Lessons learned? We'll see! This is my Forex trading journal

[LiamH]

Hi guys, this is my journal. This first post is about me and my trading history - It will be a long read so bare with me - It is important to me that this is here as it explains how I got to where I am (Broke and ambitious). If you can't be bothered reading it then just skip to the last few paragraphs.

My name is Liam, I live just outside of Manchester and am due to turn 27 in August, I have a 1 year old daughter and another due in October this year.

So far (since 2007) I have lost £2K trying to trade and around $500 playing poker.

I have learned massive lessons in both of these ventures though.

My trading adventure started in 2007 or maybe it was 2006 I don't know but I first started losing money in '07 lol. At first I had some silly idea's - I would say to a good friend and colleague who sat next to me at work 'Look the FTSE has gone down and then come back up again, I would have definitely bought that low'... 'I'll be a millionaire in no time'.

Of course, I was seriously deluded but my first £300 that was deposited on Finspreads soon got donated to the world of spreadbetting - I think it took maybe 2 days.

After that I started taking things a little more serious - I read everything I could find on the interweb about trading and to be fair I have a lot of completely useless ****e rattling around my brain because of it.

My next foray came at the credit crunch, which, believe it or not, I predicted and I made a stinking profit very quickly. Well, that was in terms of my account size - I made £600 selling the FTSE one day in August '07. Of course I thought I was a trading legend... Oops, lost it all over the next few days.

At the next attempt, late in 2008 I deposited £1000 on Finspreads and I had a plan apparantly. In fact I had several. I would trade a mixture of different strategies! They were Captain Currency's 3 ducks, Mr. Charts momentum trading on short TF's and some inside bars. Wooooooo I was gonna be rich and it was gonna be quick.

Nope. I didn't fully understand any of those strategies - I learned them at a basic level but had no real understanding. My entries were rubbish, my exits were a complete unknown (once in a trade I just winged it) - The only thing that was consistent was my stops and they were hit often.

At that time the markets were volatile. Big time. Me? Well my path to riches was to come from jumping on the momentum of the 1min TF GBP\JPY and good god almighty that was a rollercoaster ride. I would wake up in the morning and make £100-300 before I'd had a cup of coffee and then just hand it all back over the course of the day.

The end of my account came when I traded some news - I was working shifts at the time so imagine my elation when I came home at 5.30 am to hear the news that the FTSE was expected to crash - Majorly. What did I do? Well of course I went short at £2 per point with my stop set at broke... Yep, you read that right... My stop was my whole account. Guess what I did next? Fell asleep. The FTSE went for the clouds and busted me within a couple of hours.

The funniest thing is that only a couple of days before this ShadowNinja sent me a PM - Something along the lines of 'Be careful, these markets are messy and I don't want to see you blow your account'. My response? Basically 'I'm not stupid, don't worry, I know what I'm doing'.

Most of 2008 was spent learning about trading without losing any money until the £1K at the end and then 2009 was spent playing poker because I heard it is a lot like trading and I could do it with less money at risk. I got good at poker but I tilt heavily when I make a mistake which leads me to more mistakes and then BOOM! I've lost half of my account. Repeat the vicious circle over and over and I am here - I gave up.

Poker did teach me a lot though - Patience, patience to wait for the right opportunity to get the money in. This is something I am good at now - It was my own mistakes that made me angry and not bad beats as is the case with most people.

I always wanted to come back to trading because I love it but my plan was to build a trading account by playing poker but I don't have the right mindset for it. You see, I can handle getting in with the best hand and losing but I cannot handle it when I read a situation wrong and lose a big pot through my own stupidity.

I am now at a point in time where a lot of things have dawned on me and I feel ready to make a proper go at trading. My strategy needs to put me in the market with probability on my side and the entry and exit criteria need to be clear long before the trade is placed. This will mean that I don't have to think about the trade - The thinking has already been done when no money is on the line and I can analyse the results afterwards.

I have of course read that this must be the case over and over again but although I read it I never fully took it on board and this I believe is the sole reason I lost everthing I ever put in a trading account until now.

*****************Can't be bothered with all that ^^ Then just read below **********************

So this is it then, this is my journal and here is my plan.

I cannot put any money in to a trading account yet and when I do it will be £100 on Oanda. Each month I am profitable I will add another £100 and I will continue to do this until my account reaches a reasonable size which will be determined later.

My goal is to make high quality trades that have a positive expectancy over time. My goal as a trader is to make money but I don't want to conquer the world. Trading to me is merely something I can do which will (hopefully) give myself and my family a secure financial future with enough money to do the things we enjoy.

My strategy, which is detailed below, is simple and logical to me. It is not original because it doesn't need to be. It needs to be profitable and the next 3 weeks will give me an early indication as to whether or not it is.

Over the next 3 weeks I will analyse my chosen markets each night to determine the key price levels I will be interested in. The following day I will look back at the charts to see if indeed there was a setup for me and whether or not it would have been profitable. If the next 3 weeks turn out to be profitable then £100 shall be put on Oanda and I will start trading. For each profitable month I will add another £100 or whatever I can spare from my wages. If it's not profitable then I must analyse why and make the necessary amendments.

I hope that you guys on this forum would be kind enough to add your opinions to my journal - Constructive criticism is welcome and I look forward to any contributions that you guys make.

My analysis will start on Sunday night.

Thanks for reading.

 

[LiamH]

My Simple Strategy

Trading Strategy

Market Analysis

My market analysis is to be carried out each night with a view to creating a plan of action which is to be implemented the following day should certain criteria be met.

My analysis must include:

Is the market trending? Up or down? On which TF?
Support\Resistance levels
Pivot points
Is news due that day which may have an effect on this market?

My strategy

I am looking for price action at key support\resistance levels which will give me an entry in to the market and a clear place to put my stop.

Support\Resistance levels include:

Trend lines
Pivot points
General support\resistance identified on the chart

Price Action I will use:

Pin bars
Inside\Outside bars


My goal with this strategy is to enter the market only when there is a high probability of success. For this reason I will only consider buying at a support level and selling at resistance regardless of the price action (If a pin is telling me to sell at a level of support then I don't trade!). Obviously this also means that I will only ever trade in the direction of the underlying trend if there is one.

My entry will be placed upon the breakout of an IB\OB or on the nose of a pin bar which is at a predefined level of support or resistance.

My stop loss and exit criteria with this strategy are simple. My stop is placed 5 pips past the tail of a pin bar or 5 pips beyond the extreme of an outside bar. My exit is governed first by my initial stop loss and once the trade is showing 1:1 R/R (50 pip stop, 50 pip profit) a trailing stop the size of my original stop is placed at the entry point.

So, to sum this simple and hopefully effective strategy up - I will only enter the market when there is price action in the form of either an IB/OB or pin bar at a point of predefined support\resistance. My exit is governed by my initial stop loss level and then once a R\R of 1:1 is achieved a trailing stop is placed at my entry point. The trade is then left to do whatever it will do.

 

[awe]

Hi LiamH,

Really good couple of posts there!

I'm looking forward to following your journal.

Best,
awe

 

[LiamH]

Hi LiamH,

Really good couple of posts there!

I'm looking forward to following your journal.

Best,
awe

Hi awe,

Thanks for reading... I look forward to hearing your comments as things get going in a few weeks time.

I forgot to mention in my strategy - I will be trading off 4hr charts, not sure which markets yet but Cable and EUR\USD will definitely be in there.

 

[LiamH]

This journal is going on hold for a bit while I do some paper trading because I don't want to fill it up with rubbish.

Having looked back over some charts it is clear that if I don't only take the very best trades this could easily become a losing strategy.

Looking at a chart in hindsight is easy peasy - 'Of course I wouldn't have taken that trade, it's too far from the trendline' - Yeah right, fact is, in the heat of the moment having waited eagerly for a setup I would take it and it would be a loser. 2 or 3 of those out of 10 setups would make me a loser which is not what I want.

The good thing with this strategy is if I do wait for the best trades, the ones that line up perfectly with predefined support/resistance levels (maybe 2 or 3 a week across 6 pairs) then this will be a very high probability strategy which will offer some monster trades with regard to R:R.

This is my goal over the next few weeks before I deposit - To identify the setups I would be eager to take that I really shouldn't because they will be the trades that make or break me as a trader.

 

[LiamH]

Meanreversion has also got me thinking when he replied to my comments about leverage in another journal...

What do I expect my edge to be with this strategy?

Well, I'll answer that now - I expect my edge with this strategy to come from being on the right side of a trending or range bound market more often than not. This strategy will not get me in to a trade when the market has no direction very often at all.

If the market is range bound and my strategy clearly states I am only going to take a buy signal at support and a sell signal at resistance then I will only ever make the right move in a range bound market apart from when the range is broken. At this point I will be stopped out but if\when the market pulls back and support switches to resistance or vice versa I may well find myself back in the market in the correct direction.

In a trending market this strategy is at it's best - Looking back at charts with the benefit of hindsight there are clear signals in the direction of the trend on pretty much every single pull back over the last few months (6 major pairs where a trend has occurred).

The strategy is sound and if executed properly will give me an edge - That edge will be getting good entries in to trends and at worst breaking even while the market is range bound and/or volatile.

Meanreversion and awe have also got me questioning my planned use of leverage. I was planning to use maximum leverage governed by a 3% stop and 20% of my account for margain - This would more often than not see me using 150x + leverage.

I don't plan on holding any trades over the weekend as a gap could end my account but what else must I worry about?

I would like some advice on this because I am really unsure - With leverage, provided I execute my plan correctly, I could grow the account quickly. I thought my risk of going broke was slim but is it? How often am I going to run into trouble? How often will my 3% risk turn in to more due to slippage\gaps\whatever else in an average trading month?

 

[LiamH]

My money management strategy is going to change. I was originally going to use 20% of my account for margain and risk 3% of my account on each trade but this will work out at way too much leverage.

The problem is, I will be trading an account that is too small for at least two years whilst I (hopefully) build the account in to something more substantial.

In this phase I will not have any choice but to use a chunk of leverage so here is my MM strategy to minimise this.

I will risk 1% per trade and use 50% for margain. This will really lower the leverage but unfortunately will only allow me to be in two trades at once. This isn't a problem though as I don't expect too many trade setups with this strategy and I will only ever be in good trades for a significant period of time so if I have to miss an opportunity through already being in two good trades then that is a position I will be proud to be in!