Month 4, Day 73 - 36-month forex trading challenge - how I cut my losses.
The boredom is really setting in. The forex market and the 23 currency pairs I trade are distinctly lacking in any clear direction. A little up, a little down; none of the pairs I trade seem to know where they're headed, and instead react to every piece of news that pops up on Twitter or other more traditional news channels.
I want to make money right now, and the temptation is to change my trading approach and jump to the shorter-term time frames. Perhaps it's time to become a day trader?
No, no and no again!
The market may be frustrating, the market is definitely testing my commitment to my trading approach and chosen time frame (240 chart), and yes, it has crossed my mind to change things up.
This however is the path of the losing trader. Patience is a virtue in the market and the market isn't obliged to pay me, or anyone for that matter, each and every day. This is one of the reasons trading can be such a difficult profession. It's not like earning a regular salary; in fact it can often be all or nothing. What's more, before the market pays you it often dips into your wallet.
It's a tough business. On the face of it a simple one, but a tough one nonetheless.
A useful reminder today are the words of Admiral Horatio Lord Nelson:
'...perseverance in any profession will most probably meet its reward.'
I'm long in GBPUSD (T17L) with my SIG. 1 trade, but today entered two GBP short positions in GBPUSD (T55S) and GBPJPY (T56S) when trend signals showed up on both.
But is it ok to be both long and short in the same currency pair? In my opinion it is, and this is one of the reasons I have two private broker accounts – one for long positions and one for short. It all boils down to the strategy and time frame.
T17L is playing out on the weekly chart, whereas T55S and T56S are on the 240 chart. It's possible all three could be winners. My 240-chart trades have initial targets set at T, which if hit will see me move my stop loss on each to entry.
The long trade on my weekly chart is a longer-term play and will likely see its end result determinant on the outcome of the UK's Brexit negotiations with the EU. This is not why I entered this trade – I'm in it for technical reasons, but my position is backed up by my belief that there will be a Brexit deal in the end. Both sides want it, and as we get to the crunch date of 31 October I can see a compromise agreement being reached. In any successful negotiation neither side gets everything they want.
Ask any lawyer about the game of positioning and bluff ahead of the court date. Ask them too about a renewed willingness to do a deal on the courtroom steps. Certainty of an outcome is much better than leaving it to the judge or jury – similarly when it comes to Brexit, I'm certain the UK and EU would much prefer certainty than the uncertainty that would accompany a no-deal crash out.
In the meantime, short-term volatility in GBP pairs could see profitable trading opportunities. In the end nobody really ever knows and lacking in a crystal ball my guess is as good as anyone else's. This is why trading is really about risk and money management.
Today I thought I'd review how I cut my losses. Keeping to a minimum what I lose on my inevitable fair share of losing trades and maximising what I take from my winners is a key component of the trading game.
General exit rules >
On all strategies (RANGE, GOLDEN GATE, TREND, FULL HOUSE and SIG. 1):
Sense check / red dashed (small) – a line drawn between my entry and stop loss. If there is a close beyond this line against the direction of my trade, it's a mental note to ask myself – does this trade still make sense?
A breach of this line, doesn't mean I automatically exit the trade, but is a wake-up call to establish if things still make sense and that I want to stay with the trade.
[Note – if this level is reached it's likely that one of my other exit triggers may already have crystallised.]
On all strategies (apart from SIG. 1):
Average Stop Pressure + 10 (pips) / turquoise dashed (small) – stop pressure is how much on average previous winning trades move against me (put me under pressure) plus 10 pips. I calculate average stop pressure on a rolling basis, as the average of the prior three months.
If my trade has not shown a paper profit (a candle close past entry in favour of my trade) within three candles (12 hours) and has closed beyond this line, I exit my position in full.
If my trade has not shown a paper profit within 12 hours, but has not closed past the line, I give the trade an extra 12 hours.
If the trade hasn't shown me a paper profit within 24 hours, even if the line has not been compromised (a close past against the direction of my trade), I exit the position in full.
Exit rules specific for strategies >
GOLDEN GATE:
Emergency Exit 1 (EE1) – if price closes back beyond the 200 SMA, I exit 1/3 of my position.
Emergency Exit 2 (EE2) – if price closes back beyond the 50 SMA, I exit 1/3 of my position.
TREND & FULL HOUSE:
Emergency Exit 1 (EE1) – if the 10 EMA crosses back and closes past the 30 EMA, I exit 1/3 of my position.
Emergency Exit 2 (EE2) – if the 10 EMA crosses back and closes past the 50 SMA, I exit 1/3 of my position.
Emergency Exit 3 (EE3) – if the 30 EMA crosses back and closes past the 50 SMA, I exit the final 1/3 of my position.
Sounds complicated doesn't it? Well yes, at first glance I guess it does. This is why regular review of, and daily practice in executing your trading approach is so important. I know all of these exit rules by heart now, and as a backup my folder with my trading approach inside is easily within reach.
While I'm on the subject of cutting losses, I've ditched one rule I added previously. If I've entered a TREND trade on a close past the 200 SMA, I no longer exit my position in full if price closes back in the opposite direction (against the direction of my trade). With hindsight, this was too much, too soon and places me at the whim of whipsaw action. I now rely on EE1, EE2 and EE3 instead.
Week 13 of the 36-month forex trading challenge is now available to watch on the STG FOREX TV YouTube channel.
As you can see in the thumbnail I experienced a very wet day in London. Despite the weather it was well worth the trip, as I got to experience what can best be described as open outcry.
If you're enjoying the videos, please consider liking, sharing and subscribing.
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.]
I want to make money right now, and the temptation is to change my trading approach and jump to the shorter-term time frames. Perhaps it's time to become a day trader?
No, no and no again!
The market may be frustrating, the market is definitely testing my commitment to my trading approach and chosen time frame (240 chart), and yes, it has crossed my mind to change things up.
This however is the path of the losing trader. Patience is a virtue in the market and the market isn't obliged to pay me, or anyone for that matter, each and every day. This is one of the reasons trading can be such a difficult profession. It's not like earning a regular salary; in fact it can often be all or nothing. What's more, before the market pays you it often dips into your wallet.
It's a tough business. On the face of it a simple one, but a tough one nonetheless.
A useful reminder today are the words of Admiral Horatio Lord Nelson:
'...perseverance in any profession will most probably meet its reward.'
I'm long in GBPUSD (T17L) with my SIG. 1 trade, but today entered two GBP short positions in GBPUSD (T55S) and GBPJPY (T56S) when trend signals showed up on both.
But is it ok to be both long and short in the same currency pair? In my opinion it is, and this is one of the reasons I have two private broker accounts – one for long positions and one for short. It all boils down to the strategy and time frame.
T17L is playing out on the weekly chart, whereas T55S and T56S are on the 240 chart. It's possible all three could be winners. My 240-chart trades have initial targets set at T, which if hit will see me move my stop loss on each to entry.
The long trade on my weekly chart is a longer-term play and will likely see its end result determinant on the outcome of the UK's Brexit negotiations with the EU. This is not why I entered this trade – I'm in it for technical reasons, but my position is backed up by my belief that there will be a Brexit deal in the end. Both sides want it, and as we get to the crunch date of 31 October I can see a compromise agreement being reached. In any successful negotiation neither side gets everything they want.
Ask any lawyer about the game of positioning and bluff ahead of the court date. Ask them too about a renewed willingness to do a deal on the courtroom steps. Certainty of an outcome is much better than leaving it to the judge or jury – similarly when it comes to Brexit, I'm certain the UK and EU would much prefer certainty than the uncertainty that would accompany a no-deal crash out.
In the meantime, short-term volatility in GBP pairs could see profitable trading opportunities. In the end nobody really ever knows and lacking in a crystal ball my guess is as good as anyone else's. This is why trading is really about risk and money management.
Today I thought I'd review how I cut my losses. Keeping to a minimum what I lose on my inevitable fair share of losing trades and maximising what I take from my winners is a key component of the trading game.
General exit rules >
On all strategies (RANGE, GOLDEN GATE, TREND, FULL HOUSE and SIG. 1):
Sense check / red dashed (small) – a line drawn between my entry and stop loss. If there is a close beyond this line against the direction of my trade, it's a mental note to ask myself – does this trade still make sense?
A breach of this line, doesn't mean I automatically exit the trade, but is a wake-up call to establish if things still make sense and that I want to stay with the trade.
[Note – if this level is reached it's likely that one of my other exit triggers may already have crystallised.]
On all strategies (apart from SIG. 1):
Average Stop Pressure + 10 (pips) / turquoise dashed (small) – stop pressure is how much on average previous winning trades move against me (put me under pressure) plus 10 pips. I calculate average stop pressure on a rolling basis, as the average of the prior three months.
If my trade has not shown a paper profit (a candle close past entry in favour of my trade) within three candles (12 hours) and has closed beyond this line, I exit my position in full.
If my trade has not shown a paper profit within 12 hours, but has not closed past the line, I give the trade an extra 12 hours.
If the trade hasn't shown me a paper profit within 24 hours, even if the line has not been compromised (a close past against the direction of my trade), I exit the position in full.
Exit rules specific for strategies >
GOLDEN GATE:
Emergency Exit 1 (EE1) – if price closes back beyond the 200 SMA, I exit 1/3 of my position.
Emergency Exit 2 (EE2) – if price closes back beyond the 50 SMA, I exit 1/3 of my position.
TREND & FULL HOUSE:
Emergency Exit 1 (EE1) – if the 10 EMA crosses back and closes past the 30 EMA, I exit 1/3 of my position.
Emergency Exit 2 (EE2) – if the 10 EMA crosses back and closes past the 50 SMA, I exit 1/3 of my position.
Emergency Exit 3 (EE3) – if the 30 EMA crosses back and closes past the 50 SMA, I exit the final 1/3 of my position.
Sounds complicated doesn't it? Well yes, at first glance I guess it does. This is why regular review of, and daily practice in executing your trading approach is so important. I know all of these exit rules by heart now, and as a backup my folder with my trading approach inside is easily within reach.
While I'm on the subject of cutting losses, I've ditched one rule I added previously. If I've entered a TREND trade on a close past the 200 SMA, I no longer exit my position in full if price closes back in the opposite direction (against the direction of my trade). With hindsight, this was too much, too soon and places me at the whim of whipsaw action. I now rely on EE1, EE2 and EE3 instead.
Week 13 of the 36-month forex trading challenge is now available to watch on the STG FOREX TV YouTube channel.
As you can see in the thumbnail I experienced a very wet day in London. Despite the weather it was well worth the trip, as I got to experience what can best be described as open outcry.
If you're enjoying the videos, please consider liking, sharing and subscribing.
*********
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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