29th March 2013 - win on silver, update on trading journal

Silver

A ripe pinbar presented itself at a resistance level yesterday. Just now, I closed for profit after trying to actively manage this trade.

In the last few hours, bearish momentum became very strong. As price moved within a few pips of my original take-profit target, I decided to move my TP further and place my stop-loss about 20 pips behind the price. This cemented around 70% of profits gained already. In exchange for risking the remaining 30%, I hoped price would move beyond my original TP and break support, potentially doubling my reward.

Alas, price retraced and took out my stop-loss.

As I actively managed this order, I could feel my emotions (mainly excitement) rising to the surface. Emotion is the bane of all traders.

This trade yielded a return of 66%. I need to increase my average return to 100% (1:1 R:R). Although all my trades are high probability, the general guideline is a minimum R:R of 1:1.

Trading Journal

I've also updated my trading journal. It now documents every order I execute, rather than every "trade". The term "trade" can be confusing. Suppose I enter two orders shorting the USDCAD simultaneously, with one order having a 1:1 R:R and the other 1:2 R:R. Should both orders be considered a single trade since I'm basing both orders on the same market setup? Or should both orders be considered separate trades?

Instead of focusing on each "trade" and confusing myself and other readers, my trading journal now catalogues every order executed. That way there is no more confusion.

The Zurich Axioms by Max Gunther

I recently finished reading the Zurich Axioms by Max Gunther. Ever wondered how a landlocked, resource-poor country like Switzerland became wealthy? Max Gunther explores Swiss investment philosophy to determine how the Swiss succeed. The book is excellent brain-food, although there are a few parts that I don't agree with. I've summarised the axioms below. The mentality between the rich and the poor is very large.

ZURICH AXIOMS by Max Gunther

ON RISK

• Worry is not a sickness of but a sign of health. If you are not worried, you are not risking enough.
• Always play for meaningful stakes.
• Resist the allure of diversification.

ON GREED

• Always take your profit too soon.
• Decide in advance what gain you want from a venture, and when you get it, get out.

ON HOPE

• When the ship starts to sink, don't pray. Jump.
• Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

ON FORECAST

• Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly. (take predictions with a grain of salt)

ON PATTERNS

• Chaos is not dangerous until it begins to look orderly. (avoid illusions of order)
• Beware the Historian's Trap (avoid believing that history repeats itself)
• Beware the Chartist's Illusion (accept that trends can break)
• Beware the Correlation and Causality Delusions
• Beware the Gambler's Fallacy (no such thing as a “lucky day”)

ON MOBILITY

• Avoid putting down roots. They impede motion.
• Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
• Never hesitate to abandon a venture if something more attractive comes into view.

ON INTUTION

• A hunch can be trusted if it can be explained.
• Never confuse a hunch with a hope.

ON RELIGION AND THE OCCULT

• It is unlikely that God's plan for the universe includes making you rich.
• If astrology worked, all astrologers would be rich.
• A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.

ON OPTIMISM AND PESSIMISM

• Optimism means expecting the best, but confidence means knowing how to handle the worst. Never make a move if you are merely optimistic.

ON CONSENSUS

• Disregard the majority opinion as it is probably wrong. (think for yourself)
• Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.

ON STUBBORNNESS

• If it doesn't pay off the first time, forget it. (never chase)
• Never try to save a bad investment by “averaging down”

ON PLANNING

• Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own or other people's long-range plans seriously.
• Shun long-term investments.

28th March 2012 - closed second order on USDCAD for minor win

Price on the USDCAD continued to retrace up past support level #1. When price moved to within 10 pips of my stop loss, I decided to close the order and salvage a minor win. The return from my second order is 13%.

Possible lesson: take-profit at the first support/resistance.

27 March 2012 - closed GBPNZD in profit

GBPNZD

I decided to close my trade on the GBPNZD after I identified a potential support zone that I had missed earlier. A doji formed around here so I decided to close the trade. My return was 29%. I need to pay more attention to possible support and resistance zones. As you can see in the chart below, my original TP would have provided an excellent risk-reward ratio.

USDCAD

As mentioned in the previous entry, I decided to short the USDCAD and split my trade into two orders, with the first TP at support level #1 and second TP at support level #2. My first TP was hit and I've moved my stop loss for the second order to slightly above breakeven, so whatever happens, this trade is now a win.

At the moment, price has slightly retraced, but price has already broken through support level #1 so this level should now act as resistance.

26th March 2012 - win on USDCAD, GBPNZD still in play

I'm not going to post my setups in this blog entry as I don't have much time. I'm currently live in two trades - the USDCAD and GBPNZD. I've taken profit on half of my order on the USDCAD and moved the rest to breakeven, so this is a win.

GBPNZD is in profit but hasn't moved much in either direction today. There's alot of scope for profit, so this trade may take awhile to conclude.

23 March 2012 - minor win on silver

Silver

This was quite a frustrating trade. An inside bar formed in what I'd call the "golden zone", an area just beyond support/resistance. It's my thinking that inside bars are best traded here as continuation signals.

Price moved to within a few pips of my TP target before reversing. Once price reversed 60%, I decided to close the trade and walk away with a minor win. I wasn't psychologically prepared to watch a winning trade turn into a potential loser. All up, made a 37% return on my trade.

I know this is a violation of my "staying faithful" policy, but now I feel like ditching it. If the market is telling you something, you need to listen. A few pinbars formed on other currency pairs suggested a high likelihood of a reversal, which compelled me to close my trade.

One thing to note is a possible improvement in placing my TP. I had set a hard TP target of 31.000. Price moved to 31.02 before reversing. 31.000 is a significant psychological benchmark and I should have moved my TP some distance before this, perhaps 31.05 or 31.07. When placing TP and SL, pay closer attention to whole numbers.

22nd March 2012 - premature close on EURUSD?

An inside bar formed on the EURUSD a few days ago. Rather than enter on the break of the IB's high, I set my entry on the high of the previous bar. My pending long was triggered before price retreated. However, the retreat halted short of my stop loss.

This morning I saw a bearish signal in silver. Shorting silver and going long on the EURUSD would've created a hedge, so I decided to close my EURUSD position. At the time of the close, price was about 65% towards my stop-loss.

Since then, the EURUSD has moved up a bit. Closing a trade before it hits its stop-loss might've been premature as the trade would still be alive if I had left alone. Meanwhile, my short on silver is still waiting to trigger.

The key question is:

If the market provides a new signal, do you close your current trade?

Suppose you see a continuation signal and enter a trade. The next day, the market then signals a reversal. Do you remain faithful to your trade and keep it open? Or do you close to accomodate the latest market conditions, and perhaps even trade it?

A tricky question.

Staying faithful vs respecting present market conditions

Staying faithful	Adjusting to the market
+ Market conditions always fluctuate, so no need to panic. + Stop-loss has already been defined and turning point against your trade identified. + Eliminates propensity to whimfully and emotionally modify orders. This improves discipline. + Less baby-sitting required. + Eliminates susceptibility to fake-outs.	+ Vis-a-vis, today's information is more relevant than yesterday's. + Can allow for further optimisation of profit-taking and reduction of losses. + Allows exploitation of new opportunities.

After some consideration, I believe I should remain faithful to my original orders. Modifying or closing live orders too often can harm discipline, especially if you're still a newbie like I am.