Month 1, Day 8 - 36-month forex trading challenge - losing and learning, plus trade updates.
Day 8 and lots to update on.
It's been a bit of a frustrating week so far and I've learnt a few lessons about myself and my approach, specifically relating to my trading rules.
It's one thing to have rules, but quite another thing to implement them.
On this note, let me ask you a question...
...would you cut off your own hand?
No, of course you wouldn't.
But let me rephrase the question slightly...
...would you cut off your hand to save your arm?
Although perhaps a bad analogy, trading is just like this. On a daily basis you have to cut off your hand to save your arm. It's called cutting losses and goes against everything we'd normally do as human beings – we humans like to be right and we'll usually go out of our way to avoid pain.
However, as a trader, operating in unforgiving and often unpredictable markets, you'll regularly be proved wrong and need to hurt yourself to stay alive. Taking a small loss now as part of a well-thought-out trading plan, which protects your account from blowing up is simply part of the game. And this morning, this is exactly what I had to do.
Many trade without a plan (a huge mistake), even those who do have a plan often give the wrong priority to their trading rules.
The more I've immersed myself in the markets the more I've come to realise that trading rules are things that keep you out and get you out. [Yes, of course they tell you when you should get in, but that's not the priority.]
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.]
It's been a bit of a frustrating week so far and I've learnt a few lessons about myself and my approach, specifically relating to my trading rules.
It's one thing to have rules, but quite another thing to implement them.
On this note, let me ask you a question...
...would you cut off your own hand?
No, of course you wouldn't.
But let me rephrase the question slightly...
...would you cut off your hand to save your arm?
Although perhaps a bad analogy, trading is just like this. On a daily basis you have to cut off your hand to save your arm. It's called cutting losses and goes against everything we'd normally do as human beings – we humans like to be right and we'll usually go out of our way to avoid pain.
However, as a trader, operating in unforgiving and often unpredictable markets, you'll regularly be proved wrong and need to hurt yourself to stay alive. Taking a small loss now as part of a well-thought-out trading plan, which protects your account from blowing up is simply part of the game. And this morning, this is exactly what I had to do.
Many trade without a plan (a huge mistake), even those who do have a plan often give the wrong priority to their trading rules.
The more I've immersed myself in the markets the more I've come to realise that trading rules are things that keep you out and get you out. [Yes, of course they tell you when you should get in, but that's not the priority.]
- They filter out losing trades that if left to emotions you might otherwise have taken. Every trader will have winning trades, but the thing that trips them up is all of the losers. Trading rules, if followed, are there to keep you out of low-probability trades.
- Once in a trade, if things don't go as planned your trading rules will get you out. Rules are set before ever entering the market and away from the emotion of being in a live trade – they protect you from your emotions once you are.
Anyway, let's look at where we're at and the importance of rules will become very apparent.
GBPUSD (T2S) >
Price has now closed below the range on the daily chart. This means my market mode moves from RANGE to TREND. This happened on yesterday's close and means I can now add to my existing trade when signals show up.
This trade is progressing well and is the standout for the month so far. My job now is simply to hold for as long as possible and lock in profit along the way with my trailing stop.
USDCAD (T6S) >
So here's where the rules got challenging, not to understand, but to implement.
I should have been out of my short position much sooner. Having entered on the highlighted candle with my FULL HOUSE strategy, price moved up to trade above the 50 SMA (Simple Moving Average). According to my rules this is not a signal to get out or even lighten up on my position, but the cross of the 10 EMA (Exponential Moving Average) above the 30 EMA is a signal that things are not progressing in my favour and to get out of 1/3 of my position, which I did on the close of the candle at 10am yesterday morning.
However, the 10 EMA also crossed the 50 SMA at the same time, which is a signal to exit a second 1/3, which for some reason I failed to do. Cutting your own hand off is never easy, but doing it twice and at the same time, it seems, is even more difficult. I held the position overnight and exited in full this morning on the 6am close. By this time the 30 EMA had crossed above the 50 SMA, which is my signal to exit the final 1/3 of my position.
There is no TREND (long) opportunity here, which was something I was watching for and mentioned as a third option in yesterday's post. The weekly 200 SMA is right above the current price level, which means there's what I call limited 'room to go' (RTG), which negates this as a viable opportunity.
There is no TREND (long) opportunity here, which was something I was watching for and mentioned as a third option in yesterday's post. The weekly 200 SMA is right above the current price level, which means there's what I call limited 'room to go' (RTG), which negates this as a viable opportunity.
The loss on this trade was 1.38% of opening capital, instead of potentially being a 2% loss plus broker fees if my initial stop loss was hit.
Exiting a bad position early and in line with my rules, is about minimising the damage caused by losing trades. Although painful at the time, it's an important part of a winning trading approach. A losing trade is just a cost of doing business. This month is far from over and successful trading is all about playing the probabilities.
AUDUSD (T7S) >
Yesterday I entered a short position in AUDUSD in line with my GOLDEN GATE strategy rules.
On the daily chart, price began trading below the 50 SMA, which corresponded to a very similar level to the 200 SMA on the 240 chart.
Once price closed below the 200 SMA I entered, and this trade is now on its way to target (T).
GBPAUD (T8S) >
Yesterday also saw me enter a short position on GBPAUD using my FULL HOUSE strategy.
Although a valid entry signal, the market is seeing things differently and one thing I never do is argue with the market. Similar to my USDCAD trade I've now lightened up on this position. 1/3 was taken off at 6am this morning, and having learnt from my USDCAD trade, if and when the next exit signal shows up I'll take it without question.
Finally I had an interesting situation crop up at 6pm last night when a signal showed up on NZDCAD. I entered this position successfully in eToro, but was unable to do so in ETX Capital due to margin requirements. Basically, as my trade funds were allocated against other open trades I was unable to get in. This is one of the reasons staying in bad trades (losing ones, or those going nowhere fast) is such a bad idea. They tie up capital, which could be better allocated to other opportunities.
I held this position overnight, but exited with a small profit on the 6am close this morning. It didn't feel right not having this position also open in my private broker account. If another signal shows up on this pair at 10am or later on today, I now have funds available to take it.
So, lots to learn from the last 24 hours, which I'd summarise as follows:
- Always follow my rules to the letter – they are there to protect me.
- Remember that trading is a game of probability – losses will happen and are just a cost of doing business.
Before I close out today's blog post in preparation to take opportunities that may show up at 10am, just to let you know that the YouTube video documenting week 1 of the challenge is now available to view here. It's a little longer than I'd planned, which again is something I'll learn from moving forward.
*********
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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