Day 41

Disaster has finally struck, I think it was inevitable. I sensed that this was coming as I've just felt under too much pressure with all the losing days recently. The last two days had been pure frustration due to the lack of movement and it all came to a head yesterday. I had full sized positions on in both the EURUSD & EURJPY and was away from the screens for about 15 minutes. When I came back I had been slammed in what was later reported to be the start of a hedge fund unwind of EURJPY which also hammered the EURUSD.  I was down 50 pips before I even knew anything about it. Frustrated at how long it had taken me to get 3.5 & 1.3 pips the previous days and how easy 50 pips had been taken away, I just couldn't face the prospect of chipping away to recover. So I did the worst thing imaginable, I just let them ride, 'hoping' that they would bounce back up as has been happening a lot recently. Sadly for me it never happened and in fact the selling got worse and worse. When I finally could stomach no more I had lost more than half of the profit made in the project so far and I am now so far back (back to Day 19) I don't think I can stomach recovering in the same fashion. I've decided to review the whole project in light of the 41 days of experience I've obtained and redesign the parameters to address the problems I've faced.

In summary what I want to achieve -
1. Retain the goal of turning $10K into $250K in 1 year.
2. Probably retain the 10 pips per day idea in principle as it's a realistic goal, but I need to remove the pressure of recovering from losing days. Losing days need to be accepted and the way to accept them when they happen is to have a plan and goal that allows for them. Currently I don't really have that and that has led to this self sabatoge through lack of discipline. So I'm probably going to take a weekly view instead of a daily view. For example 50 pips per week instead of 10 pips per day. Not sure if this really helps, I need to think about it, but it might help psychologically which is the key.
3. Whether it's a daily view or weekly view I need to factor in more days of not trading. For example UK public holidays I'm just going to forget about trading along with golden week. I need to factor in more holidays and days where I just don't feel like trading so as to not force me to trade when it doesn't make any sense.
4. I'm going to look into the idea of using auto stop losses. I really don't like using them in forex as you get spiked out so much but yesterday was a classic case in point where the exit decision would have been made for me and I would have saved a lot of pips.
5. The other big problem with the way I'm trading at the moment is that there is always a chance of a big downside hit, like yesterday (although obviously it should never be as bad as it was), but a big upside bonus is limited as I'm taking the small pips every time I can get them. I need to think about how I can possible ride more upside, although so far my experiments with letting profitable whole or part positions ride has not been successful. This is where a weekly view might help me as combining a wide auto stop with a position that can run for a longer period without me watching the screen might be better.

So, the project is sadly on hold until I've redesigned the parameters with the same objective in mind but addressing all the issues I have had so far. I'm sure the end result will be better for it as I've been thinking for a while the way I'm trading at the moment is too hard to sustain over a long period.

Comments

[Ric]

Ouch!

Perhaps by taking a weekly view you could also close out the week when you've got the fifty pips early, and take a couple of days off!

[malcolm]

Mate --

Do you have an analysis of the number of trades that have dipped below what you would consider a sensible stop-loss and then bounced back.

There has to be a stop-loss .. all you need to decide is the level you want to set it at.

At the bottom of a roller-coaster there is usually a tank of water.

[Jon Piggott]

The short answer to the question is no. I did start to keep track of the furthest each trade went against me before it was eventually closed out. But that on it's own I didn't really find that useful. I think the hardest part with currency trading is in determining a sensible stop loss. For shares or futures typically I would set my stop loss a certain number of ATRs away from my entry, or use a support/resistance zone as the stop. The problem with currencies regardless of what the marketting scams will tell you is that currencies actually don't lend themselves very well to technical trading, at least not in the short term. I've now concluded that it is TOTALLY random intraday and currencies have no respect whatsoever for support and resistance. Sure there will be areas where large traders and speculators will have buy or sell orders, but knowing where they are is the real holy grail, probably.

One of the things that attracted me to currencies has turned out to be the thing that has done me in. i.e. most of the time there is so much movement intraday that there is always opportunities, however when those movements are random it becomes very hard to exploit. There were lots of times when I had a single trade go a long way against me and yet it still turned round and made a profit. But with this system idea that I had when you are only going for 10 pips you really can't have a stop loss too large. With currencies I found that 9 times out of 10 when your stop is breached you will get a chance to get out of the trade at a better price. Of course the 1 time that you don't can be very damaging and even if financially the damage can be counterbalanced by all the times you didn't lose as much as you might of by selling on auto-stop loss, I find that the damage psychologically is far worse.

Having done some further study I now think that for currency trading you either have to
1 - Take a longer term view than intra day and use very very wide stop losses if you are going to auto them.
2 - Trade purely with the news, this is probably the most reliable short term way, unfortunately for me the vast majority of these opporunities are US times. Europe time has enough if you are happy to trade very infrequently and put much larger bets on.
3 - Carry on doing what I was doing, as I do think there was something in it. When I waited and jumped on quick moves and grabbed small pips was when it was going well, it started to go wrong when I took positions and gave them time to come good. However this still has several problems which I already mentioned, not least of all is that it is just mentally draining.

[malcolm]

Surely, if intra-day FX is essentially a random walk what real chance do you have and what strategy can you pursue .. ? True randomness means that at any point of the day there is a 50:50 chance of their being an up move against a down move. In this scenario surely there is no chance of making money .. ?

[Jon Piggott]

I'm not sure I'm that far off the same conclusion actually. I'm quite disillusioned by it to be honest.

On balance I think it's pretty much random intra-day, however, news trading, as long as you have a very accurate and timely news service, is probably the one time where it's not random. If the number comes in a significant amount above or below the expectation you can almost guarantee the currency will move in the direction to adjust for the surprise. You have to act very fast if you want a short term trade but it's as close to certain as I think you will find. Outside of that I found the only other semi-predictable moves where when big quick moves were already underway (not necesarily news related). When a very large order goes through that moves the market the move often just keeps going as it triggers buy/sell stop entries or exits. This takes balls of steel to be able to do consistently and I couldn't keep it up hence the reason I tried to start sitting on longer period trades, which didn't work for me.

[malcolm]

You really going to beat the traders who pay a bezillion dollars a year for real-time news .. .? Actually - they are only FX Cash so not the sharpest tools in the box and most can't read anyway :)

[Jon Piggott]

You don't have to beat them, just join them for part of the ride.

[jay]

i've taken a weekly view on getting 50 pips and i have not looked back. usually i achieve my weekly goal by tues and then i have the rest of the week off.

the pressure definetely comes off you when you are not faced with 'having' to make your 10 a day but rather can sit back and watch your 50 come.- it's a lot easier making 50/week then 10/day.

just my 2 cents.

[David]

This first time I read this blog. I very impressed with how far you have come. Percentage wize given the time frame you have made a ton. I would not get too discourage by this set back. Just keep pluggin away. There are traders who give anything to have your returns. You may not make your goal this year but if you make half your goal it will still be amazing. Good luck.
Remember the most important thing is to protect your capital so you can keep trading.

[Sean]

Jon,

I am by no means a master forex trader, but I am working to a simple trading system that might work for your target of 10 pips per day.

Its a system posted by a very experienced trader on BabyPips. Here's the link:

http://forums.babypips.com/free-forex-trading-systems/1487-between-40-100-pips-per-day.html

I have been using it for a number of weeks now and while he talks about 40 to 100 pips per day I've been trading very conservatively and getting between 10 and 30 pips over 2 to 4 trades. Its no magic formula and I've still had losing trades but overall its been very profitable.

I don't know how you feel about using someone else's system over your own but I thought I'd throw it up there.

Good luck and keep at it!