Weekly Review #43

Annual Gain: +0.37% | Drawdown: -21.95%

Forex Trading Review – Week 43

Hey traders! I hope your trading week went well.

Unfortunately my past few weeks have been rough for me. I’ve been hammered, and over the past 4 months I’ve slowly given back all of my profits for the year. I’m break-even after 10 months of actively trading every day.

Obviously this really sucks. I feel very frustrated and demoralized by the experience. Trading for this long without making any money is tough. It’s times like these that really tests my resolve as a trader, and the temptation to change strategies or hop systems or make radical changes to my trading in an attempt to make the money back faster is hard to ignore.

But I was trained well by my trading mentor and I know how to handle these emotions. No matter how uncomfortable I get with my trading results, I always know what to do about it. And the most important thing right now is that I remain consistent and disciplined so that I can systematically apply improvements to my process and my strategies.

Plus it’s important to keep things in perspective. First of all, I haven’t lost any money out of my initial trading capital yet. I’m only at break-even for the year, which is obviously not ideal, but also not the worst case scenario. By managing my risk properly I’ve given myself a chance to survive this drawdown. In the past, once I got into a hole this bad, I would continue to make things worse for myself until I blew my account. But I broke that cycle 18 months ago and I have no intention of repeating it!

I can potentially make back my losses in one or two good months, so it’s important for me to acknowledge that despite the fact that I’m frustrated and disappointed by my current results, thanks to adhering to proper trading processes I’ve minimized the damage as much as humanly possible which is 50% of successful trading.

Things aren’t always going to go according to plan and there are going to be times when your strategy under-performs and even stops working and requires adjustment. Being able to survive those uncomfortable periods by utilizing appropriate risk management is of paramount importance to your success as a trader.

With all that being said… if I’m to be completely honest and transparent, this is all easy to say but extremely hard to do. I feel really pissed off about my trading results so far this year. It’s not a pleasant emotional feeling at all.

But I refuse to let it negatively impact my trading performance and discipline, so I’m not going to dwell on it. I’m going to let the feelings come and feel them as strongly as I can, and then let them go and focus on the next practical step of moving forward.

Making consistent money out of trading is hard enough without sabotaging myself through emotionally-charged decisions. I plan to channel this emotional energy into backtesting and review and improving my trading rules until I feel more comfortable and confident with my trading process. It’s a much better way of dealing with the situation than trying to revenge trade or risk big to make it all back.

I’ve made that mistake plenty of times and although this year has been disappointing in terms of my returns, I’m actually really excited to finally break the cycle of self-destruction – and I’m determined to get my trading back on track!


21st October – 25th October

Trade #216

MarketEUR/USD
Date & Time22/10/2019 7:00AM
Daily TrendBullish
Timeframe1HR
StrategyPullback
Result-1.02%
VerdictGood Trade


Reflection:

I had high hopes for this trade given the fact that the Daily chart had just broken clean out of a long period of consolidation into a potential reversal, but instead I was caught in a deep retracement that stopped me out and even ended up reversing trend on this timeframe.

Bad luck, Good Trade according to my rules.

Although it’s worth noting that preceding this setup there was an obvious double-top pattern which is a strong sign that the momentum of this trending move may be failing, so I’m going to add that to my list of negative filters to backtest over the coming weeks to see if it improves my expectancy.


Trade #217

MarketUSD/CAD
Date & Time22/10/19 12:45PM
Daily TrendBearish
Timeframe15M
StrategyPullback X
Result-1.00%
VerdictGood Trade


Reflection:

This was a textbook trend-continuation setup (for this timeframe).

The Daily chart had just made a bearish impulsive move that broke structure and put the higher timeframes into a potential down-trend, so my overall bias was strongly bearish.

Unfortunately even though this pair did continue lower, it stopped me out first with a poke above the 50-EMA. But it was still a Good Trade according to my rules, so it was an acceptable loss.

Although once again – it’s worth noting that preceding this setup there was what we EAP students call a ‘RSI Swing Signal‘ setup. This pattern is itself a counter-trend setup, but when it occurs it typically means that there is a higher-than-typical chance of a retracement.

When the RSI goes oversold (represented by the change to bright green color on my charts) and price then prints a higher-high higher-close swing-low fractal engulfing candle, there is between a 40-50% chance of price retracing by multiple ATRs.

In other words – taking a trend-continuation setup so close to a counter-trend setup that has an edge is not a great idea. There were conflicting signals here. And while it’s important to not allow yourself to fall prey to analysis paralysis and so you shouldn’t pay attention to any factors that don’t directly affect your current trading opportunity – in this particular case we had a situation very similar to the double-top that occurred before the previous EUR/USD setup.

So I’m also adding this to my list of negative filters to backtest during my next phase of testing to see if avoiding trades that occur immediately following this particular price action pattern improves my statistical expectancy.


Trade #218

MarketAUD/JPY
Date & Time23/10/19 5:00PM
Daily Cond.Testing Resistance
Timeframe1HR
StrategyPullback
Result-1.01%
VerdictGood Trade


Reflection:

This was another textbook setup according to my trading plan, and one with a solid win rate under typical circumstances. But for whatever reason I just couldn’t catch a break this week and despite taking what I considered to be high-quality setups, I still lost all 3 trades.

For this trade, price had just come up into a zone of major Daily resistance. After failing to make a new high out of this zone, price then fell lower and broke through the 50-EMA and several minor support levels which gave me reason to believe we might see a deeper retracement on the higher timeframes which would allow me to capture some intraday profit.

Instead price held at the highs and began to consolidate and stopped me out. This was still a Good Trade according to my rules and I’d take it again given the chance, so nothing could be done about this trade. I don’t see the potential for any negative filters that would have avoided this loss.

Sometimes you do everything right according to your edge and your trading style, but still lose. It’s part of the game and it takes some getting used to.


Weekly Reflection

Annual Return: +0.37% | Drawdown: -21.95%

Last Week’s Goal: Backtest For At Least 2 Hours Per Day.

Overall Grade: B

This week I didn’t quite get as much backtesting done as I’d like to (as usual), but I did get time to crunch some of my trading statistics for the year in a quest to identify whether my drawdown is this bad because of the natural forces of bad luck, or if I’ve been making mistakes or bad decisions that have potentially made it much worse than it should be.

I found that I’ve made a fair number of mistakes this year, but none that would necessarily cause my drawdown to approach my max pain threshold. So I am sure that this drawdown is at least partly caused by natural market conditions just not cooperating with my pullback strategy at the moment.

But I noticed that the mistakes I have been making are coming from a lack of confidence in my trading plan. Because I backtested almost 2000 trades across multiple pairs and years of price data, I’m sure that it’s not because I don’t believe it works. I’m sure that my strategy works.

I think the problem is that as I’ve continued learning about trading this year and discovered new and more effective ways of interpreting price action I’ve slowly “outgrown” my trading plan. My trading plan is just too simple. It doesn’t account for enough things to give me the highest amount of confidence possible in the trades that I take.

Therefore I’m now embarking on what will probably be a multi-month journey of re-backtesting everything that I do in my trading with new twists and negative filters applied that I think might improve my overall expectancy (ie. reduce my average and max drawdown both in depth and length of time, while sustaining or improving my average and max gain).

I don’t have time for today’s journal entry to list in detail all of the negative filters and analysis techniques that I plan to experiment with in my backtesting, but I’ll take some time to discuss one of the major negative filters I discovered in my post-trade analysis.

After analyzing my live trade results I found that so far this year I’ve taken 26 trades where the entry setup occurred immediately following a direct test of Daily timeframe structure. In terms of price action, that looks like this:


Out of those 26 trades where the setup occurred after an immediate test of structure, a whopping 18 of them lost!

That means that whenever I take an intraday trend-continuation setup that occurs following a test of major structure I have a 70% chance of losing money. Given the fact that my average risk:reward cannot sustain a win rate that low, guess what types of trades I won’t be taking anymore?


It’s little things like this that add up to create a robust trading plan. And that is my new focus with my trading – to create a trading plan that maximizes the profit I can extract out of the markets with the skills I’ve developed over the past three years.

I should mention that under normal circumstances 26 trades wouldn’t be nearly enough to make an educated decision about the statistical expectancy of any given pattern. But given the logic behind this concept (ie. major higher timeframe structure is likely to have an effect on price) – and the convenient fact that my trading mentor released a video explaining his own experiences with this particular situation – I figure that if I were to test 1000 trades the number would still be close to a 70% losing rate.

This kind of negative filter might be obvious, and it’s something I thought about a lot when I was initially developing my strategy and trading plan.

But at the time I didn’t have a firm grasp on my ability to determine which zones of Daily structure were likely to be important, so I didn’t have the confidence to implement it into my trading plan because I knew that I was going to be inconsistent with my analysis until I developed that skill.

When I started trading this year I began using an excruciatingly simple pullback strategy on only a handful of currencies and timeframes. The reason for this was to develop consistency and discipline and confidence in myself and my process.

The strategy is profitable (or at least it was in the past), but with simplicity comes a price: frequent losing streaks. The strategy is extremely simple and easy to execute consistently, but the problem with simple strategies is that they often don’t account for obvious factors that negatively influence the trade’s expectancy – which causes the trader to repeatedly step in front of oncoming traffic from time to time.

That was a price I was willing to pay at the time that I created my initial trading plan. I didn’t really care how much money I made – all I cared about when I began trading this year was sticking to the plan and developing sincere self-discipline. As this was the area in my trading that I struggled the most with for the longest time, it was the area that I felt needed the most urgent attention.

But now, to my own surprise, I’ve completely overcome that hurdle faster than I expected! I’m now more disciplined and self-controlled with my trading than I have ever been with anything in my life.

But I haven’t been making money. At the end of these past ten months of trading, I’m back where I started – basically break even for the year and in a 20% drawdown.

This isn’t a big deal to me because as I mentioned earlier – this year’s goal was to be disciplined and consistent, not necessarily to make a lot of money. Breaking even still achieves that goal, so if I don’t make any money for the rest of the year I’m still happy with my progress so far.

But it’s time to step up my game. I’ve outgrown my current trading plan as it stands, and I’m ready to take things to the next level and begin the process of improving it and sculpting it to suit my newfound trading personality and style.

I now have the skills and tools to develop and trade a system properly, and I’ve proven to myself beyond a shadow of doubt that I have what it takes to perform my duties effectively as a trader. The next step is to improve my trading system itself, and start extracting some serious profits out of the markets!

Oh, and I’m also going to begin incorporating Advanced Patterns into my trading soon for exploiting counter-trend and consolidation opportunities. That’s going to be really exciting and I can’t wait to see what they bring to the table. More on that next time!

Anyway, that’s the update for this week. I’ll keep you guys posted on what I discover throughout my second phase of backtesting and what changes I make to my trading plan.

I hope you have a great trading week, speak soon!

– Matt


Next Week’s Goal

Backtest For At Least 2 Hours Per Day.

Previous Week’s Review
This Week’s Review
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