Diary of a Littlefish: December 2016

The purpose of these blog posts is to update you guys on a monthly basis on my progress with a strategy taught to me personally by Littlefish FX CEO Sam Barry. The first few will likely be lengthy as it will include all the hurdles I came across in the beginning whilst getting to grips with the strategy and my thoughts on these. For confidentiality reasons I am unable to disclosing any specifics of the strategy, but all I can say is it’s classed as a breakout system.

So this month I made a net loss. However I’m not upset about this fact, I traded the plan just the same as I had last month (Trade the Plan >> Rinse and Repeat). Because this is only the second month I’ve been trading this strategy the previous months results could have been a great months returns.

Or more likely because this strategy does well in more volatile and liquid markets, the month of December and the end of the year could have had something to do with it.

Admittedly I only traded three weeks in December, 5th to the 23rd (my previous months trading ended on the 2nd December as I have to run the strategy across a full week).

This meant I didn’t trade across one of the quieter times in the markets, the week between Christmas and New Year. Quiet markets were partly the reason, but also I was traveling, seeing family and friends and generally relaxing so thought I would take some advice from this LFX article and take time off from the screens.

Taking the time off shows within the number of trades I took over the month, although it was only over a three week period instead of four, I still only triggered into less than half of the number of trades I placed in November.

There is also another reason I was entered into less trades. I spoke to Sam after my first month’s results were published. He advised that “December will be tough, so maybe scale back, or be more selective with your days”.

I agreed, however I mentioned that if I start being more selective with the days I trade this would be more of a discretionary strategy. The current aim of the strategy is to be consistent and mechanical about every aspect and if I don’t trade some days I could be missing out on the big breakouts or catch fake breakouts and get stopped out but because I’m not capturing all the moves (good and bad) it will alter up the strategies edge.

Sam replied by saying there are a few tweaks I could make to essentially develop this basic strategy which would allow me to miss days or even weeks that I know won’t be advantageous to the strategy if I have a little bit more knowledge on how it reacts across certain periods. He also stated again it’s important to stay consistent when I do this however.

As I couldn’t scale back because I was already trading on the smallest £ per pip, I could only be more selective with my days. One of his tweaks was to not trade on Mondays.

Because of the way the strategy works and how close my orders can be to each other sometimes, I can be triggered into opposite trades within the same day and obviously I may not profit from both. Looking at my trades placed within November this makes sense as over 30% of the trades I entered were placed on a Monday, however I only won on 37% of these trades.

This means that statistically Monday (tied with Tuesdays) was the worst performing day throughout the week. It is actually Wednesday that produces the most profitable number of trades with 59% winners but only accounts for 20% of the total number of trades placed within the month.*

*Again, we have to take into account that the above statistics only incorporate a single month’s worth of results, so cannot be taken that we should only trade on Wednesdays and avoid Mondays and Tuesdays. It does not reflect the overall capability of the strategy and therefore results may vary.

So throughout December I didn’t place any orders on Mondays. And although I had two out of three losing weeks I still have faith in the strategy, losers are to be expected, and with December being a quieter time I’m not worried and not thinking of sacking it in to go searching for a new strategy (a point mentioned in the first edition of Diary of a Littlefish).

It’s a “marathon not a sprint” as Sam said. I’m looking forward to continuing to trade this strategy and slowly develop it with the guidance of Sam to end up with a consistently profitable and scalable strategy for the long run.

December Results

Slight retracement on the equity curve!

As previously mentioned, I returned negative pips this month. Two negative weeks and one positive. I stuck to the trading plan, with the slight adjustment of not trading Mondays, and traded the original 5 currency pairs. The number of pairs traded can be expanded but I’m sticking to 5 to master those first before branching out.

Within the three weeks I was triggered into 30 trades (53 less than last month!), of which 40% were profitable and 60% were not. This resulted in a net -300 pip month.

Although my average winning trades returned 62 pips and losers returned an average of -59, I was hitting an average of -6 pips per trade across the month.

screen-shot-2017-01-04-at-21-46-37Overall I only returned positive pips on EUR/JPY and GBP/JPY, and in fact didn’t have a single winning trade on the USD/JPY. But actually when you look at the number of trades on each, EUR/JPY was only entered in 3 times over the three weeks, 2 winners and 1 loser. Similarly GBP/JPY only produced 5 trades. It was GBP & EUR against the USD that brought my trade tally up, with 11 and 7 trades respectively.

screen-shot-2017-01-04-at-21-46-46screen-shot-2017-01-04-at-21-46-53So looking at the above table we can see that I only had 12 winners (40%). EUR/JPY was the big winner for me this month, GBP/JPY was pretty much even and the other three pairs I took a loss of -449 pips.

When comparing this to the previous months gains of c. 1,400 pips, I’m roughly 1,000 pips up over two months, which I think is pretty good going!

Fictitious £50k Capital

Whilst running the results for this month’s trading I realised that the -/+ % figures I applied to the fictitious £50k capital were slightly under cooked. I had included October’s trading results into the -/+ % figures, and because this was when I was just starting to learn and deploy the strategy I didn’t want to include this in the £50k results.

So in the previous Diary of a Littlefish I said it was showing November returns, but it was in fact covering October and Novembers results, % wise. **So with two months trading the strategy I did in fact manage to return a positive figure, which is interesting to note when looking into December’s results.

**Note that the number of pips gained for November was correct at 1,429.

So the correct November results when applied to the £50k should have been:screen-shot-2017-01-04-at-21-47-06

 

When looking at the December results, I’ve applied the return separately for December but also included both November and December results.

December return on its own (using the end result of November as the start):screen-shot-2017-01-04-at-21-47-11

Running Total for November & December combined:screen-shot-2017-01-04-at-21-47-17

What’s interesting to note here is that although I’ve had a losing month in December it isn’t at the same level as November, i.e. I made large gains in November but I didn’t make large losses (% wise) in December using the same risk management and trade size.

December’s losses amount to a lot less than November’s wins (granted there were fewer trades). This is because when the trades aren’t going in the desired direction they get cut off, limiting my losses, but when a trade does go in my favour it is in essence limitless as there are no target levels to take the trades off at particular levels. Plus if there is a run in price across the week, the strategy capitalises on this by building on its positons.

So the strategy essentially limits its losses effectively but allows its winners to run, this is what amateur traders are taught to do to maximise profits, but it is well known that most beginner traders do the opposite, let their losers run and cut off their winners. On a discretionary level it is a lot harder to do (mentality wise), but because I have my set rules and can’t interfere once an order is set I don’t have the urge to take profit too early or let my losses run because I think it will turn around.

So this month if I used a 0.25% risk per trade I would have only lost -0.8% and with November’s results with the same risk, two months of trading would have resulted in a positive 2.5% return.

Note: These % figures include holding costs and spreads etc.

Next Steps

I said last month that I would look into the automatic cancellation of orders that aren’t triggered on the day. It turns out this was actually really easy to do, so with every order I add a GTD Time In Force (Good-Till-Date/Time) for cancellation at 5:00pm that day.

I also wrote down that I would (and will continue to do):

  • Continue the tracking of price in my journal (On-Going)
  • Continue to improve my trade analysis model (Made a few tweaks)
  • Continue to trade the plan! (Ongoing)

So for this month’s main next steps is to start developing the strategy a bit as mentioned above to really start optimising its potential. How do I do this? I’ve got a few thoughts, but will likely need some direction from Sam.

Thanks for reading through another addition of Diary of a Littlefish. Again I’ve left you guys with some interesting podcasts, articles, links etc. below.

Additional bits and pieces

Other interesting stuff

One Red Paperclip – How one guy traded his way from a single red paper clip to a house in one year!

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Trade The Plan; Rinse & Repeat