trades have a pretty solid win rate. But this time I got robbed by the spread. Normally my spread stays at below 0.5 pips on this pair especially during the middle of the U.S. trading session (which is around midnight my time – which is when I was stopped out by 0.7 pips).

In the past I’ve been spared by the spread in situations like these, but you can’t get lucky every time, and this time I didn’t. So it’s no big deal and I’m sure it balances out over time – although it certainly strings a lot more when you’re deep into a drawdown.


Trade #204

MarketEUR/JPY
Date & Time3/10/19 8:45 AM
Daily TrendBearish
Timeframe15M
StrategyPullback X
ResultB/E
VerdictGood Trade


Reflection:

When EUR/JPY finally began to break lower on the Daily chart, I decided to take this intraday setup. Normally I would probably avoid a setup like this because the break below previous support was only a few pips.

But because the higher timeframes were in confluence and that bearish engulfing candle was so large (and so close to the 50-EMA which was clearly beginning to act as resistance), I decided to go for it.

Unfortunately price snapped back after getting my hopes up and breaking lower initially, and stopped me out for break-even.


Trade #205

MarketEUR/JPY
Date & Time3/10/19 12:15 PM
Daily TrendBearish
Timeframe15M
StrategyPullback X
ResultB/E
VerdictGood Trade


Reflection:

After being stopped out for break-even on the previous setup, price put in another valid setup below the EMA, so I decided to give it another shot.

The same thing happened this time – price hit my 1:1 target and then snapped back to stop me out for break-even. Once this happened I stopped looking for trades on this pair for the rest of the week because it was clearly entering a period of messy consolidation.


Trade #206

MarketAUD/JPY
Date & Time3/10/19 4:00 PM
Daily TrendBearish
Timeframe1HR
StrategyPullback
ResultB/E
VerdictGood Trade


Reflection:

This was a pretty typical pullback setup that met my rules. Lower highs, lower lows, below the 50-EMA = a bearish trend on this timeframe. So when I got a valid setup, I went for it.

You’ll notice that’s a recurring theme of this journal. My trading process is extremely simple. I create a trading plan with clearly defined rules that (theoretically) give me an edge over the markets, and then I trade those rules repeatedly and consistently.

Obviously that’s not working out so great for me the past few months, but at least I have a wealth of journal data to go analyze over the next few weeks to work out what’s going wrong and what needs to be improved.

That’s what systematic retail trading is all about, and it’s exactly as monotonous and painful as it sounds!

The best job in the world” they say! Haha… and it is, but only when things are going well!


Trade #207

MarketUSD/CAD
Date & Time3/10/19 4:15 PM
Daily TrendConsolidation
Timeframe15M
StrategyPullback X
ResultB/E
VerdictWhoops Trade


Reflection:

This was a painful trade. Despite hitting my 2:1 target, it ended up being a break-even trade. If you’ve been following my journal then you know that this is a recurring problem for me with intraday trades.

In this case, I had to go to bed because I could barely keep my eyes open after being up all day since the early morning. Of course, being in a drawdown, rather than be conservative and place a take-profit order at 2:1 like my old strategy (which is what I said I’d do the last time this happened)… I just rolled my stop to break-even and went to bed praying for and dreaming of a miraculous bullish rally that netted me +10R profit on a single trade.

Of course, those trades happen sometimes and it’s amazing when they do – but whenever you try to force them or test your luck while fishing for the Big Win, such as I did in this case – it always bites you in the ass.

And so I woke up the next morning to no profit, after being correct about the direction and targets of the trade. So as of now, I am enforcing my new rule: when I go to bed with an intraday trade open, I will place my target at 2:1 instead of gambling with the market.

Or alternatively, if it means so much to me that I milk the trade for all that it’s worth, then I should just drink a coffee or a red bull and stay up an extra few hours watching YouTube and keeping an eye on it. But one thing’s for sure: I’m not letting these easy 2:1 winners get away on me while I’m sleeping anymore.


Trade #208

MarketAUD/JPY
Date & Time4/10/19 8:00 AM
Daily TrendBearish
Timeframe1HR
StrategyPullback
Result-1.01%
VerdictGood Trade


Reflection:

This was a retest of the 50-EMA and previous support which I expected to turn into resistance and push this market back down to at least the lows of the pullback if not full-on trend-continuation.

Of course, in line with my recent luck – this did not happen and I was stopped out for a loss. But this was actually still a pretty good setup that has a solid edge in most circumstances, so I consider it a Good Trade and I’d take it again.


Trade #209

MarketEUR/USD
Date & Time4/10/19 8:00 AM
Daily TrendBearish
Timeframe1HR
StrategyPullback
Result+0.53%
VerdictGood Trade


Reflection:

This was a nice little easy winning trade on EUR/USD. I was fairly confident that my first target was going to be hit on this trade. In the future I’d like to be able to increase my risk when extremely high-probability situations like this occurs, because I’m getting a lot better at knowing how to identify the difference between wishful thinking and a genuinely solid trading opportunity.

Anyway, price did consolidate after hitting my first target so I couldn’t get too excited about this trade. After losing so many trades this week, single target winners just isn’t going to cut the mustard for me right now. I need multiple target winners and large intraday winners if I’m going to recover this drawdown before the end of the year.

But I can’t force that to happen – all I can do is keep placing trades like this consistently while I try to improve my strategies and wait for the winds to shift.


Trade #210

MarketGBP/USD
Date & Time5/10/19 8:00 PM
Daily TrendBullish
Timeframe1HR
StrategyPullback
Result-1.01%
VerdictGood Trade


Reflection:

This was a similar situation to EUR/USD except that we have a lot more chop going on.

After such a large break above the 50-EMA following a test of a major higher timeframe support level (in blue) – and that poke above a very obvious resistance level (in black) – I thought that we might see a reversal on this pair back up to the red HTF resistance zone.

But nope – price decided to go back to choppy town instead, which made this a losing trade.


Weekly Reflection

Equity Curve

Annual Return: +2.23% | Drawdown: -20.50%

Last Week’s Goal: Execute my plan flawlessly.

Overall Grade: C

This week was another painful slow bleed and it has definitely been frustrating for me.

Despite the fact that I expected to experience a drawdown like this at some point, I was hoping it wouldn’t be so soon after beginning my trading journal.

But it’s important to maintain a positive mental attitude in the face of adversity as a trader, while also being realistic and objective about your trading results.

It doesn’t do me any good to continue trading a losing strategy just because I’m optimistic and “following the rules”. But it also doesn’t do me any good to give in to the frustration and make rash decisions or trading judgments that sabotage my long-term survival.

I haven’t technically lost any money this year despite being 20% in the hole, because all of that drawdown is lost profits. And 20% is within my strategy’s expected max drawdown limits, so I knew what I signed up for before I began trading it.

So right now I’m feeling more frustrated about the fact that my process is under-performing more so than the fact that I’m losing money. I don’t really care about the money, that will come back in time. But trading for 4 months straight and giving back all the hard work of the beginning of the year is not an easy thing to take in your stride and keep pushing forward.

I wish that I was performing better than I currently am, but obviously that just means that I still have a lot of work left to do in order to get where I want to be.

I always knew that trading would be a constant challenge, so I was expecting things to remain difficult even after becoming a disciplined trader with an edge. But I also hoped that this first year of sharing my public trading journal would go a lot better!

Anyway, it’s a good thing in the end. This was bound to happen eventually, so it might as well happen sooner than later so that I can build the necessary muscle memory to handle it better psychologically.

In the past situations like this were exactly where I came undone – I’d begin over-trading, breaking my rules, trading too large, trading markets I don’t understand just because they’re moving a lot – anything to make that money back.

But now I’m 100% dedicated to process over outcome, and the money is mostly a background thought. And so that’s exactly how I’m going to handle this situation: process over outcome.

I’m going to channel my frustration into my process, and until I’m out of this drawdown I’m committing to backtesting at least 1 pair per day every day. I’ll keep this up until I’ve recovered my drawdown and improved my trading plan to a level I’m more comfortable with. I’ve learned a lot over these past 8 months of the year, and it’s time I updated my trading plan with new filters and techniques I’ve discovered.

Backtesting 1 pair per strategy per timeframe takes me about 3 to 4 hours to do properly, and I get between 300-500 tested trades over several years out of that process which is usually enough for me to determine whether or not the strategy has some juice.

But in the interest of being completely transparent – I should admit that backtesting for 4 hours straight drains the life force out of my soul. So backtesting for 4 hours per day everyday is not a small commitment for me to make. It’s a brutally grueling process, and that 4 hours can sometimes feel like days.

In fact, as a rule of thumb – how well you are backtesting can be measured directly by how painful it is to do. If it’s excruciating, then that means you’re doing it properly because you’re taking your time and paying attention to every little detail.

This level of attention to detail is unnecessary to be a profitable trader, but it is necessary to be a great trader. And it does build extreme confidence in your process – so if you struggle with self-discipline and self-confidence then in my opinion (from personal experience), meticulous backtesting is the best way to overcome that. And the peace of mind is absolutely worth the pain.

So yeah… that’s it. As usual – I’ll be doing the same thing I always do going forward: trading my plan and backtesting. And also as usual – thanks for reading, and good luck with your own trading!

I’ll probably take some time next week to go over what I’ve found from my backtesting and explain my thought process behind any changes I decide to make.

In the meantime – I hope your trading week goes better than my past few!

Trade green.

– Matt.


Next Week’s Goal

Backtest At Least 1 Pair Per Day.

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This Week’s Review
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