19 & 20 February 2009
I took the first three days of this week off from trading my method, after suffering a bit of disillusionment last week. I think I even knew that I’d be back for more but the little siesta was needed and allowed me to reflect on a few things.
I didn’t stop trading for those few days. Instead I spent the time investigating a simple method called the Goji system that is being followed on the BabyPips forum.
Of course, the week that I decide to demo the Goji system it has its worst run in five months. I must have the magic touch!
It was an interesting experience to have to focus on making a trading decision every five minutes on the close of a candle. I liked the limited number of clear cut rules on when to enter a trade coupled with the discretionary nature of managing the trade and pushing the stop loss to breakeven or beyond as quickly as possible.
It is best to tread cautiously when the author of such a system starts to make major overhauls after such a bad week. I think it is an interesting approach and I’m going to keep an eye on its development but for now I’m back to what I think I know best, or at least feel most comfortable with.
I have made some slight tweaks of my own since I started trading again yesterday to try and help alleviate some of my concerns from last week. I’m not sure how successful these will be but I’m going to try them out to see how they fit.
I am reducing my default stop loss from 250 pips down to 50 pips. I am keeping my default profit target to be 10 pips, although I still plan to aim for the occasionally larger winner.
Leverage on each trade is being bumped up to 10:1 from the prior 3:1.
Stop loss will be moved up to breakeven or even more once the trade is a good few pips in profit. This is to help counter occurances of price coming to within a pip or two of the profit taking level only to retrace and end up a loser. Of course this action will result in some trades being stopped out that would have eventually reached the profit target instead of the stop loss level, but with increased leverage in play I’m looking to play it safe.
The reduced stop loss level has its pros and cons.
It obviously cuts down on the amount of wiggle room that price can wander before eventually moving in my desired direction. This has the potential to increase the number of trades being closed out for a loss that go immediately against me.
On the flip side, it means that I don’t get locked into a certain direction if the trend suddenly shifts and I find myself on the wrong side. I’ll get stopped out quicker in such a case, but this will allow me to re-asses the situation and make the most of the new unfolding price action.
It’s only through some forward testing that I’m going to be able to determine if the pros outweight the cons for these changes.
Anyway, here’s the results using these new parameters over the past two days:
| Trade | Market | Direction | Entry | Exit | Pips |
| 1 | EUR/USD | Short | 1.2710 | 1.2709 | 1 |
| 2 | EUR/USD | Short | 1.2698 | 1.2697 | 1 |
| 3 | EUR/USD | Short | 1.2680 | 1.2670 | 10 |
| 4 | EUR/USD | Short | 1.2660 | 1.2659 | 1 |
| 5 | EUR/USD | Short | 1.2630 | 1.2626 | 4 |
| 6 | EUR/USD | Short | 1.2614 | 1.2606 | 8 |
| 7 | EUR/USD | Short | 1.2676 | 1.2673 | 3 |
| 8 | EUR/USD | Long | 1.2749 | 1.2752 | 3 |
| 9 | EUR/USD | Long | 1.2774 | 1.2792 | 18 |
19 February pips: 13
20 February pips: 36
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Comments
Comment from Colin McGinley
Time 22 February, 2009 at 11:48 am
My goals have definitely shifted over time. Two years ago I was happy shooting for a 3% monthly return. That jived with me being happy with anything around 30% annually. After all, that’s the sort of return that a top money manager would make in a good year, so who was I to shoot for more?
Over time I’ve come to realise that there are several differences between the way a professional money manger (working for example in a hedge fund or pension fund) deals with risk and money management and the way I, as an individual, can do the same.
The vast sums of money that a big fund must invest is one obvious difference. Another one that you often find, especially with pension funds, is that they must be close to fully invested the whole time, no matter the unfolding market circumstances.
I’m trading with a small kitty and now view my short term goals as to increase that pot as quickly as possible. I don’t need to live off the proceeds as I’m just trading part time so my risk can be higher than if I was wholly dependant on my trading returns. If I ever get to the stage where I’m trading full time then I’m sure my money management and risk parameters will alter radically.
With that as a bit of background to my current goals, I’m currently shooting for monthly returns in the range of 10-20%. That probably works out at me desiring at least a 100% annual return (since not all months are going to show positive returns). To many that might seem a ludicrous high goal. To others (especially I’m sure most trading newbies) it might seem too small (after all this trading lark is the easy road to instant riches, right?).
For me, it’s a target just far enough out of reach to be motivate me to want to reach it. Of course, a major factor in ever reaching it is producing consistent positive returns, no matter how small or large they are.
If I had a million dollars in my trading account then I’m sure I’d be happy gunning for an annual return of 10 or 20%, but I’m nowhere near that sort of level (as I’m sure is that case for just about every retail forex trader). I need to grow my stakes into something that affords me the chance to cut down on my goals. It’s the catch 22, you have to take increased risk to grow your capital at the time when you have the least amount of experience.
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Comment from ThinAir
Time 21 February, 2009 at 12:38 am
Hi Colin,
I’m wondering what are you expecting from your trading? For example, are you trying for 10%, 20% 50%, 100%, 1000% or more annually? I think it is an important big-picture question. Each of those numbers represents a risk level, probability of success and level of effort.
I hear people say that is a waste of effort to plan what you want out of the market. I think not. For example, if you are expecting a 100% return buying and running a Subway franchise then you will be very disappointed! I’m guessing if you are expecting a 100% return year over year consitantly trading on a part-time basis then I think it might be a long shot.
Hopefully that doesn’t sound as bad as I think it might, because I don’t mean to put a blanket on what anyone thinks they can accomplish. I have been at this game for years too from a part-time perspective. I also have high hopes and plans. I guess my point is to make sure you are calculating all that it takes to get from point A to point B. This of course will help with success.