ForexSpirit

In November 2007 I closed out 32 trades.

I had 23 profitable trades and 9 were closed out in negative territory. I have five trades still open going into December.

Pretty much all the profitable trades were in EUR-USD and USD-JPY. It was only on the last day on the month that I had to close out some trades on EUR-USD that were too deep in the red for my liking. I had opened a couple of trades around 1.4880 which breached my 200 pip stop loss level on Friday when the euro was getting sold heavily. This loss taking only accounted for about a third of the losses I had to take during the month.

The real problem area, as I’ve already recounted in detail in recent posts, has been AUD-USD. There were two individual trade losses that made up the remaining two thirds of the losses I endured for the month. One of these trade losses was entirely planned and was enacted as part of my drawdown management. The other loss was a result of the way that forex.com handles limit orders and how when a resting limit order is hit it is applied against the earliest trade entry held for that given currency pair. In this case I had a resting limit order in place to grab 30 pips of profit on a newly added trade entry. When the limit order was hit my earliest AUD-USD trade, which was entered at 0.93, was closed out. This meant that I recorded a realised loss for this trade, even though this exit point was supposed to be matched with a completely different entry.

In effect I took a realised loss on this limit order execution, instead of continuing to hold the 0.93 trade for an unrealised loss.

It is obviously inconvenient to have to mentally juggle trades in this way. At the end of the day when all trades are closed out the final account balance will be the same, but how those trades are managed while they are still open definitely has an impact.

For example, now that the 0.93 trade is no longer visible within my trading platform my average entry price on AUD-USD is much lower than it used to be. This means that it will take a smaller up move in price for me to break even on the open trades that remain. I have been tempted to just close out all trades in AUD-USD if price reaches the average open price, in effect square my position, so that I don’t have to deal with the situation. Taking a break from AUD-USD might allow me to better focus my energies on the other two currency pairs that I trade.

I haven’t done this as of yet. Instead I have been trying to manage the remaining positions according to my original plan of attack.

My realised gain for the month still ended up being 1.91%. Before I had to close out my EUR-USD trades on Friday this figure was probably around 8 or 9%. My trading methodology tries to minimise the number of losing trades that I have to book, but when I do have to close them they can often make a noticeable dent in my equity.

This is also evident in the increased realised maximum drawdown figure that has occurred during November. My largest maximum realised drawdown is now -21.50%, as compared to my previous figure of -12.51%. Part of this new maximum drawdown figure is obviously related to the closing out of the 0.93 AUD-USD trade early.

This also means that even after experiencing a 21.50% drawdown during last month I still ended up with a positive return of close to 2%. This shows just how well I had been doing for the month and what a drag my AUD-USD trades have been.

Since I have been talking about my unrealised loss (otherwise known as drawdown) for the past few weeks I’ll also record here the unrealised loss I am still holding at the end of November: -19%. This is currently pretty evenly split between open trades on both EUR-USD and AUD-USD.

In my previous post I thought I might have overtraded during November. Comparing the number of trades I did during November to previous months in my trading record I feel that this statement is justified, even taking into account the fact that I’m trading three currency pairs as compared to two in prior months. The number of entries and exits is above what I would typically undertake.

Coming into the end of year there is a good chance that the markets will start to wind down. I had planned to try and take things easy during December, both in cutting back on leverage and in the number of trades I place.

Given the mental fatigue I have felt over the past few weeks I think I have to make this cutting back a priority. My current thoughts are to mainly focus on trading during the first two weeks of the month. The Fed rate annoucement on December 11th is bound to be a flash point. After that I think things will go pretty quiet and I plan to really cut back and be out of all trades by the time the Christmas holidays roll around. I am taking a two week holiday over the Christmas and New Year break and I plan to take a break from trading during that time.

I need to recharge my batteries ready for next year. In fact, I should probably figure out how to take more of these sort of breaks on a more regular basis. For instance, I could build in a mandatory week or ten day break every quarter. This would make sure that I take the time off from trading so that I’m able to step away from the plate and see things afresh when I return.

As a final aside, I’d like to highlight the uncanny accuracy of The Economist indicator in predicting the dollar rebound. A pity I didn’t close out all my EUR-USD trades right away