Q3 Quarterly Report (January 2014 to March 2014)

The end of the third quarter of the Australian financial year is at hand. I won't be trading again until April 1 so now's a good time to file my quarterly report for the blog.

The Statistics

Quarterly return on Equity: 12% (approximately)

Annualised return on Equity: 48%

Total Trades: 79

Profit Factor: 1.83

Maximum Drawdown (of total equity): 2.95%

Equity Curve

The above is my equity curve from January 1 2014 to today. I left the Y-axis blank for privacy reasons, but it should give a general impression of how I performed over the last three months.

The flat period between trades 14 and 27 was due to me trying to scalp with micro-lots (it didn't go anywhere and was the last time I looked at scalping).

Outside of that period, we can see a gradual but constant rise in equity. My results plateaued in the last three weeks until I scored some good winners this week. 

Major Developments for the Quarter

Last week I took stock of all my trading systems and tried to identify any weaknesses. I discovered that my trades on the weekly timeframe were performing well below expectations, and that I was often tempted to tamper with these trades since they took so long to hit their TP or SL. I've decided to shelve my weekly trading systems and purely stick to my daily systems. I found my daily systems to be performing well, both from a statistical and psychological viewpoint. 

I also created a new daily trading, Ebisu, based on the pinbar candlestick pattern. I now currently trade with two systems: Hermes (daily low volatility breakout) and Ebisu (large daily pinbars). 

Next Quarter Thoughts

My broker IC Markets recently added the USDCNH and USDRUB pairs, which is a major development for retail forex traders. At last, ordinary people can start trading the yuan and Russian rubles. The USDCNH is particularly interesting as the Chinese yuan seeks to replace the USD as the global reserve currency in the next 10 years. With the USDCNH now available, I hope to start trading this and diversify my portfolio. Who knows, we may see other CNH pairs like the AUDCNH soon, which will be phenomenal. 

Future direction of Forexiation

Trading has become quite routine for me, and the usefulness of this blog seems to be diminishing. I'm not sure if I'm getting much out of posting "Won X, lost Y" every week, and I'm not sure if anyone is either. It has also opened some psychological vulnerability as I feel an expectation to post profits consistently. 

What I intend to do is to turn this site into more of a depository of knowledge, with articles, interviews, resources, system templates, commentary etc. The focus will be more on what I've learned, rather than what I did. I'll probably post quarterly results or example trades I've done, but I want to reduce the amount of fluff that I post, and patch up some psychological holes that this blog has created. Everything in life can be seen as a trade, with risk vs reward and % of success, so I want to maximise the benefits I can get from this blog, and minimise the downside. I love researching the markets and sharing my findings, and I want to do it in a way that maximises my benefit (and hopefully yours).   

Week in Review: 3rd March 2014 to 9th March 2014

I ended this week at breakeven. The GBPCHF was quite choppy this week and took out two trades. However, I won on the XAGUSD and EURSGD, plus a few other trades. 

EURSGD - Daily Chart

An extremely large pinbar appeared on the close of Thursday. I used my new system, Ebisu, to trade this. 

Price stopped short of my profit target just before Friday's close. Rather than leave it open over the weekend for a few more pips, I decided to play it safe and take profit.

SYSTEM DEVELOPMENT

I didn't spend much time on any system development / backtesting this week. I wanted to spend a bit of time off trading so didn't make much progress. 

HOW THE MARKETS REACTED TO THE CRIMEAN "CRISIS"

No doubt most of you should be aware of the whole Russia / Ukraine / Crimea crisis. How has the markets reacted? Not much, apparently! I don't trade geopolitical events, but if I had to, I would've bought gold, oil or any of the commodity pairs, expecting price to shoot up.

Here's the weekly chart for gold (XAUUSD).

Gold only finished $8 higher (from $1,332 to $1,340, or 0.6% higher). In fact, there seems to be quite a bit of selling pressure. Silver actually FELL this week. 

Bizarre. The market can do anything. I guess until we see Russian / Ukrainian blood being spilled, speculators consider the event inconsequential. Anyone who accumulated longs to profit from the crisis may be getting squeezed next week. 

Week in Review: 24th February 2014 to 2nd March 2014

I made a small loss this week. Only opened seven trades and lost three of them. Because the size of my stop losses tend to be bigger than my profit targets, the size of the three losses outweighed the gains from my winning trades. The amount lost is negligible, about 0.2% of my equity.

I also have two positions left open over the weekend. One trade should hit my profit target next week, the other trade has moved against me quite badly. At the moment, it's 75% towards my stop loss. 

Progress towards retirement

Based on my current performance so far this year, I'm about 20%-25% towards my retirement goal. To be able to officially retire, I've set myself the goal of:

a) earning enough income from trading to meet my current expenses

b) an extra 50% buffer on top to build my equity and to cover any income volatility (trading isn't like a regular job where you get a steady pay check. The money you make changes every week, so you'd want a buffer to cover those lean weeks). 

I'm still drawing up my retirement plans. When I retire, I'll probably continue to work 2 or 3 days per week, just to do something for fun, and perhaps to cover my rent, just in case. Having a part-time job to cover essential bills will probably provide a psychological benefit.

System Development

This is a follow-up from my previous post.

Some good news. My backtest on the 'double-top' / 'double-bottom' pattern is about 25% complete. I should be finished by mid-March. I've tested the USDCHF, AUDUSD, and most of the EURUSD, AUDJPY and USDCAD from 2001 to Jan 2014, so that's quite a diverse population of data. 

I added a trend filter and discovered that trading with the trend provided more robust results. I used RSI(14) to measure the trend. If RSI(14) > 50, we only go long. If RSI(14) < 50, we only go short.

Anyway, the backtest is still in progress but here are the results so far for various R:R ratios. This is after gathering 322 sample trades.

Here's the current equity curve, using a reward-to-risk of 1.75:1, $10,000 starting equity, 2% risk per trade, starting from Jan 2001 to Jan 2014.