‘I always judge my trades by how much I followed the rules, irrespective of the money I make or lose because this is beyond my control. What is always under my control is how I follow the rules and if my rules are followed, it’s easier for me to close the trade without emotions becoming a decisive factor.” – Mike Baghdady


The thoughts of Mike Baghdady have had a great influence on me and the way I trade, so I’m happy to quote him constantly. Last Sunday I told you of a countertrend strategy which wasn’t making money in the long run. The only noteworthy thing in that account is that the drawdown was low – because of low risk and a good positive expectancy (although we were trading against the trend). This is a good reminder that even with a bad system; a good risk-to-reward ratio might save one’s account.

Last week we entered four new orders and three trades closed prematurely with profits. Our trailing stops were hit on EURNZD, EURAUD, and AUDJPY, while the crosses continued to move significantly in the forecasted directions. We’re happy to close some profits however. Only our open positions are displayed below:


Order: Sell

Entry date: June 29, 2010

Entry price: 0.8494

Initial stop: 0.8720

Trailing stop: Not yet

Status: Open

Profit/Loss: 68 pips


Order: Sell Stop

Entry date: June 30, 2010

Entry price: 0.6902

Initial stop: 0.7102

Trailing stop: Not yet

Status: Open

Profit/Loss: 7 pips


Order: Buy

Entry date: June 14, 2010

Entry price: 1.2824

Initial stop: 1.2613

Trailing stop: 250-pip TS applied

Status: Open

Profit/Loss: 506 pips

An Observer’s Trading Results: One of my readers opened a demo account at FXOpen on June 15, 2010, and started placing trades based on my signals (he named the demo after my strategy). He places trades according to my most recent signals. The differences are that he’s using 2% initial stops with his trades and uses no trailing stops; he rides the trends until there are significant changes (I personally use trailing stops especially after some 200-pip profits). So far he has these profits:

AUDUSD Sell: 68 pips (open)

NZDUSD Sell: 5 pips (open)

EURCAD Buy: 503 pips (open)

EURNZD Buy: 351 pips (open)

EURAUD Buy: 529 pips (open)

AUDJPY Sell: 323 pips (open)

A Worse Expectancy System

Today I attached a graphic result of a worse expectancy system. This system is based on what’s very easy for most traders to do – cutting profits and running losses. I need to do this so that we can learn a lesson. This system is based on these plans: (1) After several or a few pips are made, open positions would be closed so as to avoid sudden reversals on the markets. (2) If a position is opened and it goes negative, there may be a possibility of reversal in one’s favor. Therefore a very wide stop loss would allow more room for a market to run before going positive. (3) The risk is high, about 10% per trade to justify a profit of a few pips per trade in order to have a presentable short-term trading report. (4) The risk-to-reward is 10:1, risking $10 in an attempt to gain $1. (5) A few highly liquid pairs were chosen. The system performed well in the middle of last year for about 2 months. There were smiling faces – until there was the result you can see on the graph. Let’s learn a lesson.

Welcome the forex world – a world of financial freedom. Let me conclude with this Mike’s quote:

‘The key… is to identify ‘the market condition’ which is synonymous with identifying the trader’s state of mind. We need to identify his mindset so he can trade successfully. For example, some traders say, ‘Buy support, sell resistance,’ but if a market is in trending mode, and traders are being aggressive buyers, then buying support and selling resistance can be tantamount to financial suicide. Rather, we should be doing the opposite and actually ‘buying resistance and selling support.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Email: amustapha@fxinstructor.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

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