Forex Trading Review – Week 49

Well, I got slapped around again this week. 4 losing trades in a row. It seems like this drawdown will never end. It’s been almost half a year of consistent losing which is just not good.

I need to improve my strategy’s expectancy. I can’t continue trading with a 40% win rate. I need to bump that winning rate up a little. As I’ve mentioned several times before, I have some ideas I’m working on, but it’s taking longer than I would like to complete my backtesting process.

My chronic arm pain has been playing up quite badly the past few weeks which really makes it difficult to backtest regularly. All the clicking and typing wears away at my nerve damage and so I’ve been forced to take breaks for multiple days at a time.

As we approach the end of the year and the holiday period I will probably just stop trading and go back to the drawing board altogether. I don’t want to throw out all the hard work I’ve done this year on my strategy and trade analysis, but clearly what I’m doing isn’t working – or at least not as well as it should be.

I never encountered a losing streak or drawdown that lasted this long in my backtesting, so I have to work out what’s going wrong. 90% of the trades I’ve taken this year have met my rules perfectly, so it’s not purely a matter of a lack of discipline (although I definitely still need to improve in that regard).

It’s possible that this drawdown is just a freakish anomaly that is rare for this strategy, or it’s possible that trading pullbacks on a 1HR and 15M timeframe isn’t as effective as my backtesting data suggested. Either way, I have a lot of thinking to do about how I want my trading to look next year considering all the things I’ve learned this year.

But one thing’s for sure, I don’t want to trade for 12 months straight and end up with no profit again! So I’m working diligently to improve my trading plan’s expectancy (and my confidence in it).

2nd December – 5th December

Trade #237

Reflection:

This was a trade from last week. USD/JPY was in a bullish trend on the Daily and the lower timeframes, so when we got this pullback setup into previous support-in-trend (on this timeframe) I went for it.

I managed to capture a nice breakout as price maintained momentum and blasted through previous resistance. But then some kind of news announcement dropped (probably more China>U.S. trade war bullshit) and USD/JPY fell like a stone.

Luckily I’d trailed my stop loss relatively tight on this one, so I managed to capture most of the meat of the move. Good Trade.

Trade #240

Reflection:

This was a momentum trade that met my rules for this timeframe 100%, so it’s important to say up front that this was a very good trade according to my rules.

But as you can see, despite that fact, it was a horrible outcome. Price poked below the 50-EMA and nicked my stop loss before moving higher, marking the beginning of another frustrating losing streak.

But again – this was a Good Trade and there is nothing I could have done differently here according to my trading plan. So I just have to take the loss in my stride and move on to the next trade.

Trade #241

Reflection:

This was a bad, bad trade.

This trade does not meet my rules. It almost meets my rules, which is not good enough. But I took it anyway.

I had a lapse in good judgment here and the frustration of my losing streak threw my focus out long enough for me to stumble into this very bad position.

Price had not closed above the previous swing high you can see in the middle of the chart. But I convinced myself that this setup was going to win given the bullish momentum to the upside. It seems I gave in to a little bit of FOMO and a little bit of revenge trading.

Anyway, I paid the ultimate price for it: a losing trade. But to be honest, I feel the same way about it as I would have even if it had won. Terrible. Breaking my rules is an unacceptable behaviour that I need to stay on top of.

I haven’t outright broken my trading rules in a long time, so this is a very dangerous sign and I need to take it very seriously. I cannot let this happen again. I need to improve my self-awareness in the heat of the moment by taking time to think through my emotions in a rational and objective way before I act on them.

That’s easier said than done of course, but it’s very important that I do it. So I will be leaving reminders around the place to focus on strengthening this habit.

Trade #242

Reflection:

This setup on EUR/JPY does meet my rules. After screwing up the previous trade I was determined to make sure the next trade was a good one.

Of course, that doesn’t mean that it’s going to win. This trade was a great trade according to my trading plan but as you can see, the market disagreed with my analysis yet again.

There were a few news announcements this week that seemed to throw the market around erratically, but on my economic calendar the events were not marked as high-volatility. So that’s a little bit frustrating because normally I wouldn’t trade around high-volatility impact news events.

Anyway, that’s the markets for you. Just like the weather, it is only predictable to a very slim margin. There is always room for surprises, and that’s why we manage our risk conservatively at all times.

Trade #243

Reflection:

These trades are always good fun.

Price was clearly fairly oversold, but as we saw on GBP/USD this week – overbought and oversold conditions do not always necessarily mean that price is imminently about to reverse direction.

And so, given that there was still plenty of room to move lower to test the major support zone around 1.315, I went for this trade. Unfortunately some CAD news dropped while I was asleep and it seems that something in the data reignited the enthusiasm of the bulls.

Game over for this trade. At least it was quick and fairly painless, except for the extra -0.08% slippage and the frustration of losing 4 trades in a row. Good Trade nonetheless.

Weekly Reflection

Annual Return: +3.37% | Drawdown: -19.61%

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

Overall Grade: A

Well, hopefully my comeback from last month isn’t just a dead cat bounce.

First of all, even though I’m not happy with my strategy’s performance this year, I’m still very confident in its edge and I know for a fact that it has a positive expectancy.

I just don’t like how long its drawdowns last for, that’s all. I thought that I had the personality to endure frequent losing streaks, but clearly I don’t because these past few months have really eaten away at my confidence.

In spite of that fact, I will continue to trade my rules as they are written for another 2 weeks until my break. This is because I really don’t like the idea of stopping my trading simply because I’m uncomfortable with losing. That leads to strategy hopping, which is never a good idea.

But I also need to take a break and step away from my trading for a while to regain my neutrality and objective perspective. So on the 20th of December I will cease trading and take a break until the 2nd week of January.

This 3 week period of zero trading and zero journaling should give me plenty of time to complete my backtesting process regarding Advanced Patterns and improving my existing strategy in time for next year.

That’s my plan. I can endure another 2 weeks of suffering if I have to, but with any luck my edge will play out profitably over the next 2 weeks and regain some more of my drawdown before the year’s end. It’s happened before, and it will happen again. Remaining consistent and persistent is my number 1 priority over avoiding losses. My risk is managed, the damage is under control. Now it’s just a matter of managing my emotions.

In any case, I’m strongly considering moving my pullback trading up to the 4HR timeframe which is the timeframe that my mentor personally trades this strategy on (and quite profitably). But that all depends on how my testing goes.

There’s a lot of potential to the strategy I’m currently trading on these timeframes, but it desperately needs improving. Taking 243 trades to end up with a +3% gain isn’t really my idea of good trading, but of course, it’s to be expected for a developing trader, so I’m not beating myself up too bad.

So long as I keep improving and keep growing in the right direction as a trader, there’s nothing wrong with experiencing difficulty tackling these challenges. It’s all part of the journey. Anyway, I’ll keep you guys posted on my progress with regards to all of that.

In the meantime, good luck with your own trading. I hope your year turns out a hell of a lot better than mine!

– Matt.

Next Week’s Goal

Backtest Advanced Patterns & DON’T BREAK MY RULES.

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