Initial thoughts are that I’ll be incorporating quite a few of them going forward.

(a) Track the maximum adverse excursion (MAE) for winning trades. This gives you an idea of how wide a stop you should be setting. I still use local support and resistance levels for setting stops, but I find the MAE is useful for finding out how far apart the stop needs to be at a minimum. If you can get your hands on a book called “Campaign Trading” it has a really good discussion of MAE

(b) Combine regular profit taking with trailing stops. I now use the habit of when my 1% price target is hit I close half my position and bank some profit and place a trailing stop on my open trades. The trailing stop is ususually placed somewhere near the break even point or a local support / resistance line. I instituted this strategy when I got frustrated with giving too many profits back to the market or missing out on a major price move. When I close half a position, I also start hunting for a new position to open to build me up to my maximum risk level (see next point).

(c) I use an anti martingale strategy, which means increase your risk exposure when things are going well and decrease it when things are not. I dont use anti-martingale for a single position, all my positions are of a fixed size. I use an antimartingale strategy accross my portfolio. When all the markets are trending together in concert I widen my risk exposure because there is an underlying theme driving all the markets. When the markets are not moving together, cut back your risk exposure. There is no underlying theme here driving the market.

(d) Never buy new positions when the price action is going against your fundamental direction. Just dont do it – I don’t care what Warren Buffet says. This is just bad bad bad. This will lower the chance of you being left with positions in drawdown. I find myself now working heavily with limit orders rather than market orders. I look for a good price level which would confirm the direction of the trend and rest my orders there

(e) learn to recognise a correction when you see one. Your observation around “buy the rumour – sell the fact” price action was spot on. When your local newpaper or the econcomist starts writing about the FX market the trend is probably over. Similiarly, be careful when the price starts accelerating to create a new high and start retreating afterwards – this is classic profit taking behaviour. A good trader will actually learn to put hedging positions in at this time. This is an art I am still mastering.

Anyway I hope that is helpful.

Not the best Christmas present, your current situation…

Meanwhile, I think you’ve hit the nail on the head when you say:

[quote]I can always use the Anti-Hedge re-enter method to get back into a trade when the trend resumes and it feels appropriate to do so. I used this technique quite successfully on many of the USD-JPY trades that were stopped out at their 100 pip stop loss price level during September and October.[/quote]

I’ve always been a big fan of the market having to ‘prove itself’ by going through a trigger price. I believe the combination of that entry technique, the AH strategy, and the 4×1 methodology (with possibly lower leverage…say 1:1, 1.5:1, 2:1, 3:1) would be very powerful.

My general concern with using greater leverage is that anything greater than 1:1 (which works out to 2% of account size, if you assume a 200 pip indicated exit area/stop) starts to turn fairly ugly, pretty fast….i.e. 2% + 4% + 6% + 8% = 20% drawdown (if all 200 pip stops were taken out in a falling knife situation)…

Good luck with managing your positions…I’ve been in your situation before so know what you are going through.

Regards, Motu