Bytebodger's Pip-Burning Journal

As I get more accustomed to trading dailies, I am noticing that there is quite a difference between my real-time (MTM) account value, and the accounting performance of my closed trades. This is logical because the bad trades tend to close out faster and the good trades run for days on end. For example, if you look at my current pip tally, I have 1 win, 7 losses, and I'm down 190 pips. That looks horrible. But I'm also in the midst of the best week I've ever had in forex because I'm sitting on several hundred pips of unrealized profit.

The cynical side of me says that the ONLY P/L is the P/L you get from CLOSED trades. When I was trading hourly charts, this made sense because even the best trades would usually be closed in 3-10 hours. But now I have trades spanning many days and, while I know that you can't absolutely count on unrealized P/L, I also know that it is unrealistic to look at nothing but the closed trades as a measure of where I'm currently standing.

In the stock market world, it would be very silly to count only closed trades, because you typically have a huge percentage of your capital tied up in open trades at any time and those positions might remain open for months or even years. So stock portfolios are almost always evaluated on the mark-to-market value. I know that this is a totally different game than traditional stock trading, but the longer you hold your open positions, the more similar they become.

How do other daily forex traders typically measure their ongoing performance?

these trades you list

- are they all fozzy or mix of fozzy and adx
- do you take back to back fozzy trades?

Hey coolshades,

The trades with (F) in front of them are fozzy trades. The trades with (A) in front of them are ADX trades. Occasionally, I get a fozzy signal and an ADX signal simultaneously. As you can see, I am accounting for the performance of these two approaches separately.

As for back-to-back trades, I don't usually take these, but it's not based merely on personal discretion. I use the PSAR indicator as a fozzy filter. I only take fozzy trades that are confirmed by the PSAR. Usually, this gets me on only half of the back-to-back signals, as the PSAR does not usually flip-flop as rapidly as the RSI/MA cross. However, when PSAR flips as fast as the RSI/MA cross, I do in fact take back-to-back signals.

Another way to think of it is that the PSAR will only flip based on commensurate price action. So I only take back-to-back signals if they are confirmed by price action.

As you will see in my next trade update, this doesn't make me immune to the occasionally nasty whipsaw.

Trade update:

(F) Sell 1 EURCAD @ 1.4836, SL @ 1.4641
(A) Buy 1 GBPCHF @ 2.4235, SL @ 2.4306
(F) Sell 1 USDCAD @ 1.0895, SL @ 1.0876
(F) Sell 1 EURGBP @ 0.6810, SL @ 0.6788
(F) Buy 1 GBPUSD @ 1.9866, SL @ 1.9792
(F) Sell 1 AUDJPY @ 99.30, SL @ 99.91 = stopped out @ 99.91 (-61)
(F) Sell 1 EURJPY @ 163.00, SL @ 163.71 = stopped out @ 163.71 (-71)


Fozzy Trades
Running Total: -249
Winning Trades: 1
Losing Trades: 6

ADX Trades
Running Total: -73
Winning Trades: 0
Losing Trades: 3

All Trades
Running Total: -322
Winning Trades: 1
Losing Trades: 9


I don't want to sound like a whiner (although I suppose this is my journal and if I'm going to whine anywhere I should do it here), but those two stops this morning really hurt. More than a financial loss, they hurt my psyche because I felt like I was really doing the right thing by taking those trades. I don't want to pick-and-choose my trades anymore and last night, after being previously stopped out on AUDJPY and EURJPY, I had reversal signals to short them, so I dutifully placed the trades.

When I went to bed last night, AUDJPY was lingering in slightly positive territory and EURJPY was showing a nice initial profit. By the time I woke up this morning they had both reversed hard and by late morning they had stopped out.

This is where the emotional side of trading can be very difficult to master. My logical mind tells me that I did the right thing. Often doing the "right thing" still results in a losing trade. Absorbing the occasional back-to-back whipsaw should, in the long run, be more profitable than if I attempt to cherry pick my signals.

But my emotional mind feels betrayed because I was stopped out yesterday on AUDJPY/EURJPY long, and then I turn around a day later and get stopped out on AUDJPY/EURJPY short. It just plays into your self doubt when you go long and lose and then turn around and go short and still lose.

OK, I know that I shouldn't obsess about it, but this was totally driving me nuts. I mean, why should you and I have different signals if we're both essentially keying on the RSI/MA cross?

I figured it out. I forgot that when I originally created my template, I chose to apply the RSI to the median price (HL/2), as opposed to the closing price (the default). Your fozzy indicator, and probably most other fozzy traders, are keying on the closing price. That's why our signals are close, but often vary by a day in either direction.

I've been saying for a while that I want to create a list of quantifiable rules to govern my trading. I have done this, in bits and pieces, on my own hard drive, but this has proven to be a moving target. I think a project like this is better suited for a public forum where I am accountable for my own rules.

First, I want to mention that I did a forum search on "commandments" and, as expected, I found several threads dealing with "forex commandments". But I have to say that I'm not really happy with the results. Most commandments bandied about by the average forum participant are colloquiallisms that sound good in casual conversation but have almost no use in practical trading. I want my bylaws to be actionable.

Let me give you a classic example: Cut your losses short and let your winners run. Sounds logical, right? We've all heard this one a thousand times. But it's virtually useless as a trading guideline. Let my winners run to where? Should I close out any of the trade at +100 pips? +200? +300? What if it goes +200 and then retreats back to +50? Should I have closed it out at +200? At +100? Should I keep it open at +50, expecting it to eventually get to +300? How about cutting my losses? Well, I guess I should open all trades with a 5-pip SL, right? Obviously, that doesn't work. So where exactly do I cut the losses at? How far is too far?

My point is that I don't want to just spout useless dictums. Rather, I'm going to post here my own bylaws. I want to stress that these will be MY bylaws. Hopefully they will coincide with the techniques of successful traders, but I'm not going to post these because I believe that I know the path to successful trading - I don't.

1. Trade all signals. If you are trading short timeframes, trade during defined periods and trade all signals during those periods. If you are trading longer timeframes, do not skip time periods and trade every signal that presents itself during those periods.

If you've read my previous posts, this probably seems like an obvious start. I really wanted to trade hourly charts but there are too many profitable signals that present themselves while I sleep. I'm currently trading the daily charts because I can trade all signals. I reserve the right in the future to drop down to the 4-hour charts merely because I can reasonably trade all signals on this timeframe as well. It's not that big of a deal to set my alarm for 1 AM and 5 AM EST to catch new 4-hour bars. But I'm going to stick to the daily charts for the immediately foreseeable future.

1. Trade all signals. If you are trading short timeframes, trade during defined periods and trade all signals during those periods. If you are trading longer timeframes, do not skip time periods and trade every signal that presents itself during those periods.
2. Make no meaningful change to your trading strategy unless you have thought about it for at least 24 hours. The emotions of trading will lead you to consider brash changes to your trading style. Any meaningful change needs to be given time to turn in your head. No change should be based merely upon the positive/negative results of your most recent trade(s).

This bylaw came about as a result of this morning's consternation. Last week my account balance was less than $2,400. Tuesday afternoon, my balance peaked above $2,800. This morning, after suffering through a couple of nasty whipsaws and watching some of my winning positions give up ground, my account value was around $2,500 - and I was so frustrated by the "drop" from $2,800 that I was thinking about ripping up my system and installing something new. I was thinking about doing this even though I've only used my current system for a week - a single friggin week. And I was considering doing this even though my account value is up this week and this looks to be the first week that my account value has EVER gone up. Nevertheless, I was so bummed out to see a few more losers this morning that I was thinking about scrapping it all.

Thankfully, a half day of consideration has led me to realize how stupid this is. I have also realized that unless the market tanks in the next 3 hours (highly unlikely) I will still be able to think of this as being a very successful week - even if it backed off from the enormous successes earlier in the week. The key factor here is time. I just needed to step back and consider all of the negatives AND the positives from this week's trading.

brother, if it makes you feel good.. i been trading fozzy since nov.. upto feb was a good time.. these days i am trying to keep my head above water

its good stuff tho since i am learning.. and i think this school of hard knocks will pay off..

out of curiosity.. the total fozzy trades of 249 .. since when?

Thanks for the words of encouragement. That -249 number is since last Thursday - but that is more than a bit misleading. I'm currently sitting on ~500 pips of open fozzy profits. But since I just started doing this accounting, only one of the winners has had a chance to close, while many of the losers have obviously been stopped out. So the numbers look a bit skewed at this point.

I'm going to do a weekly update in an hour or so that will put a better perspective on this week's overall performance.

1. Trade all signals. If you are trading short timeframes, trade during defined periods and trade all signals during those periods. If you are trading longer timeframes, do not skip time periods and trade every signal that presents itself during those periods.
2. Make no meaningful change to your trading strategy unless you have thought about it for at least 24 hours. The emotions of trading will lead you to consider brash changes to your trading style. Any meaningful change needs to be given time to turn in your head. No change should be based merely upon the positive/negative results of your most recent trade(s).
3. Define and document all decision points in your system. Outline - in written format - the exact criteria for your system including when to open positions, when to close positions, how many units to trade, where to set SLs, and where to set TPs. Even if a criterion is discretionary, you should still be able to outline the process for making the discretionary decision.

I'm putting this here almost as a homework assignment for myself. When I first began backtesting and research systems in February, I was really big on creating "system definition" documents that would describe the criteria for each trade. I found this to be a tremendously useful exercise, as it forced me to describe to myself exactly how I should trade and consider all the "what-if" scenarios.

I'm a firm believer that even discretionary criteria need to be defined before entering a trade. For example, if you base your trades on trendlines, you should make every effort to define exactly how those trendlines are drawn. If you allow discretionary elements to keep you out of a trade, you should verbalize beforehand exactly what those elements are. In other words, just because something is "discretionary" doesn't mean it can't be defined.

In the last few months I've moved away from this as I have cycled through more systems in a shorter period of time. But now that I am actively trading this system, I need to sit down and define all the parameters before going further. This is analagous to a sports team writing up a game plan before entering the match. No professional athlete would enter a game without creating an effective game plan beforehand. Likewise, no professional trader should enter a trade without an effective game plan.

I've decided to start tracking my weekly MTM value. This is now the 3rd week of this journal and results look like this:

Starting capital: $2,824.71
Week 1: $2,392.58
Week 2: $2,503.07

There are a number of stories to be told in these numbers:

1. This is the first time that I've EVER had a positive week! I had never even had a positive day until a few weeks ago. Now I have finally put in a positive week. To be fair, my positive week is based upon MTM value, because I have several trades that have been open for more than a week. But in accordance with one of my previous posts, I think that MTM value is the only real way to measure failure/success when you're trading the daily charts.
2. Notice that even though I've had a positive week in MTM value, my trade log looks horrific. I've closed 1 winning trade, 9 losing trades, and I'm down hundreds of pips in closed trades for the week. But that happens because I'm currently sitting on ~600 pips of unrealized profits from my open trades on EURCAD, EURGBP, GBPCHF, and USDCAD.
3. I started trading the dailies last Thursday. When I opened those first daily trades, my account was at ~$2,270. So in MTM value, my account is up ~$230 since I switched to daily trades.
4. On Tuesday my MTM value climbed as high as $2,800. With this in mind, I was feeling quite glum this morning - as though I had somehow lost something this week. With a little more hindsight under my belt, I have to admit that it's been a very good week - albeit one that has featured a rollercoaster ride. When I first started making daily trades last Thursday I could hardly do any wrong. Everything that I opened seemed to immediately go into the green. It wasn't until Wednesday that I started hitting a rough patch that began to knock my account value back down to earth.
5. My best trade so far - by a long shot - has been EURCAD. I have locked in 250 pips and it's still going.
6. The key to daily trading seems to be getting as many "runners" going at one time as possible. The bad ones get stopped out, but you try to keep the winners open as long as you can.

byte, i am lost.. the 249 refers to number of trades or number or pips?

a rookie's 2 cents for what they are worth (actually a rookie's 2 cents should probably be worth nil ) , but its better to monitor account value by month, if not by quarter... a weekly monitoring in my opinion is too short a time frame.. there is a reason businesses report only quarterly results..

Fozzy Trades
Running Total: -249
Winning Trades: 1
Losing Trades: 6

I've only been doing the fozzy trades since the Thursday before last. -249 is the running pip total for all the closed fozzy trades. There is one closed winner and six closed losers.

Trade update (new trades in bold):

(F) Sell 1 EURCAD @ 1.4836, SL @ 1.4586
(A) Buy 1 GBPCHF @ 2.4235, SL @ 2.4306
(F) Sell 1 USDCAD @ 1.0895, SL @ 1.0849
(F) Sell 1 EURGBP @ 0.6810, SL @ 0.6788
(F) Buy 1 GBPUSD @ 1.9866, SL @ 1.9792
(F) Sell 1 AUDNZD @ 1.1271, SL @ 1.1322
(F) Buy 1 EURAUD @ 1.6438, SL @ 1.6364


Fozzy Trades
Running Total: -249
Winning Trades: 1
Losing Trades: 6

ADX Trades
Running Total: -73
Winning Trades: 0
Losing Trades: 3

All Trades
Running Total: -322
Winning Trades: 1
Losing Trades: 9

Trade update (new trades in bold):

(F) Sell 1 EURCAD @ 1.4836, SL @ 1.4586
(A) Buy 1 GBPCHF @ 2.4235, SL @ 2.4306
(F) Sell 1 USDCAD @ 1.0895, SL @ 1.0849
(F) Sell 1 EURGBP @ 0.6810, SL @ 0.6788 = closed @ 0.6782 (+28)
(F) Buy 1 GBPUSD @ 1.9866, SL @ 1.9792
(F) Sell 1 AUDNZD @ 1.1271, SL @ 1.1322
(F) Buy 1 EURAUD @ 1.6438, SL @ 1.6364
(F) Buy 1 GBPJPY @ 241.40, SL @ 240.34


Fozzy Trades
Running Total: -221
Winning Trades: 2
Losing Trades: 6

ADX Trades
Running Total: -73
Winning Trades: 0
Losing Trades: 3

All Trades
Running Total: -294
Winning Trades: 2
Losing Trades: 9


I really love hitting a winner on EURGBP, since the pips are double-value. It's a bit misleading to show it in the normal tally as +28, because it has a monetary value to my account equivalent to roughly +56, but I don't want to confuse the account by counting pips different for different pairs.

Trade update:

(F) Sell 1 EURCAD @ 1.4836, SL @ 1.4586 = stopped out @ 1.4586 (+250)
(A) Buy 1 GBPCHF @ 2.4235, SL @ 2.4306 = stopped out @ 2.4304 (+69)
(F) Sell 1 USDCAD @ 1.0895, SL @ 1.0849
(F) Buy 1 GBPUSD @ 1.9866, SL @ 1.9792
(F) Sell 1 AUDNZD @ 1.1271, SL @ 1.1322
(F) Buy 1 EURAUD @ 1.6438, SL @ 1.6364
(F) Buy 1 GBPJPY @ 241.40, SL @ 240.34


Fozzy Trades
Running Total: +29
Winning Trades: 3
Losing Trades: 6

ADX Trades
Running Total: -4
Winning Trades: 1
Losing Trades: 3

All Trades
Running Total: +25
Winning Trades: 4
Losing Trades: 9


It sounds silly, but I really hate to see that EURCAD trade taken off the active slate. That was my first daily trade and is, by far, my biggest winner.

My overall pip tally is now much more indicative of my performance over the last couple of weeks - slightly positive.

It's too early to draw any firm conclusions, but I am a bit surprised by the relatively low winning percentage of my fozzy trades. This is not a complaint - overall, my fozzy trades are profitable so it's hard to complain about a profit. But I'm struck by the fact that others in the fozzy forum claim to have a much higher winning percentage with this method.

I believe it's too soon to consider tweaking anything. I need more data before deciding if a change is in order - at least a few more weeks, probably a few more months. My "fozzy trades" differ from those in the main thread in two key areas:

1. I only take fozzy trades confirmed by the PSAR.
2. My RSI is based on the median price as opposed to the closing price. I chose this method because it makes the RSI more stable in trending markets, whereas closing price results in more MA crosses.

I don't know if either of these is responsible for a lower winning percentage. Another factor may be my application of SLs. I use ATR(50) x 0.7 to determine my initial SL. On subsequent days, I then use that same value as a manual trailing stop. In other words, if ATR(50) x 0.7 = 70 pips, I keep moving the SL up to a point where it is 70 pips below the current price at the end of each day. I believe that other fozzy traders are much faster to move their SL to BE, even if it means that the SL is set very close behind the open position.

.....This single factor will have a definite effect on your results!