04/03/2013 GBP/SGD Short (loss)

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A short trade on GBP/SGD H4. Risk on this one was 0.5% as usual, aiming for 2:1 RR. Here is the entry chart (click to enlarge).

And here is the exit chart showing price going up and hitting my stop loss.

Trade didn't work out but I followed my plan so no regrets. 

End of month review February 2013

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So January started off really well and then it went downhill but I still ended the month with a modest profit. February was just a bad month full stop. I lost all I had made in January plus a little more. In February I took 19 trades, of which 15 were losses and there were two wins at  3:1 RR, one win at 2:1 RR and one win at 0.5:1 RR.

Not great but my account hasn't taken too much damage from the start of the year and like I've said time and time again, trading performance should be judged over a long period. 12 months ideally, but at least 6. I've stuck to my plan, made a mistake here and there which I've learned from, and I'm very confident this is gonna be a good trading year. Back testing continues to give me great results and in a way is consistent with my real life results (I have had 8 losses in a row at times in back testing but even then all the pairs I tested made great profit in the long run). Luckily I do have a few other income streams that bring in modest returns so I've been able to have somewhat of a life, but I'm still living like a clown for the moment. Not worried though. Just focused on my dream of becoming a world class, pound for pound all time great trader. I'll have my time, no doubt about that. I'm in profit for the month of March so far, and the charts of the two trades I've taken this month will be up soon.

When I've been back testing I've been using a method that is not totally, but mostly mechanical and requires very little discretion. On all the pairs I've tested I've got a win rate between and 35-45%, but when I modified it to use more discretion (only done this for one pair so far) I got a win rate of 60%. In the long run although the win rate was higher, the overall profit was smaller, BUT here's the thing. There were less trades to take (less work), and less draw down. I think I'm willing to sacrifice a bit of profit if it reduces stress for the time being. Therefore I'm gonna use much more discretion when back testing, and then if I continue to get good results I'll apply it to live trading.

That's the plan for this month. Have a great trading month.

28/02/2013 GBP/CHF short (loss)

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Short trade on GBP/CHF H4. Here is the entry chart (click to enlarge). Risk was 0.5%, aiming for 2:1 RR.

and here is the exit chart. As you can see, price went up, hit my stop and I made a loss.

I followed my plan and I don't think it was a bad trade to take. 

28/02/2013 GBP/USD Short (loss)

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This was a trade based on the three timeframe strategy (explained here) which has been getting me very good results this year. This one was a loss though. Here is the entry chart (click to enlarge)

And here is the exit chart. Obviously price took out my stop loss and I made a loss.

In hindsight what I should've done was wait for a stronger close below the trend line/200ema.  

27/02/2013 EUR/AUD short (loss)

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Short trade off the H4 chart. Here is my entry chart which explains everything. Risk was 0.5%, aiming for 2:1 RR (click chart to enlarge).

and here is the exit chart showing price going up and stopping me out before continuing downwards towards my target.

Although the trade lost, I don't think it was a bad one to take. 

25/02/2013 EUR/NZD short (win)

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After a tough couple of weeks it's nice to finally get a decent win. This was a short trade based on EUR/NZD the three time frame strategy (explained here). Here is my entry chart (click to enlarge)

and here is the exit chart. As you can see, price moved down, hit my stop and made me a tidy profit of 3:1 RR.

Three time frame strategy explained

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I've explained this strategy before but probably didn't make it as clear as it could be, so here it is again. I call it the three time frame strategy, and it was taught to me by my friend Neale. This strategy is based on three timeframes. H4, H1 and M15. Below are the conditions of entry for a short trade (obviously you do the opposite for a long trade. 

For a short trade

1.Price must be trending below the 200ema on the H4 and H1 chart. 

2.Price must have pierced the 21 ema on the H4 chart

3.Price must be trending above the 200ema on the M15

4. If there is an obvious upward trend line on the M15 chart, you wait for it price to close below it and then enter short. If price closes below the 200ema in addition to the trend line that's even better. 

Discretion

This is not a mechanical strategy so some discretion should be used. The trend line should be a nice obvious one (see chart below), and ideally should not be very steep. If the bar that closes below the 200ema is a large one, you should wait for a retrace before entering so you get a a better price. 

Trade management 

I like to have my stop loss at the highest point visible on the M15 charts without having to scroll back (as long as it's no more than 40 pips). If it's more than 40 pips, then I'll pick the second highest point. Either way, stop losses are between usually around 30-40 pips. 

Profit target is 3 times the stop loss or 3:1 RR. For the trade below, my stop was 40 pips, and so the target was 120 pips. Once you hit 1:1 RR, you move your stop to break even. No messing around with it. It either hits your stop, or hits your target. 

Win rate

With a target of 3:1 RR you obviously can't expect a high win rate, but that's no problem because you can still make very good money. When I back tested this for 4 different pairs, my win rate was between 27 and 35%. The majority of trades ended up at break even, and the rest were losses. Having traded it live since the start of the year, my results with it are very good, but it's early days so we'll have to see if in the long term my results match my back testing results. If so, I'll be very happy.

Example

Anyway, here's an example trade I made today that hit my 3:1 RR target. Here's the entry chart on the M15. Chart. Remember, I entered short because price was trending below the 200ema on the H4 and H1 charts. (click chart to enlarge) Notice the obvious trend line. 

  

Here is the exit chart. Price moved down, and hit 1:1 RR after which I moved my stop to break even. The next time I looked at the chart it had moved further down and hit my 3:1 RR Target.