Diary of a Littlefish: January 2017

The purpose of these blog posts is to update you guys on a monthly basis on my progress with a strategy taught to me by the LFX Team and using material I learnt from the Forex Trading Course. For confidentiality reasons I am unable to disclose any specifics of the strategy, but all I can say is it’s classed as a breakout system.

This month’s trading seemed to be a long one. I did trade up to the 3rd Feb to finish the trading month on a Friday, so subsequently I traded 5 weeks.

It’s been a bit of tough one, similar to December’s trading period I lost a “few” pips. In the first two weeks I had 11 trades per week, with only one win within each. Unfortunately these weren’t large wins either whereas my losses were towards the larger side which can be seen in the later breakdown. But the back end of January picked up a little bit, however ultimately it wasn’t enough to end the month positive. It should be something to note in the future, that Dec and Jan may not be suitable conditions for this particular strategy.

So from last month I was looking into dropping Mondays from my trading and after discussing with Sam this is what I did. With Sam it’s not always a question being answered with a straight forward response, he tends to make you think instead of just giving the answer away, and in a way I believe this is a better approach as you can then learn yourself.

He mentioned that I “can ditch Monday, but can you think of why that might be the case for this strategy?” I responded by stating because the start of the week doesn’t contain a large number of key economic data releases, therefore there aren’t the large moves that the strategy aims of capitalise on. As well as the fact that because Sunday’s evening trading doesn’t always create that wide of a range, meaning that sometimes both of my orders could be triggered within the same day, and I’m unlikely to win on both and this seems to be why Monday has the largest number of trades triggered previously. Sam agreed with my explanation but mentioned that if it is known that a large economic event is happening on Monday, it may be worth placing my orders.

Off the back of this I asked whether it is advantageous to observe whether there is a decisive direction at the start of the week before placing orders. Again Sam comes back with another answer that required me to think “I’m aware it has value….you should investigate the idea further”. (Again, not giving it away!)

So because I already collect the previous days’ movements and can measure it % wise, I started to play around with some ideas I had. Things I first looked at were if price has moved X% by X day, what is the probability of it moving X% more etc. This I soon realised led to a lot more work in terms of the fact I was adding more and more questions and different ways of analysing the data to come to conclusions.

If there is any value in this approach to develop the strategy further, which there seems to be at this point, I am looking to create a model which will automatically update when I add in my price levels for the day and it will tell me whether I should place an order or not. This is getting a little bit ahead of myself and I have to remember that it’s a breakout strategy, so if it has or hasn’t moved X% by X weekday, the point of this breakout strategy is to capture those moves which may or may not be expected. But will keep you up to date with progress on this and whether I add this into the strategy.

Things to Note:

  • Something interesting I’ve noticed is the GBP/JPY tends to move a lot more (pip wise) than the other pairs, and my set 100 pip stop loss has sometimes stopped me out of a larger move that went in my favour, so increasing the stop loss for this pair could be an advantage as it tends to move more.
  • Across February I will start making a note of whether there has been any news on Monday which would have resulted in a larger move if I had taken a trade. But I’ll also note down major news events throughout the week and just review the charts to see how the news moved the markets.

JANUARY RESULTS

A continued retracement on the equity curve!

But as previously mentioned the start of the year could have had an impact on currency movements with lack of volatility, and it is still early days for the strategy and I can’t make a solid conclusion about whether it works or doesn’t from the amount of data I have. So will keep trading the plan!

First that is noticeable is the pretty poor performance, ending with an average of -169 pips loss across all pairs. The one pair that was positive was GBP/JPY, however only by 8 pips. The largest loss was the EUR/USD which booked -324 pips for the month. Comparing to a good winning month (November results) my average was 286 pips, with a high of 800 or so pips on the GBP/USD.

Total trades taken amounted to 51, which was evenly spread across all pairs, with all currency’s having a higher number of losses. With the exception of GBP/JPY which was 50/50 win/loss.

A key metric to look at is the average pips made on winning and losing trades. This month when looking at all pairs I made an average of 41 pips per winning trade, -52 pips on losing trades which saw an average pip per trade in total equating to -17 pips.

So net pips made across this month was -844 pips!

Note: This month’s results are from 2nd Jan to 3rd Feb as strategy has to run over a course of a week.

 

Fictitious £50k Capital:

Reviewing our fake 50K account which I apply my results to, has obviously taken a hit, but nothing too drastic considering two bad months in a row.

Even with a 2% risk per trade the running total for this strategy would have only resulted in a -1.5% loss. With a more conservative risk applied of 0.25% we would be positive, but barely with a 0.06% gain for three months.

Reviewing the results of January, even with the more conservative risk a -2.4% loss is seen, and this is only amplified when the risk per trade increases. % wise eith the 2% risk, January lost -21.9% however the ending balance was just under the original starting capital amount, this is owed to the excellent month we saw in November, although important to note another poor month with that much risk would result in further movement below the original capital amount.

So take away from all this. One good month’s worth of trading has been pretty much wiped out by two months of trading. Again as stated, I am looking to develop this strategy and increase my edge but it will be interesting to see 8/9 months down the line whether the months of December and January were poor because of the end / start of year period and suffered subsequently or whether this strategy does have a few bad months but makes up for it with some excellent months. Time will tell!

Note: % Gained/Loss is inclusive of spread and other trading costs

ADDITIONAL BITS AND PIECES

This Month’s Book – Coined: The Rich Life of Money and How its History Has Shaped Us by Kabir Sehgal

This Month’s Podcast – ChatWithTraders: EP 106: A Wall Street trader’s tale of spectacular excess w/ Turney Duff (https://chatwithtraders.com/ep-106-turney-duff/ )

&

Two Blokes Trading Podcast – The Important of Hard Work when Learning to Trade (http://twoblokestrading.com/035-importance-hard-work-learning-trade/ )

This Month’s Quote – “I never lose. I either win or learn.” – Nelson Mandela

Other Interesting Stuff:

Computer-driven hedge funds join list of industry top performers:

http://newsonahand.com/computer-driven-hedge-funds-join-list-of-industry-top-performers/

Inside the 20-Year Quest to Build Computers That Play Poker:

https://www.bloomberg.com/news/articles/2017-01-31/inside-the-20-year-quest-to-build-computers-that-play-poker

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Trade The Plan; Rinse & Repeat