‘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:
Entry date: June 29, 2010
Entry price: 0.8494
Initial stop: 0.8720
Trailing stop: Not yet
Profit/Loss: 68 pips
Order: Sell Stop
Entry date: June 30, 2010
Entry price: 0.6902
Initial stop: 0.7102
Trailing stop: Not yet
Profit/Loss: 7 pips
Entry date: June 14, 2010
Entry price: 1.2824
Initial stop: 1.2613
Trailing stop: 250-pip TS applied
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.
With best regards,
Forex Signals Strategist, Funds Manager &Coach
NB: There is risk of loss in trading, but it is possible to be a successful trader.
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