Week 7 FX trading results

For the week ending last Friday, I managed to grow my account balance by 4.7%.  I am holding my road map score at 7 because I traded my way out of a small daily loss instead of humbly accepting it. In this instance, events played out in my favour but I dread to think what may have transpired.

Moderating risk

In the comments section of last week’s trading results entry, Andrew, a fellow trader, reiterates the important point that ‘you can hit home runs for a while but in the end the markets will find you out’. I have openly confessed the recklessness of my trading, that I have been trading with very large stakes in an effort to grow my account, but I cannot continue on this path any longer. Before the market ‘finds me out’, I have decided to moderate my risk. Of course, this means my profits will likely be lower, but it also reduces the probability of a large weekly drawdown undoing all my hard work. And it has been hard.

A key factor influencing the decision to reduce risk exposure is that trading generally proved difficult this week*. While I closed the week with a profit, the results of my trades suggest my approach has lost some of it’s effectiveness. How much is difficult to gauge. Indeed, the million dollar question is whether this is a temporary blip, in which case perhaps I should continue to take large risks, or indeed whether my edge (positive expectancy) has been permanently blunted. Erring on the side of caution and making the decision to cut back on the size of my positions is actually quite easy because I readily accept that chance has played a large role in getting me to where I am (off the £3500 low) and so I will not let my results breed a dangerous false confidence. 

For sure, the weeks ahead will be interesting. If my trading results improve I may increase my risk but conversely, if I lose my edge, then it makes no sense to continue trading. In between these two scenarios is the perceived status quo of trading with a less sharp edge, and if this situation holds I accept that my account balance is so low that I may not be able to sustain myself. Therein lies the paradox of the decision to reduce the my risk; in one sense, it actually reduces my chances of surviving as a full-time trader. In this event I may have to seek employment elsewhere, relegating trading to a spare time activity. This is the reality of my situation and as much as I want to continue trading for a living, I am not going to fight it.

* Strangely, it hasn’t just been a tough time for me. In the forex blog world, both Globetrader and TraderRich appear to have hit stumbling blocks recently (although their approaches appear to be profitable on balance).

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5 responses to “Week 7 FX trading results

  1. I think the fact that your new focus on survival has greatly helped in the last 7 weeks. Keep up the good work!

  2. “Therein lies the paradox of the decision to reduce the my risk; in one sense, it actually reduces my chances of surviving as a full-time trader. In this event I may have to seek employment elsewhere, relegating trading to a spare time activity. This is the reality of my situation and as much as I want to continue trading for a living, I am not going to fight it.”
    _____

    Facing reality is liberating and positive. If you reduce your trading size until you can see evidence of your edge working or not, you will have prevented serious draw-downs and given yourself a break of sorts in terms of not squandering your mental capital so if your edge is back, you will be in good shape mentally to take advantage of it.

    Seems to me that you are super sensitive–for good reason based on your trading history–in noting if your edge is getting blunted, and there is no reason why you should not trust that ‘premonition’ and focus on preserving the capital that you have worked so very hard to accumulate even if it results in the paradox that in doing that, you may have to curtail your trading because at this point in time it may also be the approach that will enable you to continue trading! (whew, long sentence)

  3. Sorry, Caravaggio, Logicel is Michelle B

  4. Thanks again for the comments Michelle. Facing reality can indeed be liberating and I do have a feeling that I have, in some sense, come home to myself (I realise this sounds a bit ‘far out’). I have studied trading from an academic perspective and I appreciate how difficult it is to outperform the market, yet I believed I had an innate canny ability to do just this. My belief was initially unfounded, but it did give birth to a trading strategy and to the development of an edge that was real and sharp. Instead of using this edge to carve out a decent profit, however, I swung wildly and only ending up wounding myself. And now this edge is fading and it is all I have. Even burning ambition needs direction, discipline and patience.

    What you say about the capital preservation and draw-downs makes perfect sense, and I especially like your final comment that ‘…you may have to curtail your trading because at this point in time it may also be the approach that will enable you to continue trading’.

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