Month 4, Day 74, 75 & 76 - 36-month forex trading challenge - month 3 results and AUDNZD lesson.

It's been a few days since the last blog post and I seem to have been busy, although I can't actually remember what I've been doing.

It's Monday morning again and at day 76, I'm well into the challenge.

The results for month 3 are now out and they are disappointing to say the least. I promised full transparency on this challenge, and full transparency is what I am delivering.

Haters will always hate, and judge my ability and prospects for future success on this month alone. We live in a society that places tremendous value on short-term stuff. We want instant results and when we don't get them from the thing we're currently doing, we throw it out and try something new.

Trading is not like that. Trading is a long methodical plod and no matter how good your system proves to be over an extended period of time, any given month can deliver a painful loss. This loss is called a drawdown and providing it is within risk tolerance levels it is to be expected and accepted..

A bitter pill to swallow – yes. A frustrating experience – yes. A reason to change things up or stop trying – most definitely not!

So here they are (sat alongside months 1 and 2):

I took an 11.57% loss on opening capital and my drawdown measures were double what they've been in the previous two months. I think this reflects the volatility in the market and the market's current knee-jerk reaction to news. In the day-to-day battle I'd already felt the difficulty, which is now clearly evidenced by the numbers.

I'm still not capturing the full potential of any given trade while I'm in it, which means I'm exiting at a price less favourable than the best price the trade reached. This again evidences the whipsaw nature of the markets at the moment, which makes sticking to my rules more difficult, but even more important.

My win percentage was also down. A win percentage of this level is acceptable providing I'm holding for in excess of 2:1 when it comes to my reward-to-risk ratio. This clearly didn't happen, and on average for every £1 I risked I made £0.44 back.

It's all a learning curve and I'm well away from blowing up my account. This month I'm still turning the wheel, focusing on my system, and sticking to the rules.

Mistakes are never far away, and reviewing trades over the weekend, I discovered I'd made a big one in AUDNZD (T51S).

On the 240 chart below, I entered a short position (my second attempt at this trade) using my TREND strategy. With the new downtrend in place my entry was at the the bottom of the daily trend line, which arguably was my first mistake.

The daily chart below shows that my reward-to-risk opportunity was compromised from the start, with the daily 50 SMA sloping up and in between my entry and initial target (T) – mistake number two.

And finally, possibly the biggest mistake of this whole set-up. I was shorting into the weekly 200 SMA (see below). On the weekly chart there was no room for this trade to go without testing the 200 SMA, which was always likely to attract buyers, at least for long enough to potentially stop me out of my position.

You lose and learn, and this trade is an important reminder of the importance of considering the higher time frames and the potential for any trade to progress before hitting an area that could attract interest in the opposite direction of my entry. I call this room to go (RTG) and was the golden nugget I picked up from a Jimmy Young forex trading (weekend) seminar in London some years ago now.

I'm now long AUDNZD (T21L) against the downtrend I'd previously identified. My assessment of market conditions is that we're now in BULLISH mode, and I'm long from the close above the 200 SMA.

With this trade I'm on the right side of the weekly and daily 200 SMAs, with plenty of RTG. However, I might be wrong, and the market might surprise me again. This is why my stop loss is in place and why I won't stay wedded to this trade if my emergency exit rules tell me to get out.

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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.
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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.]