Tuesday, November 30, 2010

Test Results Week 7: Up 20.07%

Test Week 7 started on November 24 and ended on November 30, 2010.  I placed 6 trades, with no losers.  Can't say I traded with 100% accuracy, though.  One of my trades just resulted in getting stopped out at my entry price.  Still, that is always better than a loss.  My goal was to make $29.00 or 12.33% of the amount I started Test Week 7 with.  Instead I made $47.20 or 20.07%.

Test Week 7 was a little unusual in that there was a day that I did not trade even though the market was open.  That day was Thursday, November 25.  I was invited to an awesome Thanksgiving dinner on the island's east coast, so I left home early and came back late.  I do not think I even turned on the computer that day so I cannot even talk about missed trading opportunities...  and with 20% profits in one week, who cares about missed trading opportunities?

In my last post I talked about changing the way in which I was reading my indicators.  I know that this change saved me from what would have been  a big wipe out trade this week.  I think I am now getting less opportunities than before but I am hoping that they are more solid and with a higher probability of success than the previous signals.  It seemed to work out that way this past week.  Let's see what happens in the ongoing week.

Monday, November 29, 2010

Test Results Week 6: Up 9.86%

Test Week 6 started on November 17 and ended on November 23, 2010.  I placed 18 trades of which 4 were losers, so I traded with a 77.78% accuracy.  My goal was to make $25.00 or 11.68% of the amount I started Test Week 6 with.  Instead I made $21.10 or 9.86%.

During Test Week 6 I incurred huge losses that, when viewed against the fact that the week still ended profitably, only serve to emphasize how much money there is to be made in this market.  Test Week 6 started with $214.10.  Four days into the trade week, I lost $49.00 in one trade.  That's almost twice my profit target for the whole week and close to 23% of my account.  Yet, we managed to make up this huge loss and still end the week up almost 10%.  With better loss management, we could have made close to 30% in just this week.

For the last few weeks, the recurrent story has been profits between the high 20% and low 30% that end up being wiped out by one single trade.  There are several reasons for this.  First, the EurUsd has seen some weird and spiky fluctuations in the short term charts with all the Ireland, Greece, Portugal bail outs and rumors.  Second, this is a trading strategy that is in development and just last week I re-configured my indicators and the way of reading their signals.  I started with this new or improved strategy Wednesday last week.  Lets see how it works out.

Thursday, November 18, 2010

Test Week 5: Up 3.03%

Before I begin, I warn you that this will be a long post.  I don't know if I will finish it tonight.  In any event, first things first...

Test Week 5 started on November 10 and ended on November 16, 2010.  I placed 25 trades of which 2 were losers, so I traded with a 92.00% accuracy.  My goal was to make $25.00 which is 12.03% of the amount I started Test Week 5 with.  Instead I made $6.30 or 3.03%.

Early in the week, someone who desires to remain anonymous gave me a 5-figure amount and asked me to trade it for her.  I didn't feel comfortable playing with someone else's money so I decided to use a different and longer term strategy that I worked out a few months back.  I was surprised when I realized how well that strategy interacts with the one I've been trying in the past weeks.  We were doing incredibly well...  until the 'general consensus' announcement that Obama made in the early morning of Friday, November 12.  I will give you exact figures.

I started by looking at the trend in a long term chart.  The EurUsd was in a downtrend (since November 5, actually) so I only took trades shorting the EurUsd in my short term 15-minute chart.  Whenever the trade went in the red, I held on to it until it broke the resistance levels I had previously calculated and actually traded above the levels.  Invariably, it bounced back down and I would add to my position at or close to those resistance levels.  I then used the ATR to manage trailing stop loss levels once the trades were in the green.

In a day and a half, I had placed 12 trades, all profitable.  I was looking to make $10 in those two days and a total of $25 for the whole week.  A day and a half into my new strategy, I had already cleared $48.50 or 23.34%.  My next trade would break my heart.

I placed exactly the same trade I had placed 12 times before.  In less than one hour, the trade shot up to and through all the resistance levels I had plotted.  A day and a half to make $48.50, one hour to lose $69.00.  I went from being up 23.34% to down 9.87% in one hour.  President Obama had just announced a 'Hard Won Consensus' as the G-20 summit ended.  As explained by CNN, "[a]t the summit, they agreed to steps that include moving toward more market-determined exchange rate systems and refraining from the competitive devaluation of currencies."  My only thought... why must the world change its economic policies the moment I figure out how to milk them dry?   Lol...

So less than an hour after the EurUsd reverses on me and takes my profits with it, I get an email from the person who gave me the 5-figure amount to manage for her.  She expressed how excited she was after receiving Thursday's account statement by email and seeing we were up over 30% in just 3 days...  My response, take a valium or two before opening the statement you will receive this afternoon...

When all is said and done, I really can't complain about it.  On Friday I my account had a 9.87% loss and by Tuesday afternoon I had turned it into a 3.03% profit...  12.90% in three days is not bad either...

Wednesday, November 10, 2010

Test Month 1: Up 33.21%

Our first month is over.  It encompassed the period between October 12 and November 9, 2010.  Twenty days of trading during which we placed 46 trades and lost 18, for a 60.87% accuracy.  My original goal was to make $86.00 or 55.13% of my starting amount.  Instead I made $51.80 or 33.21%.

Test Month 1, in general, was an eye opening disappointment.  Don't get me wrong, I sure as Hell won't complain if I can make 33% every month.  However, my performance was way below my target.  Maybe my expectations were unreal or maybe my systems still needs some tweaking.  I am hoping it is the latter.  Let's see what the next 4 weeks bring.

Tuesday, November 9, 2010

Test Results Week 4: Up 0.14%

Test Week 4 started on November 3 and ended on November 9, 2010.  I placed 20 trades of which 8 were losers, so I traded with 60% accuracy.  My goal was to make $25.00, which is 12.05% of the amount I started Test Week 4.  Instead I made $0.30 or 0.14%.  I did make some extra money playing the QE2 announcement, but that is not counted for purposes of tracking my strategy's performance.

First thing I notice is that I am placing way too many trades.  When I look at our blog entry for Test Week 1, I notice that I only placed 10 trades and made 10.58%.  On Test Week 2, I only placed 5 trades and made 22.43%.  This means that I may not be following my strategy closely or maybe my strategy is still missing an additional discriminating factor to help me filter possible trades.

Another factor that I believe has been of utmost importance in the lackluster performance of these past two weeks is directly related to investor psychology.  I got set targets of the minimum amount I must make daily/weekly/monthly to meet my self-imposed goals.  I have noticed that the moment I fall behind, I start forcing trades and deviating from my strategy.  I feel that I am now playing catch up and must hurry up and get a profitable trade to calm myself.  It reminds me of the way I felt when I played basketball and was down 2 points with 10 seconds left on the clock.  This 'do or die' attitude is possibly the worst attitude you can have in this business.  However, this is something that cannot be remedied by looking at moving averages, oscillators or anything else.  This is a personal barrier and I must work hard to overcome it. 

I don't know how many times I heard it before and always thought it was bullshit.  I guess I was seriously mistaken.  It seems that, after all, our biggest hurdles on the path to success are really within ourselves.

Wednesday, November 3, 2010

Test Results Week 3: Down 1.75%

Test Week 3 started on October 27 and ended on November 2.  I placed 11 trades of which 6 were losers, so I traded with 45.45% accuracy.  My goal was to make $23.00, which is 10.89% of the amount I started Test Week 3.  Instead I lost $3.70, or 1.75%.  I did a few things that departed from my strategy and it cost me dearly. 

In the past few weeks, I noticed a recurring pattern in the price of the EurUsd.  From about 2:00 p.m. to 7:00 p.m., the price ranges without much fluctuation.  Sometime between 7:00 and 7:30 p.m., a clear trend starts emerging and you can ride it for good profit.  However, in the first two days of Test Week 3, the trend started developing at about 6:00 p.m.  On those two days, I didn't enter the trend at 6:00 p.m. believing it was the typical false signal.  I didn't enter at 7:30 p.m. either believing that the trend had already been going for an hour so it had little upside left.  Wrong on both counts.  So, on the third day I act upon the 6:00 p.m. signal thinking today I am getting in early on the trend.  Third count wrong.  Add to that a few trades placed without initial stop losses while I tried some new ideas and its is a wonder that I only lost 1.75% this week.

Actually, it is not a wonder.  I had three huge trades this week.  They were the result of creative stop loss management after the trades were in the green and two of them lasted over 24 hours, which is remarkable when you consider that most of my trades last less than one hour.

In conclusion, I am not really sure why the price behaved this way this week.  It might be tied to the FOM meeting and expected 100b to 200b quantitative easement expected.  I did draw these lessons, though: no more trades without a set stop loss at the time the trade is entered; no more trying to predict trend direction; and no more deviations from my strategy.