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.