Week 5 FX trading results

Managed a return of 23.6% this week and for this I am grateful. My appraisal is short because everything I said in the Week 4 trading results entry continues to apply. I feel I have not made any significant strides since then, nor have I suffered a relapse in to a destructive, negative behaviour mode. The journey continues.

My greatest concern is that my high-leverage game of Russian Roulette is nearly up. A revolver has six chambers and I’ve had five positive weeks since I started this blog. I remain cautious.

Lastly, if you look to right top corner of the web page, you will see a new ‘running total’ section. This gives my account balance and will be updated at the end of each month.

PS – The picture is of Don Quixote, by Pablo Picasso. It is open to interpretation.

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9 responses to “Week 5 FX trading results

  1. 3500,

    I only trade equity but recently signed up for a demo forex account at gaincapital.com and started messing with forex for fun but noticed there isn’t much to go off to detemine trend or direction. do you mind sharing your strategies and or edge. Thanks.

  2. Hi Andrew. This post from another fx trader may be of use in helping to learn the personality of a currency:

    http://www.forexproject.com/Blog/Investing_and_Trading/My_%231_Recommendation/

    I have added a comment to the piece.

    I believe the most consistently important determinant of direction is the expected evolution of interest rate differentials between two countries. This relative rate of return (int.rate differential) seems to exert a significant influence on the relative prices (the exchange rate) between the two countries, and indeed this theme would appear to provide the bedrock for the majority of fx analysis. That said, unlike the equity market, the importance of the various drivers of exchange rates are ever changing and part of the game is figuring out what factor is in the driving seat at any given moment.

    Note, the interest rate angle is a cyclical perspective, a view on relative and absolute economic performance. Longer term views tend to be based on structural factors such as deficit sustainability. Without going in to details on my specific approach, I hope this is enough to you started on your quest to deepen your understanding. All the best.

  3. Can’t be sure, but are those various cross hatches tiny windmills, dwarfed by the gigantic Don? His loyal follower is also comparatively physically tiny to the ‘bloated’ Don.

    Unless I am mistaken, since you had recently posted that you have significantly reduced your trading capital, that fact should make moot the ‘Russian roulette’ danger, no? In the sense, that a bullet which could be fired would not be lethal because you have squirreled away some capital?

    I think it is wise for you to be so tough on yourself, and cautious that you do not feed your meglomaniacal side, but there is a danger that you also may be too harsh on yourself. Not suffering a relapse is not accidental, it is because of your diligence. That is a stride forward. In a subtle, gradual way.

  4. Hey good to see you’re doing well. Though with that much return, I hope you’re not risking too much per trade.

  5. – Thanks Rocko. I am indeed risking a great deal per trade as I try to exploit the small edge I believe I have, all the while in the knowledge that this edge cannot be sustained. If I ever approach break-even I will revert to a more orthodox style of trading (perhaps 1-3% risk per trade). In the meanwhile, these quotes from Victor Niederhoffer continue to ring loud and true:

    “…I don’t know how to make money without a lot of risk.”

    “The cycles are ever-changing. Just when you’ve found the perfect stream, the fish will stop biting, the weather will change, and other fishermen will appear, reducing the catch.”

    I know my catch will soon be reduced. If I do not the have the good sense to adapt when I realise my perfect stream is no more, I will quickly come to end.

    – Thank you again Michelle for your comments. It is a good point that I cannot lose my entire capital in single week, unless I am overcome by an evil demon (increasingly unlikely). Nevertheless, even if I carry on ‘as is’, should the gods of chance decide to stop being so benevolent and strike me with a handful of losing trades, this could quite easily reduce my account by some 30% in a given week. Prospects of such a soul destroying loss are very real, hence the caution.

    The concluding paragraph of your comments is an important reminder that I am making steady progress. In the end I suppose it is due to my diligence, but this in turn is in no small part due to the comments on this blog. Still, I do not feel that I am ready to be easier on myself. I want to remain a stern taskmaster for a while, because the downside risk of making a slip-up is too great.

    PS – Those little cross hatches are indeed windmills. I will write more on one of my market interpretations of Don Quixote in another post. It is a wonderful book.

  6. You do make a good point there,
    “…I don’t know how to make money without a lot of risk.”
    That’s making me second guess all the conventional risk management preached through the books these days. I think the traditional 1-2% risk per trade is probably “OK” for trend following strategies where your winning accuracy’s generally below 50%, and risk large consecutive losing streaks.
    However, if your system gives an accuracy of 80-90%, where much smaller consecutive losing streaks occur, then theoretically perhaps 5-10% risk per trade can be tolerated. What do you think?

  7. That is exactly how I am thinking Rocko. When a strategy with a high win rate (and relatively contained losses) is working effectively, surely the correct action to take is to reward it with more capital. I currently exceed 5-10% so my risk of ruin is very high but that is a personal decision. If my account was healthy, I would be likely be risking between 1-10% per trade depending on my assessment of each trade, until the edge started to erode.

    Of course, that is the greatest risk – continuing to feed the strategy with high leverage bets when it is becoming less effective and less profitable. That would be very dangerous and could lead to a quick demise. That said, I suppose trade size can simply be rapidly reduced (to 1-2% or even less) after a losing trade and then slowly built up again, depending on subsequent trade performance. This would give the trader a breather, a chance to discover whether the approach is still working.

  8. Caravaggio,

    I can’t speak for any other traders, but I would die for your kind of track record of consistency. Aren’t you able to derive any degree of confidence from putting in 5 consecutive weeks of profit? Do you mean to tell me that you have not faced any of your gremlins for the past 25 consecutive trading days? Could it be within the realm of possibility that you are selling yourself short in your ability to overcome your demons ?

  9. Trust me Phileo, if you were to look at my longer-term record you would see that I am indeed consistent … at losing. As a whole, the year has been horrid, and only since I started writing here have I seen an improvement. The gremlins may or may not be there but I can’t risk consciously opening the door to the cage to find out.

    There is another reason I am a hard task master – I haven’t written about it, but I have previously fallen head first in to the many traps associated with winning (false confidence, increased risk, reckless trading, smugness, pride etc). I believe the market devil sends down armies of demons to plague both losers and winners, so I shall try to remain on my toes at all times.

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