This week was full of experiments and learning. I tried to polish entries and exits, tested new ideas and tools.
From a financial point of view, I’m negative about $70 this week. It means that I’m net negative about $86 since I started to trade real money. While it sounds awful at a $100 account, I feel happy 🙂
Here is why:
1. By limiting an initial urge to start big, I was able to cut my losses from the very beginning. If I decided to start with $10,000, it will be just terrible to lose $8,600 at the very first month. I will continue to follow my rule of doubling profits, not losses, because I’m still not sure that it’s the final step. It may happen that the next week will be ”experimental” as well. And the next… And the next…
It means that I will need to earn at least $86 before I increase account size.
On the other side, this time I’m absolutely sure that I will become profitable at the end. I see some big profits from my setups, I just need to be more patient, limit risks and don’t limit profits, learn and practice. I don’t know when it will finally happen, but I’m not in a hurry by any means.
2. I finally overcome the urge of being in the game all the time. Now I patiently wait until the right time to enter the market. I did numerous tests to prove that it’s the only solution. Random entries kill all future profits.
3. I clearly understood the mechanics of my system. While it was just a purely theoretical idea at the very beginning, now I see its potential. In short, my approach enables me to gradually build a huge position with small risks.
Why it’s so important?
I don’t need to bet on the direction of the move. I’m able to reopen in opposite directions multiple times until the strong move finally happens. The cost of this trial and error is so small compared to the profit target that I always feel confident. I don’t worry when the price hits initial stops because it’s just a place where I open into the opposite direction.
If the price goes against me, I take linear losses. When the price goes into the right direction, I get exponential profits. It enables me to be wrong most part of the time and still get some profits at the end.
4. I decided to limit the number of levels when I enter the market. My attempts to build huge positions killed all profits when the price gets stuck at some resistance or support point. Now I build just 10 levels and don’t worry about the rest.
When I’m able to do it at the beginning of a strong move, I don’t worry about the future because price rarely strikes back to my position. And, even when it strikes back, it just means that it wasn’t a good entry point. I should just close what I have built so far and wait for the next opportunity.
5. I managed to compress building the position almost 2 times without taking extra risks. I built it at fixed increments of 50 pips at the very beginning, now I do it every 25-30 pips with tight stops. The hard stop is still 50 pips, but it’s an emergency stop for some unexpected events. I rarely wait for it, I usually close the level at about 25 pips.
6. I switched from static orders to manual execution. And, the more I practice it, the better I feel the market, the better RR ratio I get. I’m able to feel when it’s a good time to open, or not. Or when it’s a good time to close at -25 pips or should I wait for extra 2-3 pips. I feel that with earning more experience I will be able to polish this part to get much better results even if I don’t touch anything else.
7. I finally understood that I should limit not only stop size, but total cost of building the position. If I followed this simple rule, I had a chance to be $200 positive, not $86 negative. More than a half of my overall losses were generated by a single position in a flat market this Thursday. An expensive but valuable lesson. I’m happy that I met such situation at the very beginning, not after I increased my account size.
I found that something around $5-$10 for a single market entry is more than enough to prove if it’s the right entry point, or not. If I lose about $5 and see that the price still moved nowhere, I should just take this loss and wait for the next day.
It’s important not only from the risk management perspective. As a side effect, it gives me clear money management rules:
– limit a single position to $5 loss it I get less than 5 levels at the end
– limit a single position to $10 loss in any other case
– limit myself to a single entry per day to avoid getting multiple losses in a row on a sloppy market
– limit position size so that maximum daily risk doesn’t exceed 5% of my account at the very beginning, or just 2% when I grow bigger. This way I will lose 50% of my account only after 5 weeks of consecutive daily losses. It will be a good time to question my overall trading idea 🙂
8. I developed a simple exit rule: at the end of the trading day, not at some predefined take profit target. From my experience I clearly see that it’s the best choice. I should not limit profits in any way, even if sometimes price will reverse in the middle of the day. It’s the easiest way to get the maximum RR ratio.
Yes, it’s hard to see profits go from $50 to zero. On the other side, it gives me a chance to hit something like $150 or even $300 on some days with a $10 risk. An enormous RR ratio, by any means. And, even when the price reverses, I can still cover my risks by moving stops to breakeven.
9. When trying to explain my idea to other people, I got a lot of criticism. Experienced traders don’t like an idea of not trying to predict the direction of the market.
I don’t argue with them because it doesn’t matter for me. If they are able to earn from their predictions, I’m just happy for them, honestly. For me, personally, I have no other choice. With so little experience in the market I have no other option, rather than building a system that is forgiving for all my newbie mistakes.
On the other side, I don’t want to stay ignorant until the end. As I learn and practice, I expect to become better and better in analysis and feeling of the market. It will gradually improve RR ratio even further.
I plan to do a lot of experiments in the future, trying to find better entry and exit points. It’s just not the right time. I’m sure that newbies should start with developing the right approach to risk management and money management, develop discipline and earn feeling of the market with practice. And, only when they are able to limit their greed and hope, to cut losses and let profits grow, to fight FOMO and avoid overtrading, it will be the right time to look for better entries and exits.
When looking for profitable traders, I was amazed on how simple are their trading setups. It doesn’t mean that I can copy them and become a profitable trader in an hour. It just means that my focus should be on some other areas which are much harder for the newbie than getting into the market at a pullback, for example.
10. I found the difference between my ”Trading Against the Average Joe” and popular ”Trading Against the Crowd” approaches.
My approach is focused on building right personal habits. Picturing some poor guy whose money I’m taking from the table is just a psychological trick. I don’t believe that I’m robbing somebody. Even if there is some loser on the other side, it’s he who is responsible for the loss.
I’m not trading against the crowd, I’m trading with it. I’m not trying to outsmart the market, I’m trying to profit from its behavior. The market is always right, I can’t win if I’m trading against it.
Yes, we can see at Oanda sentiment indicators when other traders get wrong. The market sometimes behaves like he is cheating you. It takes your stops at the moment of reversal, it reverses few pips before your TP level, it changes the direction immediately after your entry, etc.
It’s not because there is some bad guy laughing at you. It’s because we, as humans, think and behave in the same way. We look at the same charts, read the same news, react to the same events and patterns. When I think deeper about it, I lose any illusion that there is a way to outsmart it. I can’t outsmart myself 🙂
11. When talking to other traders, I discovered Bollinger Bands. You may laugh at me, but it was a breakthrough moment.
In the past 10 days I was puzzled why price suddenly bounced or moved sharper without any obvious reason. Now, when I added this indicator to my charts and learned about it a bit deeper, I see that it’s one of the most popular tools between traders. It’s fun to see how the price reacts to its levels.
I see that people heavily use it in their trading systems but I’m still not ready to use it for my own entries and exits. On the other side, it made my trading easier because I no longer get nervous when the price hits moving average or channel sides on M1. I also pay close attention to the moments when it happens on higher timeframes.
12. I made an interesting observation when analyzed the most profitable trades. I clearly see that I need more volatility. The more volatile is the market, the higher is RR ratio of my trading system.
I found that EURUSD isn’t the most volatile pair on the market. I may try to test other options next week. I’m still not sure, but I feel that it’s worth to try.
13. When analyzing past trades, I found that spreads are critical to my system. I use tight stops which means that I’m just a single spread far from the stop immedately after I opened the position. If I can find a way to get better spreads, I can instantly improve my RR ratio.
After looking for options, I decided to switch to another account type: ECN with market execution. Yes, I will pay commission for each and every trade this way which makes almost no difference from the financial side. I will still lose a lot on entering the market, but I hope that I will compensate it with lower number of stops hit.
For example, from $86 I lost total, about $26 were paid for spreads alone. When I do some maths for the new account, I see that I will pay about the same at the end. The only difference is that about half of it will be paid as commissions. On the other side, I will be able to save a significant part of the other half on stops.
So, I switched to another account, this time at $520 initially. It’s the minimum amount of money required for this account type. It doesn’t mean that I will increase position size. I will trade as if I’m still at the initial $100 account.
Taking into account that I decided to double my profits, I will need to make at least $520+$86 before I make any extra deposits. And, at $10 max daily risk I need about 50 trading days, or about 2.5 months to blow it up to zero 🙂
As for the next week, I don’t expect it to be promising. I will trade on a new account with market execution which will be different from instant execution I have got accustomed to. I feel that I need one or two trading sessions just to make the switch.
I also plan to test other, more volatile pairs. It may happen that I will get higher RR ratio this way. On the other side, I will need to start virtually from scratch in this case. I learned a lot about EURUSD this month, something like GPBUSD or USDJPY is a black box for me.
I feel that I should better start with getting used to the new account and market execution types first. Then, only after I feel that it’s comfortable to trade again, I will test some other pairs.
So, thank you for reading such a long story 🙂
Please give me some feedback, especially if you are a consistently profitable trader. You can help both me and other newbie traders around, who are watching this show.