Month 2, Day 24 to 27 - 36-month forex trading challenge - month 1 results.

Wow, what a difference a new month makes. After a period of frustrating trades near the end of month 1, month 2 has seen profits, profits and more profits.

This is the trading game – a period of drawdown is inevitable, and the real test during this time is sticking to the rules and maintaining discipline to ensure you stay in the game long enough to reap the rewards.

The results are now in for the month 1 of the 36-month forex trading challenge, and while not on target they begin to paint a picture of my trading style and to highlight areas for improvement.

Although I also trade in eToro, the challenge is linked to my private broker (ETX Capital), where I trade from two accounts – one long and one short. eToro presents its own statistics, which differ somewhat from what's presented below for two reasons:

1) The spreads are wider, which means my entries and exits sometimes differ.

2) They have a hard close at the end of the month, which factors booked profits (or losses), plus the balance on any open positions. For the challenge, any positions opened in the month count towards the month, and before calculating the results below I wait for these open positions to close. [Open profit in a trade in my opinion shouldn't be counted until it's firmly booked, which means the trade is closed.]

So for month 1, my return on opening capital was 0.65%. This is some way short of the target 10%, but having experienced a period of drawdown I was pleased to finish with my head above water.

No matter what your strategy a period of drawdown will turn up sooner or later, and I set a maximum drawdown in any given month at 20% of opening capital. This level was never tested at 3.76% and even the percentage change from the account high to the account low during the month fell by only 6.67%. This gives me comfort, so far at least, that my risk and money management is working.

In part, month 1 was an opportunity to fine-tune my approach, and a key change I made was factoring in the weekly trend line. Had I done this from the start of the month it would have helped me see a number of my trades differently and kept me out of a number of losing positions. Successful trading is much more than finding winning trades, it's also avoiding the losers and knowing when it's time to sit on your hands!

I made 19 trades during the month and interestingly all were short. I know from past experience that I tend to take more short positions than long ones, but I need to make sure this is not an unhelpful bias. If my signals are short then great, but if I'm ignoring long opportunities due to a bias then I need to address this moving forward.

Of the trades I took just over 47% of them were winners. If I ignore the one break-even trade then this percentage rises to 50%. With a 50% win ratio and a target 2:1 reward-to-risk ratio, why then was my overall result for the month not much better?

Well, it's a good question and the clue lies in the final two numbers presented in the above table.

1) AVERAGE R:R – this is the average reward-to-risk ratio across all winning trades. At 0.76 it means that for every £1 risked I made back 76p. This is not good enough and I need to monitor this in the future. After my initial target (T) was hit on a number of trades, it's possible I added a second position too quickly. The market then reversed and took me out. As the months progress I'll understand this important statistic more and make the changes necessary to improve my approach.

2) POTENTIAL CAPTURED – this is the percentage of the move I captured while in the trade. At just over 50% it means that another 50% was in my grasp, but not collected. I know the market whipsawed on a regular basis in the month, which could be one reason for this. The other explanation could be moving my trailing stop too aggressively. I wanted to get off to a good start in month 1, which may ultimately have cost me. Again, I'll understand more about this statistic as the months progress.

So that's it – month 1 is done and I'm now fully immersed in month 2. The 36-month forex trading challenge continues!

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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
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[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.]