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.
Monday, November 29, 2010
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...
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.
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.
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.
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.
Wednesday, October 27, 2010
Test Results Week 2: Up 22.43%
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.
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.
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.
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