When I started with my EU1H "System", it was all aimed towards trending markets. There was no boundary between ranges and trends. Therefore, I suffered 5 consecutive losses. Totally unnecessary. Remember my post where I added another indicator to get more selective in my trades? Here's what it does. See the attached chart. I've marked where my "Market Type Indicator" shows me the boundaries. It tells me what type of market is more likely. Bull, bear or range. And what would you do?
Bull -> buy at the end of a pullback down
Bear -> sell at the end of a pullback up
Range -> buy at the end of a pullback down to the bottom of the range, and sell at the end of a pullback up to the top of the range.
The above is really nothing more than basic trading, huh?
Man... this week has been really busy for me. Trade 23 got stopped out, so did 24 and 25... That triggered yet another breakthrough in my learning process, I think.
A quick recap... November was extremely profitable to me. I started out with a 5 % risk and gradually managed to decrease it to just over 2 % by risking the same amount of money in every trade. In December I lost half of the November profits. Therefore, I added a "get-more-selective" indicator. In January I decreased the risk to 1 %.
Then it hit me... I've already learned that it is important to filter out bad entry signals. Being selective. Now I've also realized that it is equally important to keep the losses as small as possible. Although I have heard it before, it's not until now I really UNDERSTAND. That is again being selective, not in entry signals, but in which started trades to leave open. I'm certain that I will trade for a very long time, maybe for the rest of my life. A logical consequence is that the preservation of my capital should be my first concern. Earlier it has more or less been to not miss any big moves, and chase high R:R's...
Practically this means that I will not only select the best entry signals. I will also change my entry signals from "indication of the end of a pullback" to "the break of previous high" (uptrend). Too keep the losses to a minimum each new trade will start off with a trailing stop starting just below previous low. When it gets to break even, it will be transformed into a manual trailing stop following the higher lows or a "middle-of-range" indicator, whichever is closest to the current price.
This method will make me miss more big moves, but it will make the losses smaller.
My trading will probably evolve beyond this point, but for now I will take what the market can give me. The rest of the market movements I will happily leave to speculators and gamblers, but also to professionals that are better traders than me.