This is the second of a four part series. You can read the other parts of the Forex Review 1H2017 here: Part 1: Determinants of a winning t...

FX Trade Review Part 4: Tying up the Loose Ends

/
0 Comments
This is the second of a four part series. You can read the other parts of the Forex Review 1H2017 here:
Part 1: Determinants of a winning trade
Part 2: New Setups
Part 3: Stop Losses

I have enjoyed the FX trade review. My only regret was not doing it earlier. During the good times in the second half of last year, I was taking the success for granted and enjoyed the ride up. I was not prepared when my strategies stopped working and I could not adapt to the changing market conditions.



The first three part of the review has been very fruitful. I have developed two strategies for trading pinbars and outside bar. I have also fine-tuned by stop loss such that I am confident to increase my position size while keeping the dollar risk constant.

In this part of the blog, I will be tying up some loose ends. These loose ends may not affect my trading results significantly, but will help to simplify my decision process. 

Last Bar Trail

Assume that you bought a currency pair. On the first day, the trade moves in the direction of your trade, but the next day the trade reverses and moved even lower than the low of the first day of trade. Does that invalidates the initial idea behind the trade?

This is one hypothesis that I have and one way to look into it is to trail the stop loss to just below the low of the previous day when buying and above the high of the previous day when selling. What impact will that have on my trading results?

It turns out that there is very little impact. Before implementing the smaller stop loss and larger position size, the modified strategy would make me $14626. With the last bar trail modification, the updated profit is $14353. The change is insignificant.

Breaking down by setups, the change has no impact on the counter-trend outside bar trades at all. Among the the counter-trend pinbar trades, one of the losing trade has a smaller loss as a result of the change.

The more significant changes were among the with-trend trades and the inside bar trades. There is a lot more discretion among these trades. I am happy to see that my discretionary method outperforms the last bar trail mechanical method as this shows that I am giving some value add to my trading. From what I can see, I was more conservative with these trades and shifted my stop loss to breakeven quickly. There were a few breakeven trades that became a small loss with the last bar trail method. That was the main reason why the performance of the last bar trail method was slightly worse than my discretionary trading. 

First Day Loss

In my first part of my FX review, I highlighted a statistics - if a trade is not profitable on the first day, it only has 4 out of 18 chance of being profitable on the second day. So one of the loose end that I would like to find out is, will I be more profitable if I exit all losing trades at the end of the first day of trade?

After the modifications to the strategy, in particularly reversing the counter-trend pinbar trades, there will be a total of 4 trades that are not profitable on day one. Among these 4 trades, one of them hit the stop loss on the first day itself, so closing at the end of the day is not an option. The total loss from closing these 4 trades on day one is $647.

If I did not close the trade on day one but allow it to hit target price or stop loss, my loss would have been $583. A sample size of 4 is insufficient to provide any conclusion, so I would not conclude what the difference of $64 means.

Moving on

As expected this part of the FX review is inconclusive and I would not implement the last bar trail or first day loss exit methods in my trading. This part is nonetheless not a waste of time as I would not be regretting not using these methods in my trading when there is a losing trade.

Moving on, I would be implementing the updated strategies that I created in part 2 of the FX review. I would also be reducing the stop loss for counter-trend outside bar and pinbar trades to two-third of the original stop loss. However, I would not be increasing my position size to keep the dollar amount of risk constant until I have grown my account to a sufficiently big sum.

Would the second half of 2017 be a turnabout story for me? I certainly hope so.

I would also be doing some backtesting in the meantime to test the robustness of my results in the series of FX review to further increase my confidence in these strategies. 



You may also like

No comments:

Powered by Blogger.

Disclaimer

All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.