Test Week 2 started on October 20 and ended on October 26. I placed 5 trades of which 1 was a loser, so I traded with 80% accuracy. My goal was to make $20, which is 11.59% of the amount I had when I started Test Week 2. Instead I made $38.70, or 22.43%. Since I had exceeded my profit target for the week by so much by the end of the fourth trading the day, I did not even look at my trading platform on the fifth trading day and spent all day playing computer games with my nephew.
During Test Week 2, I tried several different exit strategies instead of the exit strategy explained in my last update. For trade #11, my first trade of the week, I bought 4 micro lots of the EurUsd but I did not place a take profit at my $4.00 target. Instead, I checked the price every 15 minutes, more or less. Thirty-seven minutes into the trade, my position was up 34 pips, or $13.60. I closed half the position, or 2 micro lots, for a gain of $6.80 and allowed the other half to ride the trade until my indicators got me out of the trade. This occurred 55 minutes after taking my initial profit. At this time, my remaining position was up a total of 65 pips, or $13.00. My total profit for this trade that lasted an hour and thirty-two minutes was $19.80. That's $0.20 short of my target for the whole week!
For trade #12 I tried a different and riskier strategy. I shorted 4 micro lots of the EurUsd and, once again, I did not place a take profit at my $4.00 target. However, this time I let the whole position ride the trade instead of clearing at least my target profit and letting the remaining position ride. My indicators got me out of this trade 1 hour and 12 minutes later, when the position was up 39 pips or $15.60. To put it in perspective, the strategy used in trade #11 would have profited us $6.80 when we closed the first half of the position at 34 pips of profit plus $6.90 when we closed the second half of the position at 39 pips of profit. That would have been $13.70 versus the actual $15.60 we made. By the same token, had we applied to trade #11 the exit strategy used in trade #12, we would have made $26.00 instead of $19.80.
So which strategy will I use in Test Week 3, which started today? I'm not really sure. Trade #12's exit strategy is certainly more profitable than trade #11's. However, trade #11's exit strategy can guarantee that you will at least make your profit target in many circumstances where trade #12's exit strategy would result in a loss or a smaller gain. Whenever I find myself in this crossroad, I revisit my post in On Greed: Part I. Yep, now you know which strategy I will be using.
Wednesday, October 27, 2010
Friday, October 22, 2010
Test Results Week 1: Up 10.58%
I am stepping away from expert advisors and developing my own system. After several less than spectacular attempts, I think I have come upon a trading system that is not too complicated and may be quite profitable. I thought about trying it out on a demo account but my experience is that when you trade with fake money, you have no psychological investment in the account and its performance. Thus, it is always easy to make clear headed decisions and pull the trigger. It is also just as easy to miss the lessons you should learn from your losing trades.
Trade with real money, even if only $100, and the game changes drastically. In fact, trading with only $100 in the account puts a lot of pressure on you to do things right. With such a small amount of money, you have much less margin for error. Improper risk/money management will wipe out your account really quickly. Therefore, I started my experiment with $156.00. This small amount forces me to exercise proper money management and puts enough psychological pressure to prepare me for trading bigger accounts. After all, the difference between trading $156.00 and $15,600.00 is just the number of lots per trade.
My goal is to make 2.5% of my portfolio every day. The size of my trade and the number of pips I aim to make in order for my trade to net me 2.5% will be determined by the ATR (Average True Range) indicator. My stop loss will be twice the ATR at the moment I enter the trade and my take profit will be my entry price plus/minus (depending on whether I go long/short) one ATR.
My first week testing my sytem started on October 12 and ended on October 18. I placed 10 trades of which 3 were losers, so I traded with 70% accuracy. My expectation was to make 11.54%. I fell short, I only made 10.58%. Now, two explanations are in order.
Why 11.54% and not 13.14%? Well, the spreadsheet I use to calculate my profit targets rounds numbers down. If it rounded numbers upwards, eventually you would be required to trade amounts for which you did not have enough funds or margin. Rounding downwards is usually unnoticeable, except when trading amounts this small.
Just 10.58% in 5 days? Again, this goes to investor psychology. On at least the first 8 trades, the spreadsheet suggested I trade between 3 to 5 micro lots. I chickened out of it and only traded 1 micro lot. Even though I traded between 1/5 to 1/3 of the amount I should have traded, I almost met my target.
Although I fell short of expectations, I am nonetheless very happy with the results of Week 1. I certainly wouldn't mind making 10% every week! Next week I'll post the numbers for Week 2, which should end on Tuesday, October 26, unless I forget to trade one of those days. I'll also post more information on my new trading system.
Trade with real money, even if only $100, and the game changes drastically. In fact, trading with only $100 in the account puts a lot of pressure on you to do things right. With such a small amount of money, you have much less margin for error. Improper risk/money management will wipe out your account really quickly. Therefore, I started my experiment with $156.00. This small amount forces me to exercise proper money management and puts enough psychological pressure to prepare me for trading bigger accounts. After all, the difference between trading $156.00 and $15,600.00 is just the number of lots per trade.
My goal is to make 2.5% of my portfolio every day. The size of my trade and the number of pips I aim to make in order for my trade to net me 2.5% will be determined by the ATR (Average True Range) indicator. My stop loss will be twice the ATR at the moment I enter the trade and my take profit will be my entry price plus/minus (depending on whether I go long/short) one ATR.
My first week testing my sytem started on October 12 and ended on October 18. I placed 10 trades of which 3 were losers, so I traded with 70% accuracy. My expectation was to make 11.54%. I fell short, I only made 10.58%. Now, two explanations are in order.
Why 11.54% and not 13.14%? Well, the spreadsheet I use to calculate my profit targets rounds numbers down. If it rounded numbers upwards, eventually you would be required to trade amounts for which you did not have enough funds or margin. Rounding downwards is usually unnoticeable, except when trading amounts this small.
Just 10.58% in 5 days? Again, this goes to investor psychology. On at least the first 8 trades, the spreadsheet suggested I trade between 3 to 5 micro lots. I chickened out of it and only traded 1 micro lot. Even though I traded between 1/5 to 1/3 of the amount I should have traded, I almost met my target.
Although I fell short of expectations, I am nonetheless very happy with the results of Week 1. I certainly wouldn't mind making 10% every week! Next week I'll post the numbers for Week 2, which should end on Tuesday, October 26, unless I forget to trade one of those days. I'll also post more information on my new trading system.
Monday, October 4, 2010
September 2010: Uber Failsauce!
After two years buying, testing and returning for a full refund several tens of expert advisors for MetaTrader 4, I've come to one simple conclusion: 99% of them do not work consistently. Sooner or later - usually sooner than later - they will nuke your account. The one percent that actually work do not trade often enough to provide a reliable stream of income. You can rely on them to trade profitably, but they won't trade more than once or thrice a month. If you already knew this, then you will not be surprised to learn that my account got seriously wiped out during September. I'll explain it this way. When September started, I had $1,774.64. After the wipe out, I had $500.
Like every other cloud, this one has a silver lining, too. Heck, it may prove to be a golden lining. It forced me to develop my own system for trading the forex and to stop my reliance on other people's custom indicators, strategies, expert advisors, etc. I started testing this new strategy early in September in a demo account, as the wipe out occurred pretty early into my trading month. My plan was to test it until December. If it passed muster, I'd put some money in it and trade it through 2011.
The test account was doing so well that I decided to bypass my test period and to trade it with some actual money... and what better than the $500 I had left? I went ahead, bit the bullet and started placing real trades. While it is not a perfect system, it certainly is profitable. Eight days later my account was up 31.82%. I was more than pleased as I was only looking to make 20.90%. So, I turned $500 into $659.10 in eight days. Wish I'd had $10k instead of just $500, lol...
Unfortunately, my account has less than half that amount right now. You probably are wondering what happened, but you will have to wait for my next update. It will be adequately titled something along the lines of... Friends Don't Let Friends Trade Drunk. Maybe I'll be a bit more accurate and will switch the Friend for Cousin.
Like every other cloud, this one has a silver lining, too. Heck, it may prove to be a golden lining. It forced me to develop my own system for trading the forex and to stop my reliance on other people's custom indicators, strategies, expert advisors, etc. I started testing this new strategy early in September in a demo account, as the wipe out occurred pretty early into my trading month. My plan was to test it until December. If it passed muster, I'd put some money in it and trade it through 2011.
The test account was doing so well that I decided to bypass my test period and to trade it with some actual money... and what better than the $500 I had left? I went ahead, bit the bullet and started placing real trades. While it is not a perfect system, it certainly is profitable. Eight days later my account was up 31.82%. I was more than pleased as I was only looking to make 20.90%. So, I turned $500 into $659.10 in eight days. Wish I'd had $10k instead of just $500, lol...
Unfortunately, my account has less than half that amount right now. You probably are wondering what happened, but you will have to wait for my next update. It will be adequately titled something along the lines of... Friends Don't Let Friends Trade Drunk. Maybe I'll be a bit more accurate and will switch the Friend for Cousin.
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