Sunday, May 22, 2011

May 16 - The Week In Review

Not much to tell since we've been tweeting our transactions in real time.  Basically, we made an additional 2.62% this week.  After getting used to making 10-20% per week, this slow going takes getting used to.  However, if it can save us from the nukes that come with double digit weekly profits then it might work  just as well or even better in the long run.

I do want to comment on a trade I just closed for a loss.  Some weeks ago I shorted 4 micro lots of the EurUsd at 1.43654.  When we were 150 pips in profit, we closed 1 micro lot and moved the stop loss to break even.  Then last week I got a signal to go long on the Lindencourt Daily strategy.  I went long 3 micro lots and figured it would act as a hedge.  At one point, we were over 100 pips in profit.  At that point I usually take some profits off the table and move the stop loss to break even.  However, since I was thinking of using at as a hedge instead of following my usual strategy, I kept the trade open.  On Friday the EurUsd dropped over 150 pips, so I closed the trade tonight for a loss of 101.3 pips. 

Conclusion: the moment you deviate from your rules, that's when the trade that will nail you will show its colors.  If I'd followed my rules, on Thursday I would have closed 1 micro lot for a profit of 100 pips and moved my stop loss to break even.  The end result would have been a small profit as the bulk of my position got stopped out at break even.  Instead, my full position got closed at a big 101.3 pips loss.

This also ties into the recommended strategy of not risking more than 2% of your total account per trade.  Because of my current balance, I can trade 4 micro lots with a stop loss of 150 pips and risk 2% or less of my account balance.  Trading like this gives your account resilience, as it gives you less exposure to huge drawdowns and more opportunities to make back the money lost.

Finally, the week starting tonight is going to be very tough for me.  It is starting with two big losses.  The EurUsd loss I explained above and a 53.2 pips loss on my full 4 micro lots of the EurGbp.  Between those two losses, I lost almost as much as I made last week.  I will be very lucky if I can break even this week.

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