My journal; improving discipline in my FX trading

[Dogtrade]

After a year or so of actually having a forex trading account, I am back to where I started. Yes, I have finally recovered from a 50% account equity drawdown. And this time I'm going to do what I intended to do when I first opened my account;

I am starting this journal to keep myself accountable. I guess it won't have many readers since I am not at all an accomplished trader. I'm not writing it to entertain but I hope that it will be educational, for myself and others if someone butts in with some advise and experience.

Basically I try to analyze the FX majors on the weekends, identify potential discretionary setups for the week ahead. Then I generally check in once or twice a day. My setups are based on D1 and 4H time frames, occasionally W1 too. I will, however, use a lower time frame to fine tune my entries every now and then.

I will use this thread at least once a week(during the weekends) to spell out my watchlist for the week ahead and sometimes check in with my thoughts during the week.

Whenever I take a trade I will calculate my risk and I will report in the thread with my rationale for taking the trade. If I have been so dumb as to place an impulse trade with no proper rationale I will have to report it no matter what.

Keeping myself accountable this way I think my discipline will improve. If you decide to stop by and follow my progress(or lack thereof), perhaps chiming in in someway, I appreciate it

 

[Dogtrade]

To summarize my trading style

I tend to find my setups on D1 and H4 time frame. I always start my weekend analysis in the D1 time frame.

I do not trade a specific system. I do however try to categorize my setups and keep a spreadsheet so I can track which setups work best for which time frames, which pairs and which market climates (volatility and directionality-wise).

I will take trades based on various technical set-ups. S/R in its many guises, including pattern trading, pin bars. Dynamic S/R in the form of moving average bands.
I will try to gauge recent directionality, volatility and momentum before taking the trade.

I will try to pinpoint reasonable entry points / setups ahead of time and trade only when price hits my levels.

I have a micro account with only 200 USD. I am prepared to blow my account to get some experience. I like to use wide, volatility based trailing stops. Often proper money management is not an option, even with micro lots.

While I would prefer never to risk more than 1-2% of equity this is not going to happen. I will however instill in myself the discipline to always calculate and monitor my %equity risk for every trade.

This is likely to be my last post before the weekend when I will publish my eventual setups for week 30.

 

[Caledonianbu]

Good luck! sounds like an interesting way of doing it, analysing at the weekends as preperation for trading the following week.....

I'll be following, even though forex isn't my thing!

 

[Dogtrade]

Good luck! sounds like an interesting way of doing it, analysing at the weekends as preperation for trading the following week.....

I'll be following, even though forex isn't my thing!

Thank you for your support Caledonian!

I have found that it helps me prevent bad decisions. If a potential set-up can't be seen a couple of days ahead it generally isn't the kind of set-up I am looking for. I have learned to accept that if I allow myself to look for too long into the charts, trying to find a setup, I generally will turn color-blind and sooner or later find a setup which is either a low value setup or simply wishful thinking. If I get too engaged in the market, my mentality tends to drift from a long-term, high-quality setup approach to a "quick pip here and there, double up next time if I loose", gambler's mentality.

By taking the step back I have improved my win/loss rate very much and I do think there is a causal relationship between recovering from my 50% drawdown and the fact that I have stopped hunting for set-ups mid-week.

 

[Dogtrade]

WEEK 29
This is a test - hope I get the pictures up right.

All my thoughts, charting, analysis and setups are open to comments, discussion, critique, general deconstruction or outright ridicule.

EURUSD




My potential setups for the week ahead

Short:
a full breakout to the downside,
or a pin bar penetrating the trendline to the upside.

Longs: No setups. A bull pin or a break to the upside could ofcourse occur but I'm not inclined to take it.

Stop management: nearest relevant key TA-levels on the 4H chart.

 

[Dogtrade]

WEEK 29 (cont.)

GBPUSD


The falling channel that was under development has been broken (d1)

In the h4 chart, I see bullish trend moving averages and a previous high has been
broken. A potential pullback-continuation pattern is in play here with some support
around 1.6200.

The H1 charts provides another view of the previous set-up. Perfect order SMAs are in place and the previous top from the H4 chart is between the 50 and 25 SMAs. The price is now going sideways, forming a box type pattern likely to be short-lived IMO.

Long setups
A: Decisive break above the box play in the H1 chart (top circa 1.6340)
Stop below the low of the box or a tighter stop within the box.

B: Eventual entry inside the box at around 1.6260-1.6270, with a stop around the SR line below 1.6200

Short setups
A sharp return to the falling channel(D1) could provide a setup.

 

[Dogtrade]

CHFUSD (w29)




A clear cut downtrend is in place. Will go short if we see another test of 1.8250. Stops fairly above the SR line, trailing by 1.5ATR + spread. Also potentially a breakout of the previous low, entry on the pullback. But I prefer to entry at levels nearer to the moving averages.

 

[Dogtrade]

I will have to stop now and resume later during the weekend. I realized that I've cropped away the price levels on most of my charts. Won't happen again, but I can't be arsed to make new pics right now.

The only trade I have on which will be on over the weekend is short on the EURJPY.

 

[Dogtrade]

The news hit me after I left my home on friday, and the killings in Oslo have made their impact on me, although thankfully none of our family or friends was hurt I have spent this weekend with my significant other and some of her family. My own natural reaction, thankfully, is a near stoic calm, although my compassionate thoughts go the victims, I am not consumed with neither rage nor fear.

However the events have triggered strong and painful emotions in many people, including the person closest to me, and for all I know my clarity of mind has been more affected than I care to acknowledge. Consequently I have chosen to let the trading station rest for the weekend.

I will post in my journal if I make any trades during the week. I urge anyone who reads this to consider lighting a candle for the dead and their families, and if you are such inclined, consider making a short prayer within the confines of whatever religious or spiritual tradition you subscribe to, that the hatred behind these acts will not spread further.

 

[Dogtrade]

My orders have been hit while I was at work today.
Current positions;

EURJPY Short - initial risk 9% of equity
GBPUSD long - initial risk 5% of equity -
EURCHF short - intial risk 5% of equity - stop loss now trailed to +1,15R
USDCAD short - intial risk 4.85% of equity
AUDUSD long - initial risk 4.6% of equity

And yes. I know that this is too much risk. At the very least I am monitoring it. All trades well into plus except for short EUR/JPY.

 

[JRP2891]

My orders have been hit while I was at work today.
Current positions;

EURJPY Short - initial risk 9% of equity
GBPUSD long - initial risk 5% of equity -
EURCHF short - intial risk 5% of equity - stop loss now trailed to +1,15R
USDCAD short - intial risk 4.85% of equity
AUDUSD long - initial risk 4.6% of equity

And yes. I know that this is too much risk. At the very least I am monitoring it. All trades well into plus except for short EUR/JPY.

You said it!

 

[Caledonianbu]

Hope you're okay after the tragedies in your part of the world mate, thoughts are with you and all those affected.

that does seem like a lot of risk - but i'm a bit nitty when it comes to risk .. Can i Ask what your main indicators are for getting in/out of longs/shorts?

 

[Dogtrade]

Hey JRP and Caledonian, thank you a lot for following. And thank you for your kind words Caledonian.

Re the risk issue; yes, it is "too much risk", I even said so my self. But ofcourse it matters what ones objectives are. Actually, my objective is not to have this account survive or to trade it safely and soundely until age of retirement. If those were my objectives I would have funded it better, so several of these trades could be managed with less than 2% of equity. In addition I would have cherry-picked perhaps three or four of the setups to keep global risk under 6%.

My objective with the account is to gain maximum exposure to the markets within the framework of my chosen methodology(i.e, trying to scalp all day would give me even more exposure, but it wouldn't help me learn to do what I'm trying to do, since I'm not trying to learn scalping.

By actually placing money on trades the experiences I make gain psychological impact that I did not achieve by demo accounts or paper trading. And since I want to take as many setups as possible, so that I can look back at them and learn from them, I sometimes get very high risk, both position risk and global risk. If I don't actually take the trades they fade from my reality soon enough and I learn very little from them.

I am prepared that this account can be blown up. I think about it this way; some people spend thousands of dollars on a workshop and consider it an investment, which it seldom is. I spend two hundred dollars on a practice account, and I do consider that an investment, even if I blow it up.

 

[Dogtrade]

Hope you're okay after the tragedies in your part of the world mate, thoughts are with you and all those affected.

that does seem like a lot of risk - but i'm a bit nitty when it comes to risk .. Can i Ask what your main indicators are for getting in/out of longs/shorts?

Thank you.

Well I don't use indicators per se. The wiggly line you see under my charts is just the average true range, a measure of volatility, and not a timing indicator. I base my trades on price action. The recent highs and lows, trendlines, ranges(or boxes) make up the basic roadmap. I try to find out where the price is likely to react.

The only indicators I use are moving averages, but I don't use these blindly either. I use MAs in three settings(20,60,100 give or take, I might as well use 25,50,125 or whatever). I don't trade crossovers or such but when the three MA's are "in order", price is moving harmoniously, you will often find a kind of "dynamic support and resistance" between the 20 and 60 SMA. So whenever price has been trending, we are retracing(moving counter to the trend) towards a prior turning point, and the extension of that prior turning point now is in or very near the "dynamic area" between 20/60 MA, that is an example of a setup I would like.

Ofcourse the approach must be fitted to the pair/timeframe and the situation you're in. The 20/60/100 MAs don't mean anything to me in a ranging market. I use them in trending markets because it helps me easily visualize if the trend has dispersed "too much" from the mean, thus avoiding GFT.

GFT; Jumping on the trend "too late" (to far from the mean) is often called trading in accordance with the "greater fool theory" or GFT. If I pay too much(in an uptrend) for the commodity/stock/currency whatever on the basis that there must be a fool even greater than me, willing to pay even more. I try not to make that bet to often, and having an actual measure of the mean helps me in that regard.

 

[advfntrader]

nearly 30% risk on those trades. what if they all lose...you then need ~50% gain to get back to where you were. why not just have 1 position open at once...food for thought

 

[Caledonianbu]

Thankyou for your informative post dogtrade.

Some good things to think about, FOREX isn't my thing (yet ) but learning is always good, and the knowledge applies to all things I find. I also understand why you're taking such risk, I don't mind too much If i loose the £100 I have on my IG index account - if it goes, it goes. I find this a far better way of learning - getting your hands dirty and involved!

Good luck with your trades.

 

[Dogtrade]

advfntrader:
nearly 30% risk on those trades. what if they all lose...you then need ~50% gain to get back to where you were. why not just have 1 position open at once...food for thought

I agree 100% given that your aim is to keep the account and grow it over time. The maximum "tolerable" risk on a 200 dollar account with wide stops such as the ones I'm using is about one micro lot, or even less(!)

However as I have stated, the goal of this account is not to grow it over time but to use it as a learning aid. Like I said, some people spend 1000 dollars on a workshop to learn some secret sauce indicator. I don't. I spend 200 dollars on an account to blow up so I can fool around in the markets and get my own edge. When I've blown it up, or taken what I need to learn from it, I will fund a bigger account and treat it differently.

If I blow it up before I'm onto something, I will be back on the drawing board for a month, and then I'll fund a new account, or I'll wisen up and trade another market that I already know.

I know it doesn't seem like it from the way I trade in this journal, but I'm really all about money management. I think money management is what will keep you in this game over time. It is absolutely essential to have this on lock.

But what I'm trying to reinforce and train for now is NOT money management, it entries and exits. I see setups I like and then I trade them. I don't actually care about the risk, because I'm all about finding these setups and trading them, and asking myself, what did I do right, what did I do wrong. Did I show discipline in timing the trade, in taking the trade, in picking the trade. What did I do right or wrong - regarding the price action. Regarding the setup.

However, I still calculate the risk. Because it's part of the setup, part of the drill, part of what I will have to when I take off my training wheels and try out in the real world, trading a larger account, part of what I will have to do is calculate risk and check if it is within my pre-defined risk limits. So that's why I calculate it, even though I don't really give a fiddle.

And yeah, I'm sorry about the word diarrhea, it is an hereditary weakness in me.

Caledonian; I'm glad you enjoyed the post. And I think that the basic principles of reading price action is the same in most markets, although I don't think anyone can do it successfully in a market they are not kind of attuned to.

I think any market will show certain characteristics, some that are unique(for instance in the stock market you will have opening gap patterns, that generally won't occur much in a 24 hr-market), and some are common to all markets(for instance, big round numbers and previous turning points to become price points of psychological importance, this is true for all markets I think).

 

[Dogtrade]

So this week has been crazy Practically all my entry orders were hit on monday, so I got a very high global risk. Thankfully most trades went allright, but I was stopped out for less than I risked in almost all of them. Definitely an aspect of my entry/exit management that needs to be looked at closer once I gather some more trading history with more detailed data.
Returns

GBPUSD +0.88 R
EURCHF +1.26 R
USDCAD +0.31 R
EURJPY -0.82 R
AUDUSD +1.14R
GBPAUD -0.3R

Average return this week: 0.41 R return / trade
Total return this week: 2.48 R return.

Result on global risk this week: 0.16R

R denominates Risk, the amount I originally meant to risk on the trade.
This is the distance from the stop loss to the entry, plus the spread twice.
The reason return on global risk is so much lower than the average trade is because some trades had a much widers top and unfortunately these trades were stopped out. In particular the GBPAUD trade and the EURJPY trade.

Tomorrow I will post some charts on what went wrong with those trades.

 

[Dogtrade]

Week in review, and case study

Looking back at the week

Well, looking back at the week three things stand out;

1) I have been trying to shift more towards entry/limit orders rather than market orders, both to catch more of my setups and to control risks better. This week I did just that, and practically all my entry orders were hit leading to a much higher global risk than normal. While I stick to my argument that the global risk is not much of a worry taken the main objective of this account, I must agree that 30% is a tad too high even with these circumstances. I'd prefer to keep it less than 20 on this account.

2) On several trades my stop was too tight or I trailed it too fast, leading to losses/diminished profit. A point in particular is the failed GBPAUD trade, which was a stellar setup that I lost money to because I was stopped out. A wider stop would have served me extremely well in this situation.

3) The tactics I had decided upon ahead of time played out really well. Having really thought out my plan for the week made it simple and intuitively to manage my stops and trail them manually when that was needed. Now, some trades were stopped out too early, but other trades I managed very well. Knowing myself, I would have made less profits without these detailed game plans.


Case study 1
GBPUSD - successful trade. You can read my thoughts from before trading started here;

http://www.trade2win.com/boards/tra...-discipline-my-forex-trading.html#post1623674



I entered on the best price offered by my pre-analysis; the lower part of the box. The stop was a fair bit away, around the horizontal S/R marked in the chart. I trailed the stop manually one time and 45 pips autotrailing from there.

While the trade only netted 0.88 R, I still think it was fairly well managed. It was a solid move, the entry was based on clear-cut price action dynamics.

I am happy with this trade. Especially since I zoomed in to the H1 time frame to get a precise entry, but managed not to get caught up in trying to bounce the channel both ways or time 20 pips worth of mini-swings. I kept myself out of my very weak "intraday" thinking mode and held my focus on the quality setups. Now while the trade certainly didn't achieve a very old age before it was closed, I think it reflects the fact that I am taking more care with my setups and not chasing the pips as much as I used to.

 

[Dogtrade]

Case study 2 - failed trade, good setup



GBPAUD failed trade..

I was set up very good for this trade - but in an effort to lower the risk, I second guessed my stop after I thought the move was under way. I failed to catch the move after the shallow pullback which my trade really should have survived!

I can't help but think that;

1) if my global risk were lower, as several voices more clever than me have suggested that it should have been, I would probably not be as inclined to micro manage this trade to pieces.

2) I would have gained over 100 pips (the main move was 175 pips or so from my entry, so with my typical exit management I'd say probably around 120 pips) on this trade if I hadn't mucked about with the stop levels.

3) My loss on this trade were -0.3 R. Psyschologically, it would probably be less painful to see a 1R loss on a failed move than a 0.3R stop on a move that proved to be a valid trading opportunity. However the initial stop at 180 pips was really very wide, and my profit would still have been less than 1R.

4) Generally I am inclined to accept such losses of 0.2, 0.3R and then re-enter on a second break in these kinds of setups. However I was not present to adjust to the situation and lost the chance to a reentry.

What would have been the best way to handle this setup?
A keep the wider stop and probably get out with a 0.8R profit?
B re-enter after being hit on the 0.3R updated stop?

I am inclined to say A, from a technical point of view. This wide stop could
have been trailed manually to breakeven only as soon as the trade was, say, 0.3R into profit, and then trailed by 0.3R or some measure of volatility such as 2.5ATR on the 1h chart.