Month 1, Day 20 - 36-month forex trading challenge - ECB and fine-tuning my approach.
Yesterday was all about the ECB, and boy did they cause some short-term turmoil in the markets. With no rate cut, all ears were on the press conference and I tuned in via Bloomberg Radio on my way back from my lunchtime Brazilian Jiu Jitsu class.
The sentiment appeared to be extremely dovish. More stimulus to kick-start a flagging economy and to boost the rate of inflation. Exactly what I wanted to hear and good news for my EURCHF (T11S) short, or so I thought.
Sitting down in front of my screens I was shocked to see I'd been stopped out of this position. Bids in the majority of EUR pairs seemed to go against the tone of ECB President Mario Draghi's words, but why?
The answer is that nobody really knows, and to be honest any explanation is not that important. However, the most likely reason is that the market had already priced in dovish sentiment and Draghi's words were actually less forceful than expected.
This trade was my make-or break-trade for the month. Probably my last chance to hit the 10% target return on opening capital set for month 1 of my 36-month forex trading challenge. This trade was a winner in that I followed my rules and made money on the trade (profit on position 1 more than paid for the loss on position 2), but not enough of a winner to dig me out of a hole that's very likely to see me finish out this month in drawdown.
A reduction in opening capital or drawdown as it is usually known in trader speak is an inevitable part of trading. No trader wins all of the time, and being able to sustain periods of drawdown with good risk and money management is a critical skill every trader needs to master.
On the challenge I fully expected to experience a period of drawdown, but didn't want or expect it in month 1. Reaction in the markets is everything and my own reaction to the possibility of drawdown in month 1 is important too. As I see it, I have two options:
'Never give up, for that is just the place and time that the tide will turn.' ―Harriet Beecher Stowe.
The sentiment appeared to be extremely dovish. More stimulus to kick-start a flagging economy and to boost the rate of inflation. Exactly what I wanted to hear and good news for my EURCHF (T11S) short, or so I thought.
Sitting down in front of my screens I was shocked to see I'd been stopped out of this position. Bids in the majority of EUR pairs seemed to go against the tone of ECB President Mario Draghi's words, but why?
The answer is that nobody really knows, and to be honest any explanation is not that important. However, the most likely reason is that the market had already priced in dovish sentiment and Draghi's words were actually less forceful than expected.
A reduction in opening capital or drawdown as it is usually known in trader speak is an inevitable part of trading. No trader wins all of the time, and being able to sustain periods of drawdown with good risk and money management is a critical skill every trader needs to master.
On the challenge I fully expected to experience a period of drawdown, but didn't want or expect it in month 1. Reaction in the markets is everything and my own reaction to the possibility of drawdown in month 1 is important too. As I see it, I have two options:
- Let it get me down and derail my trading, or even go in search of another approach.
- Recognise that this is a minor setback and try and understand if the market is trying to teach me a particular lesson.
Option 1 is the path of the losing trader. Chopping and changing strategies in search of the perfect system is a thwarted endeavour and not one I'm interested in pursuing.
Option 2 is the path I'm choosing. This minor setback is an opportunity to learn and fine-tune my approach. After all there's another 35 months left to go!
And with that said – here's how I'll be fine-tuning my approach moving forward:
- I'm ditching my overnight relative strength analysis. This takes nearly one hour to calculate each morning and doesn't really help me in my trade selection. This type of analysis is more useful to a a day trader looking to scalp short-term moves. As a swing trader it's the bigger picture that's more important, which leads nicely to points 2 and 3 below.
- I'm now plotting the weekly trend and will review this as part of my weekend preparation. This addition to my analysis was sparked by a conversation with one of my copiers on eToro. I was short USDCAD (T15S) while he was long, so I asked him why. The upshot is that while all of my SMA and daily EMA analysis was pointing south, my entry on this trade ran straight into an upward sloping weekly trend line. This is a trade I should have passed on due to conflicting information, and as I write this I've just been stopped out for a loss. [It's also a trade I should have exited earlier, to find out why watch week 4's video on the STG FOREX TV YouTube channel.]
- As I discussed yesterday, in terms of trade selection I'll be prioritising currency pairs that offer a favourable interest rate differential (carry trade opportunity). This will reduce my broker fees and may even pay me a return while holding positions.
USDCAD Weekly Chart >
There is a big difference between fine-tuning and throwing out an existing strategy in favour of something new. With the above changes I'm giving myself more time each day to analyse what my signals are telling me, and focusing on the bigger picture. Only time will tell if this pays off, but despite a difficult month 1, it's given me a renewed confidence and energy to direct at month 2.
I've just entered a new position in AUDJPY (T19S) on a GOLDEN GATE strategy, and lightened up on my EURCHF (T18S) long. There's certainly a lot going on with USD news on advance GDP out at 1:30pm.
To finish out today's blog post, I found myself searching on Google for inspiration and this quote caught my eye:
It sums up the week and month so far. The game (and challenge) is not over yet!
*********
Is it really possible to turn £50K into £1M? Over the next 36 months I'm going to find out by trading my personal account with full transparency.
Follow my 36-month challenge to turn £50K into £1M.
Read my blog here: https://stgforextvforexchallenge.blogspot.com
Subscribe on YouTube here: https://www.youtube.com/channel/UCyGySJ5IeDjq-DIJPU7nYvw
[Please note, the information presented is general educational material and does not constitute trading advice.
Trading foreign exchange (forex) on margin carries a high level of risk and may not be suitable for you or your circumstances.
Before trading forex you should investigate all of the risks, including the possibility that you could lose more than your initial investment.
It’s important to consider your investment objectives, level of experience and risk appetite. If in doubt seek advice from an independent financial advisor.]
*********
Is it really possible to turn £50K into £1M? Over the next 36 months I'm going to find out by trading my personal account with full transparency.
Follow my 36-month challenge to turn £50K into £1M.
Read my blog here: https://stgforextvforexchallenge.blogspot.com
Subscribe on YouTube here: https://www.youtube.com/channel/UCyGySJ5IeDjq-DIJPU7nYvw
[Please note, the information presented is general educational material and does not constitute trading advice.
Trading foreign exchange (forex) on margin carries a high level of risk and may not be suitable for you or your circumstances.
Before trading forex you should investigate all of the risks, including the possibility that you could lose more than your initial investment.
It’s important to consider your investment objectives, level of experience and risk appetite. If in doubt seek advice from an independent financial advisor.]
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