Month 3, Day 48, 49 & 50 - 36-month forex trading challenge - don't count your chickens and month 2 results.

Don't count your chickens before they hatch is a well-known proverb and in some way summarises my finish to month 2.

The market taught me two important lessons that I will be sure not to forget – don't get greedy and paper profits don't equal real profits.

At the end of week 9's video, which you can watch on the STG FOREX TV YouTube channel, I'm pretty confident of a strong finish to the month with open profits on a number of trades. This included a leveraged, and potentially very profitable short position in NZDUSD (T32S).



Any positions I have open at the end of a month count towards the results for that month. The chart below shows my NZD short where I had three positions in play that I'd pyramided into with an overall 2% risk.

With two profitable positions I entered a third position, as price tracked down closer to the 3-year low (black line). The low was actually lower on my chart than displayed above, and the reason is I'd missed updating these levels since June of this year.

I remember at the time of adding my third position questioning in my head whether doing so was actually a good idea.

To quote from my own blog post on day 47:

'I was slightly hesitant about entering this final position given the 3-year low (black line) looming underneath my entry. A 10-year low would have negated my entry, but a 3-year low I'm less concerned about.'

Despite my concern I went ahead, which turned out to be a big mistake. The loss on this third position significantly eroded profit I had locked in on my first and second positions, and although this trade closed in profit it could have made so much more. My reward-to-risk ratio on this trade came in at 0.55, meaning for every £1 I initially risked, I got 55p back.

On self-reflection I think bias and greed combined. This led me to overlook the very distinct possibility that at a 3-year low price could actually bounce.

With losses in my long account (I seem to be a much better short trader) this trade became my potential saviour. With extended (and on reflection unrealistic) targets set at the 10-year low I was hoping this trade would continue south.

Very few trades go to the moon and I must remember, I'm a trader, not an investor. Taking profits has always been a challenge for me and is one of the reasons I built the rule into my trading plan to always take a 50% profit when my initial target (T) is hit.

Moving forward I will never add to a trade approaching a SIG. Level 1 (10, 5 or 3-year high or low). At or near these levels I should be on alert for a reversal – after all, who is left to buy or sell?

Another important lesson I learnt was on stop placement. My tutor here was my short on USDCHF (T28S). With my entry missed for a RANGE sell (T34S), I cancelled this sell limit and entered a short position using my GOLDEN GATE strategy. I entered once price closed below the 200 SMA, but was quickly forced to lighten up on 2/3 of my position with price closing back above the 200 SMA and then the 50 SMA.

My stop was placed inside preceding structure and was hit to take me out of my final 1/3. It's possible that this trade could then have continued down with profit on my final 1/3 paying for the losses on the 2/3, but having been stopped out I was no longer in the game to potentially capitalise.

My stop should have been placed 20 pips above preceding structure – not inside!

I've been pretty busy over the course of these three days, culminating in a trip to London to chair the ICAEW Business Committee.

Whenever I visit London on business I try and find time for a bit of sightseeing and on this trip visited the National Maritime Museum and Buckingham Palace. The latter included entrance to the Queen's Gallery, which displayed a collection of drawings by Leonardo da Vinci, arguably one of the greatest minds that has ever lived.

I've always been inspired by his curiosity and that he was said to advocate that 'simplicity is the ultimate sophistication'.

A good trader should always be curious and keep things simple – the exhibition was a timely reminder of these principles.

Travelling means it's difficult to keep up with all trades via the blog and for a complete rundown of what happened, please watch week 10 on the STG FOREX TV YouTube channel.

Finally to close out this blog post, the results are in for month 2.

Disappointingly it was a losing month, which means I'm well behind where I need to be on the challenge to reach £1m in 36 months. It's not impossible to still get there, but with another monthly target missed it gets that bit more difficult.

The table above shows some interesting things:

1. My drawdown is consistent with the prior month – this tells me that I'm protecting my capital and getting nowhere near the maximum drawdown of 20% in any given month. My top priority is always capital protection.
2. My long trades cost me – all were losers apart from one break-even trade. It's possible I'm a much better short trader than I am a long one.
3. I've introduced a new statistic since last month. Average stop pressure is a measurement attached to winning trades, which shows on average (for winning trades in the month) how much price moved against my entry. This reinforces what I have known for some time – when I'm right the market tends not to trouble me too much and moves in my favour quickly. 

I'm confident that the more data I capture over the coming months, the more I will really begin to understand my trading approach and its expected outcome.

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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.]