Month 7, Day 152 & 153 - 36-month forex trading challenge - fine-tuned rules.

Well, another day, another dollar or so the saying goes.

It really is a tough market at the moment with a lack of clear direction in many of the currency pairs I trade.

The deeper I get into the challenge the clearer it's becoming that the main role of my rules and approach to the market is to keep me out of trades, and not to get me in. I think the majority of newbie traders focus too much on what constitutes an entry signal, and want as many entry signals as possible to be in the game.

By contrast the more experienced trader is looking to stay on the sidelines until the perfect conditions show up. A decision not to trade is a trading decision in itself. This is advice I've read in a multitude of trading books over the years.

Yesterday, my EURUSD (T76S) short trade hit target, so in line with my rules I moved my trailing stop to entry (see chart below).

This morning, as part of my morning market analysis I noticed that on yesterday's close the daily candle rejected the SIG. 2 1.1000 level on a Z candle (see chart below).

My subconscious recognised this situation from previous trades I've been in where the market signalled its intention to reverse on the daily chart (often at a SIG. 1 or 2 level).  I've now fine-tuned my rules (6 below) to tighten my stop to protect myself when this happens. This should serve to lock in profit or minimise any loss.

I've been doing a lot of thinking and the new refinements to my rules are as follows:

1. On intraday strategies never go against an open SIG. 1 trade (it causes an internal conflict).
2. On SIG. 1 entries I can only take in the direction of the CARRY (as inevitably hold for a long time).
3. If all DAILY and 240 SMA & 10 EMA signals are in one direction, this overrides structure. E.g. if structure is BULLISH, but all S signals then, switch from BULLISH to BEARISH. The exception is when price action is in RANGE.
4. On BACKBONE strategy, introduce EE exit rules (same as TREND and FULL HOUSE).
5. On intraday charts and TREND, FULL HOUSE and BACKBONE strategies, do not take a signal if there is an opposite signal in the three candles prior.
6. On intraday tighten stop if signal shows up on the daily chart for the prior day (XY, YX, X, S or Z) in the opposite direction to my trade. For long trades tighten stop to 20 pips below daily low and for long trades 20 pips above daily high. [In the past I’ve seen this signal show up at SIG. 2 levels but ignored it and given money back to the market.]
7. On TREND trades for entry the general requirement is that the 50 SMA is flat or sloping in the direction of my entry. The exception now is when an XY, YX, X, S or Z candle shows up at the entry level or as one of the three candles after. The entry candle must close above (for long entries) and below (for short entries) the 50 SMA.

The chart below relates to rule 5 above (don’t take the S signal due to the preceding XY candle).

These seven refinements will now be incorporated into my trading plan. It's important to note that I've not thrown out any of my strategies in favour of something new and shiny. There is no perfect trading system and whatever system I use doesn't really matter.

What does matter is that I understand my system fully, follow its rules even when I don't want to and learn the probabilities associated with it. The more I do this the the more my subconscious will prompt me to consider areas where I can make marginal changes for the better.

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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.]