ForexSpirit

I consider the Cyrox forum to be one of the more interesting scalping forums out there. One of the recommendations I just don’t really understand espoused by Trollmann is that you should monitor the unrealised profit and loss (uP&L) of an open trade instead of the pip value of your position.

Thus, instead of seeing that your position is two pips in profit or three pips under water you should be looking at how much profit you are currently sitting on; you watch the dollar amount (if your account is dollar denominated) pulse up and down.

At the end of the day we are trading to make money so it seems perfectly reasonable to focus your attention on nothing but the money.

There is just one huge advantage to focusing on pips instead that I think trumps uP&L in all but one case. As your trading account grows in size (or shrinks) the pips remain constant. The monetary value of each pip changes, hopefully in line with ever increasing account equity. But what constitutes a big or small trade is going to remain the same if measured in pips. If you focus on the uP&L then you have to constant readjust your perception of where your stop loss and take profit levels lie. If instead you just focus on pips then you don’t need to readjust or relearn at all.

The only exception I can think of where you would not have this problem when focusing on uP&L is if you did not use profits to grow your account. Instead all profits are withdrawn or your equity is topped up by deposits in the case of losses. Thus your account equity is constant and is a fixed reference point which allows you to have unchanging stop loss and profit goals.

If trading multiple currency pairs enters the frame then it becomes slightly trickier, as the monetary value of a pip in each pair could be different. Happily I don’t have that to deal with that as I only trade one currency pair, as do most scalpers. So that’s a weak argument in favour of uP&L.

The final consideration is if your broker charges you a commission. If they do then you need to make enough profit on the trade to cover both the spread cost as well as the commission cost. The commission cost is normally shown as a dollar amount on the trading platform as positions are entered and exited. Wouldn’t watching uP&L be useful in this instance to see if your trade has gone far enough into profit to cover the commission cost?

I would counter that it is pretty trivial to calculate how many pips that commission cost is equivalent to. Even if you trade currency pairs beyond what your account is valued in, which results in the commission cost fluctuating based on exchange rates, the variations are going to be pretty minor.

Of course, the easy work around is to not have to deal with commission costs at all. I know that Oanda aren’t an ECN, but their low spread on EUR/USD and lack of commission is enough to keep with them for the moment.

I’m going to finish off with a quick trading update. Today saw my first positive session of the week. I consider a positive return (of any sort) to be an excellent outcome for the day. If I end up in the red but lose less than 1% then I consider that an average day and perfectly acceptable for this early stage of my scalping focus. Anything beyond that 1% loss is poor and needs to be corrected.

Here are this weeks returns so far:
Monday: (2.06%)
Tuesday: (2.03%)
Wednesday: (0.68%)
Thursday: 0.53%

Today’s trades:

Today was a tough day. I didn’t have a strong feel on direction so was more open to switching my bias as price action unfolded.

I got whipsawed on trades 2, 4 and 5 as price was entwined around 1.4635. I’m happy with taking the loss on trade 2 and breaking even on trade 3. I got back into the market far too quickly with trades 4 and 5. I should be taking a breather to see what unfolds.

I redeemed things slightly on trade 6 when price broke out of the 1.4631-6 ranging zone.

After that I crumbled, jumping in and out of trades on a whim. After price spiked back up slightly to 1.4625 just before I entered trade 7 I thought that waiting till it reached 1.4635 to play that resistance level would be a good trade. Unfortunately, it was a fleeting thought, soon followed by poorly planned out trades. If I had just stuck to that original thought, and held out till price reached back up to 1.4635 and played it short I would have been much better off.

Trade 10 shows where I attempted to play the resistance level at 1.4635 but I was in too quickly and got spiked out by a pop and drop. I would have gone short again after trade 11 once I’d seen the false breakout unfold, but trade 11′s loss resulted in a break of my daily uncle point so I called it a day. I have set a daily risk limit of 2%. If I lose more than 2% during a scalping session then I walk away for the rest of the day. When I have a good bit more screen time under my belt I will also enforce a rule where if I have reached my daily risk limit twice in a week I will take the remainder of the week off.

11 trades today was too many. I need to cut this number in half. That means being stricter with my entries. I seem too eager to enter during the second half of the hour. Maybe I feel I’ve only just gotten warmed up by then and want to really get going.

Too many entries just doesn’t cut it. I need to be more cognisant on the probability of a trade working out and bail on those that don’t make the grade. I think that more and more screen time is going to be needed to refine the intuition needed to make these split second calls.

There’s a nice article by Gary Dayton in the December issue of SFO magazine on mindfulness. After a quirk review of the destructive power of fear for any trader, he shows how just staying in the present is your greatest weapon in combating those fears.

It’s a technique that seems so simple. And it is. Unfortunately, that doesn’t make it easy.

The effort is most definitely worthwhile. If you’re a beginner trade then adding mindfulness to your psychological toolkit will leapfrog your trading skills forward. There’s even the off chance that it might help you in other areas of your life. Stress and fear, meet your nemesis.

Live and breathe in the present. It’s all you’ve got.

I’m sure that just about every trader, or at least those who venture to read a trading book or browse a trading website, comes across Leonard Fibonacci and the series of numbers that are forever linked to his name.

It’s third grade stuff at the Babypips school, just after support and resistance and even before moving averages! Tree rings, spiral galaxies, the golden ratio, the whole nine yards.

It was so simple, elegant and cool when I learnt that Ian Bell and David Braben used the fibonacci sequence to generate the staggering amount of content that was found in the seminal 1980s game Elite.

I played that game a lot. For months on end.

This snippet from zenbullet shows just how powerful this technique was and the danger(!) it posed:

In 1984 Ian Bell and David Braben, the creators of Elite, had produced a game that was capable of defining a thoroughly believable universe containing 2 to the power of 48 galaxies – that’s 282,000,000,000,000 possible destinations to fly to, all within the 22k available memory of the BBC Model B computer. The final release of Elite had this number substantially reduced – 8 galaxies of 256 stars each – on the insistence of publishers Acornsoft, because a universe of such a size would be too daunting, and would likely induce a minor existential crisis in the player, making them question how such a place had been created.

A better showing today. Only one bad trade of note and overall ended up pip positive.

1. Exited out at break even as I didn’t really like the way price was moving. I envisioned 1.4755 as being decent support. I had the idea right but played it safe in the end.
2. I was looking for a ride down to 1.4760 on this short. When it only got as far as 1.4762 before breaking above 1.4764 I got out.
3. Which was followed immediately by a stop-and-reverse trade. Grabbed three pips.
4. A vanilla scalp right here.
5. This was the most interesting trade of the morning. 1.4770 looked to be forming as a resistance level and so I went short. Price meandered just under this resistance level for close to 10 minutes. From the price action I still thought a move south was the more likely. But as time dragged on I thought there was an ever increasing likelihood that price might do a false breakout higher, or as I like to call it a ‘pop and drop’. I held my nerve, ready to bail if a breakout did occur. I would have to exit even on a false breakout just to play it safe. Things worked out okay in the end, as price dropped. My target was 1.4760, which was almost breached. After a slow, agonising drop there was a flurry of price movement around 1.4762 at which point I got out.
6. After a slight retrace price started to move down again. I was again looking for a break of 1.4760 but had to deal with a breakeven trade in the end.
7. This was my one poor trade of the day. It was too quick and impulsive. I didn’t have a proper safety net of where it would become obvious that the trade was wrong, or at least not one that was within 3 or 4 pips, which is needed when trading on the really short time frames.

Things were beginning to get really slow, most likely in advance of the US Retail Sales data out later in the morning. There were quite a few instances where price didn’t even move for a minute or two, which definitely made trade 5 interesting. I hovered over the close trade button like a hawk waiting for price to either go in my favour or go against me. Instead it just sat there, unmoving.

Was there a problem with my internet connection? Would there be an explosive move after such idleness? Was I allowed to blink yet?

Scalping really does condense everything about trading. It reminds me of a Half-Minute Hero, a PSP game where the traditional 60 hour Japanese RPG is crammed into just 30 seconds.