January 2008 Review
My trading in January had a few new wrinkles to my trading plan that I was testing out. The main one being that I was setting a pretty fixed stop loss position on all my trades at the time of entry.
Having a stop loss of 100 pips meant that I was stopped out on quite a few more trades than I would have been in the past. The flip side of being stopped out was that I would frequently re-enter the trade at the point where I had been stopped out as price moved back in the direction I was targeting.
In total I entered 34 trades for the month. 14 entries were losses; 20 ended in positive territory.
One thing I have noticed in using a fixed stop loss amount is that I regularly look to have my profit target be equal in size to my stop loss. If it’s a 100 pip stop loss then I immediately want to place a 100 pip profit target. This has been an interesting psychological development, especially considering how I would previously look for regular bread and butter trades where I would take no more than 30-35 pips out of the market. By placing a stop loss that is relatively close to the current price action I seem to want to justify the risk I am taking by trying to extract a similar sized reward.
Being able to extract regular bread and butter sized trades from the market was an important part of my success over the last few years so this is an aspect of my trading that I don’t want to lose. I don’t always want to have to wait for significant price changes to be able to close out a trade profitably. I still want to be able to pull some money out of the market even when price is range bound or acting quite randomly. This is something I’m going to have to ponder on for a while to see if I can find some comfortable middle ground where I still look for the same sort of variable profit targets that I did in the past, but also have a firmer risk management strategy to back it up.
My equity return for the month was 7.9%.
My biggest drawdown was 12.2% as a result of seven losses in a row between January 16th and the 21st. Some of these losses were my stop loss policy getting me out of the market when it was moving drastically against me and were losses well worth taking. The rest were a result of poor stop loss placement on my part as well as not sticking to my guns on my view on where price was going in the next day or so. How I flip flopped and got knocked out of several trades in a row is probably worthy of a separate post so I’ll save the gory details for then.
My drawdown lasted for nine days. A new equity high was made on January 30th, when I closed out all my trades at the time for profit after the Fed interest rate announcement.
All in all, a relatively successful return to form after the disaster that was December.
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Comments
Comment from Colin McGinley
Time 2008-02-09 at 16:40
Wow, lots of questions. I’ll do my best to answer them but I’m probably going to keep things brief as there are so many. You’ll find a lot of topics have been covered in other parts of my blog, so keep reading and you’ll find more in-depth answers to most of what you are asking.
Grid adjustments should be a relatively rare occurance. There is no specific signal that tells you to move the grid. Normally if the grid has been breached for a significant amount of time and the move looks to be sustained then it makes sense to adjust.
When to enter and what sort of profit targets to aim for is something that definitely needs to be personalised to that individual trader. I have covered this topic in its many forms so feel free to browse past posts.
On hourly charts (I actually trade from 2 hour charts, sometimes from 4 hour) there is definitely plenty of movement within the grid.
Fundamentals are just one part of the trading puzzle. Over the very long term fundamentals tend to hold true. The fundamentals behind the US dollar weakness this decade have certainly been true to form.
I trade with a grid on EUR-USD. I also have a grid on the other pairs that I trade (USD-JPY, etc.) but don’t use it as rigidly as the euro one.
It is possible to spend two hours a day and make 10% every month. Just don’t expect to start out that way. You’ll need at least twelve months, if not more, of experience and practice to reach that sort of level (and even then it’s not a definite).
Your plan sounds reasonable. This is of course not knowing what other trading experience or background you have. Just make sure the goals are realistic for you. Get out of any ‘get rich quick’ mindset you might have.
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Comment from Karsten
Time 2008-02-06 at 14:14
Hello Colin,
since oktober I am interestet in trading. After a while I discovered BWILC in the internet. The book and all the commentaries of successful Bwilc-traders were very convincing to me, but I can not afford the money for the mentorshipprogram at the moment. I just started to trade after the principles of Bwilc a week ago in my demokonto.
My Plan:
If I trade like recommendet in Bwilc, and Eur/Usd is moving every mounth about 300 pips it should be easy to make 10% every mounth, which means 1000% in four years.
I would trade within a +-400-pip-grid, would use from top to bottom of the grid 1:1, 2:1, 3:1 and 4:1, alltogether
10:1 leverage. starting with 1000,- Euro.
One pip would be between 10 and 40 cent, 300 pips Movement after a mounth should be result in about 100,- in the beginning.
I expect in four years a profit of about 100.000 if i trade carefully, following the above plan and the principles of Bwilc.
This plan is very new and i am quite optimistic.
But:
I made this plan during the last weeks.
My actual grid between 1.4450 and 1.4850 looks quite easy to trade.
I just beginn to understand the fundamentals of the markets and try filter out the best informations I can find. Dayly Pfennig, forexfactory, jackos house of pleasure and pain, and so on.
I have no experience and if I will find a job, only one or two hours to trade in the evening german time.
My Questions are:
What to do, if the market is leaving my Grid and moves up, like between august and november last year,
which advice gives Dirk du Toit in this situation?
Where to start and where to take profit, is there any plan?
I can see lastyears booming phase only at Dayly charts and I see no possibility for mediangrid-trading. Were there possibilities to install mediangrids in hourly charts ? What about median-channeltrading?
Did the fundamentals and the analysts predict these run?
Did You trade without a grid?
are two hours in the evening enough to to make 10% every month?
What do You think about my simple trading plan. Is there anything I have forgotten?
Is my Goal to make money so quickly realistic or did I underestimate anything?
I want to be quite sure because my family has no financial perspective in the moment, only forex.
I am also happy about every advice I can get from an experienced Bwilc-trader like You.
Thank You very much for Your Answer and for Your beautiful trading diary. I want to read it completely but still didnt read and understand all.
good luck to You and everybody who read this.
Yours Karsten