Exiting the Rat Race

The one lesson I am having a hard time learning is to take my pips and wait for the next a++ setup. I am having a tendency to overtrade. I find some good setups and make a bunch of pips and then I try to trade the smaller moves after as the large move settles and I end up loosing my gains. I have broken even the last 2 days as a result (well, I consider 10-20 pips basically breaking even).

Also I am having a hard time mastering exits. I exit to soon and leave a bunch of pips on the table, or I wait and then the trade reverses and end up with 1 pip or something. I think the only solution to this is scaling positions. I need to leave a trade on as a runner. I need to take profit with the majority of my position when momentum stops but leave a runner and then add to the position and do it again as the trade resumes. If it is not an a++ setup, don't add a large position, only add as much as the runner and then place a stop at net breakeven just in case the added position goes against me. This way I can play the first a++ setup with a large position, exit at first sign of reversing momentum but leave a runner, add a small position if the trade resumes (only at a point where I can place the stop at net break even). Then I can add more small positions trailiing my stop behind the recent highs/lows and make exponential gains catching the small trend. If the trend turns out to run for a while, the gains with this low risk strategy could be large. I will exit with a loss on the final position, but the gains on all of the added positions will be substantial on a large trend and worse case scenario break even for 0 risk.

The trouble with this is managing the trade. I need to be quick on the draw, especially when manually trailing stops with multiple positions. I need to figure out a more efficient way to manually trail stops. For example as I was typing this I tried to manually trail the stop of 4 positions but was too slow and the market reversed before I could put the stops where I wanted to, ending up with a smaller profit. I probobly could have had an extra 20 pips or so if I was quicker.

As of right now I am up 233 pips for the day. I was at 246 earlier, then down to 201, then recovered to 233. I wouldn't have gone to 201 if I had a) scaled out of my position, b) not tried to chase the trade and get into less probable setups. Chasing the trade and getting whipsawed caused the loss. 1 hour until the Fed announces the rate cut. I might just chill till then, maybe do some vhands while I wait.

OK, calculating the pips per day is too tedious. So, since I am using somewhat larger positions now and actually trying to make my account grow instead of just maintaining profitability, I will start logging the percentage increase to my account balance. Yesterday was a good day, I started out slow, trading the London and opening of the US sessions, with marginal results. Then during dinner I saw an A++ setup and picked the top and got in. Short. It decided to go up some more so I scaled in with a second position, then it went south according to plan and I rode it down for a huge gain. All in all I increased my account size 11% today. It would be nice to keep those percentages up like that! Unlikely though. I risked more than typical on the A++ trade due to scaling in (twice as much in fact).

I can definately pay the bills with the kind of money I made today if I do it consistently. So far the rat race seems to be fading away..........

Also, I really like this job trading forex. It can be very frustrating at times when I miscalculate or jump in on a grade C trade and loose on it, or when it looks like a perfect setup but continues in the exact opposite direction I thought, but over all, working from home, being able to see my family, and having complete freedom to do as I please is nice. I hope I can keep it up. So far my confidence is building as I continue to have success.

I'm going to mexico next month for a couple weeks. I think I might actually attempt trading from a beach chair in the white sand with an ocean breeze.

Election day was bad, I made a mistake and got caught on the wrong end of a breakout of a major resistence line. I hedged but the loss was too large to recover, because I tried to scale in and average out the loss, so I ended up taking an abnormally large loss. Frustrating because it wasn't any problem with my strategy, it was a stupid mistake that caused the problem. That has been the rule for the most part with large losses, they are usually the result of momentary stupidity or carelessness. For example I took a loss last Thurs because I left an order pending which triggered without a stop and lost 230 pips by the time I checked my computer again. I didn't close all pending orders before I turned my computer off. Luckily I still came ahead that day with +70 pips or so.

So, the key to my success is discipline, and checking each trade to make sure I did not miss anything.

The other thing I need to work on is exits. Entries are not that difficult, it is how and where to exit that causes the trouble. I either exit too soon and leave pips on the table, or exit late and turn a small loss into a large one.
One way I have found to manage better is to focus more on support and resistance levels for pinpoint entries and then place a very tight stop (like 10 pips or so). Basically, the entries are much like BillyRayValentines No Brainer Trades thread. The reason is these support and resistance areas pinpoint turning points in the market. It is basically a way of picking tops and bottoms.

Earlier I had been using these concepts in a general way but looking for more confirmation after a level was tested to get in. Now I think just placing a pending order is ok as long as the stop is placed appropriately (managing exits). Pending orders can only be placed in areas where momentum will not likely cause price to blast through that level and not look back, so the RSI is a good gauge too to see if momentum is likely to slow. Placing a trade solely on RSI over bought or over sold levels is dangerous. Only in conjunction with support/resistance areas can it be used to trade with safety, because determining that is how to determine where to place the stop. If there is a break through the level than the RSI cannot be used becasue orders will likely be triggered beyond the level and increase momentum, despite the overbought/oversold levels. The breakout can then be traded at that point (with a tight stop, moving the stop in the money asap, because the chance of it snapping back are high).

So, my goals this upcoming week are to trade with conservative lot sizes (don't get overconfident and load up on the position scaling in, as this was my downfall on election day, I tried scaling in but shouldn't have because a major double top was breached long and price sailed to the moon). Pinpoint entries with pending orders and tight stops. Scale OUT of a position, closing part as soon as momentum slows, then placing the stop at +1 pip and leaving it to see if it will be a "runner".

The MACD is useful as a lagging indicator to see how strong a move is. It is not used for entries but can be used to help determine how long to hold a trade before profit is taken. Entries should be done far before the MACD gives a signal, by using pending orders on key levels.

Another problem I have found is moving my stop to break even too soon, then having price snap back, take it out, then continue in the direction I originally thought. I end up missing out because I won't chase the trade. I should expirement just leaving the stop in the negative for a longer period and giving the trade some more breathing room. I will have more stop outs this way but in theory I should have larger gains. The losses will be small, like 10 pips, when the gains could be upwards of 40-100. At least this is what would have happened on Thurs if I had done this.

The more I watch price the more I learn. So far I am on track with my goals to exit the rat race. I just need to master myself and be more disciplined. One little slip of judgement can cost big time.

Dude, make a checklist and use it. It'll help with the stupid things such as leaving orders in without stoplosses.

Thanks, I know that is an obvious solution. But then I have to check my checklist, and that would be asking too much! Just kidding.

Since I scalp a checklist is not alway possible for each trade, because I have to make a decision in a matter of seconds sometimes. However, if I do my analysis properly before hand, I will have key levels marked on the chart so they are obvious at a glance, before I start trading. This prevents having to re-analyze each trade.

I know exactly where my entries are going to be for the entire trading session before I even start trading. Some entries I skip, such as if momentum blasts through the area. Others I put pending orders on (this is what I do most of the time with the major support resistance areas).

What I really need more than a checklist is a ritualized routine. I am getting there. I take about 10-20 min to do my analysis for the day, then place some pending orders. Then all I have to do is manage my stops and sometimes adjust or delete some orders depending on price action.

The hardest thing for me to master is exits. I either leave too many pips on the table, or turn a winner into a looser. I am still debating if scaling is the answer. I am not sure. There are all kinds of strategies for managing exits and I havent really decided which one is best. More practice and expirementation I suppose.

As for my success, although I took a hit on election day, this week my account has grown 22%, provided I don't do anything stupid the rest of the day. There are still a few trading hours left.

One mistake I made today that I should mention that cost me 150 pips is not exiting at the 38.2 retracement. I thought since the market was somewhat rangy and headed south that even though price action stalled at the 38.2, I got greedy and held on, thinking the stall was just the market breathing before it continued south. Well, I held on long enough for it to wipe out my gains (on that trade). Luckily I have made 230 pips today since then. Gotta master exits.

I still haven't mastered when to say when. I suffered a huge drawdown today, but recovered and got out at about breakeven. It was a result of adding to the position at fib extension levels and resistance levels. I just couldn't exit like a sane rational person would. I kept thinking that such a huge move would be unprecedented given the time of day (last couple hours of Friday), so after entering on an extreme overbought level the market refused to retrace, and took my entry severely into the negative. I didn't get stopped out because I was placing stops manually and thought for sure the market would reverse. It did eventually, but not untill after my risk tolerance was far exceeded. I was stressing that trade.

I couldn't for the life of me figure out what the heck was going on with the market at the time I was in the trade. If I had I would have exited. In retrospect what I found had happened was after NFP was released the market made a new low (EUR/JPY) and therefore I thought it would continue short because of a broken support level AND risk aversion because of the dismal NFP. Well, on the other hand, the market was in the area of a major support on the hourly, and started working its way back up long after being rejected. This should have been a sign that the range was intact (false breakout) and that the market was in a long condition. I went short playing a small 50 pip range when wham! the market blew through resistance. I exited for a small profit on a retrace but then the market soared long. When it reached an extreme overbought area and touched the 138% extension I got in short, but it continued long busting through key resistance levels on the way, until it reached the other side of the range (resistance) in one move. This was a huge move, and it was going against my position. Not only that, but I was adding to it (scaling in) at each key resistance area. This overextended my risk. Luckily there was a happy ending at breakeven as it retraced, but not without a lot of stress.

Moral of the story: I went against the short term trend (range) falling prey to a false breakout from NFP data. I should have known that since support was rejected and price was retracing significantly from the false breakout that it was indeed false and the bias was long at that point. Don't go short when the bias is long! In my defense this spike was irrational and unforseeable, however, preparing for the unlikely and unforseen is part of risk management.

One idea is to have entered on the breakout long while still in the short position. This would have essentially created a hedge but not really, I could have exited the short on a small retrace when it appeared that the long had more strength.

Over all, I took a loss of about 189 pips today due to 2 bad trades. One was from a real breakout that I judged as false, and the other was from betting on a weak dollar after NFP. The dollar rallied unfortunately, and when the loss became excessive I panicked and second guessed my fundemental analysis (which was wrong btw) and closed my positions, only to have them retrace significantly. I didn't have to take as big of a loss but I thought sisnce my fundie analysis reversed I better exit before it got worse. I thought the historically low NFP would be bad for the dollar, however, what happened was it caused a bout of risk aversion which caused the dollar to rally as a safe haven currency. Go figure. I don't think I will trade the news much anymore (at least not with much confidence, only very cautiously) until the market becomes more stable and reacts more rationally to news events.

I still have a small USD/CAD open over the weekend with the stop set at breakeven. I also have a pending order short on EUR/JPY to fade the up move as well as play a trend line break. It is with a tight stop. I usually don't leave trades over the weekend but I think this setup is high probability and I have a tight stop (25 pips or so).

I tend not to write in my journal much other than abnormal things that happen. For example, the past 2 days were fairly normal, 168 pips profit yesterday and 131 profit the day before. Now that I am down 189 that wipes out a bunch of gains but that is ok. I took more risk today trying to play NFP and expected a possible loss or a large gain. I ended up with a loss, but it is manageable. I didn't trade Mon or Tues due to vacation (or last week at all for that matter).

Hopefully with this journal I can review my mistakes and learn from them. And who knows, perhaps it will help somebody else avoid similar mistakes since it is public. I am not hiding the bad and just cherry picking the good and posting those. I learn more from the bad than the good trades.