Avoiding Low Probability Trades

I took another stab at avoiding low probability trades today by keeping busy during the day (w/ non-trading related activites), especially after volatility fell in the afternoon.  Although I managed to only make a few trades today, once again, I ended up giving up my profits from the early morning once volatility tightened and trends became less clear.  Tomorrow will be a much busier session, given all the pending data releases.  Very interesting will be to see how the EUR/USD performs considering its MACD on the daily continues to exhibit a  bottoming pattern.  Other pairs that benefit from increased risk appetite (e.g. AUD/JPY and EUR/JPY) have already pulled back from their multi-day rally, and any further downside in the next day or 2 would suggest that the EUR/USD bypass any short covering rally and resume its downtrend.

Patience

Outside of trading, I exhibit a lot of patience, and am generally very calm.  So why is it that when it comes to trading, that I can veer so far from my typical self?  This morning, ahead of the consumer confidence number, I was fully aware that the ES and NQ (as per my last post) had just formed 2 dojis on their daily charts.  I knew that the equity markets were about to turn bearish, but yet entered long positions in the EUR/JPY and AUD/JPY based on what appeared to be breakouts on their 5min charts.  Although the triggers of my low probability trades are fairly obvious (i.e. greed and lack of patience/discipline), avoiding such trades is another story.  After being stopped out of my longs, I was reminded of the folly of relying on stop losses in fast markets.  My stops were set tightly, at roughly 15 pips on each position, only to result in fills roughly 30 pips away.  As soon as the market began moving against me (on the release of the consumer confidence number), I should've went short the EUR/JPY and AUD/JPY knowing full well that the intraweek call that I had made for these markets to reverse lower was unfolding.  Had I went short after being stopped on my longs, I would've more than made up for the losses incurred this morning.  The shock of those initial losses though left me little mood or ability to further trade on the day.  I will take a few days off and will stick to writing market commentary to regain a sense of calm and control.

Tug of War

Today was another tricky day to trade, as the bulls and bears continue to be near equal in strength for the ES and NQ, resulting in their 2nd daily dojis.  The EUR/USD also exhibited a doji, as the 1.36 level continues to prove widely contested.  Further clues that risk appetite is about to wane include the break of the AUD/JPY uptrend support (from the uptrend that began Feb 10).

As a result of the tighter than average trading range today, P/L was flat by the end of the day.  To ensure that proper income is being generated, funds will be transferred out of my personal trading account after the day's target profit is reached.

More importantly, today marked a continuation of my improvement in following my trading rules.  One way to help remind myself of my trading rules, is by having created calendar alerts (w/i Outlook) every hour.  By having these alerts popup every trading hour, I'm less likely to break my rules until following my rules becomes second nature.

It's quite fascinating how difficult it can be for the typical person to break bad habits.  Traders know this all too well, and I'm guilty of having deferred making the effort in break my own bad trading habits.  This blog along w/ my tweets (http://twitter.com/trader_darren) serve the purpose of keeping me accountable to my trading rules and objectives, along w/ allowing for reflection on trading performance along w/ market activity.

To sum up today, the only rule I broke was not transferring the day's target profits to my personal chequing account, only to see those profits disappear from subsequent trades.  Of course, this rule would've only served me well had I stopped trading after having reached my target profit!

Anyways, enough staring at the monitor for the day.  Tomorrow should see plenty of trading opportunities as economic data releases (http://www.forexfactory.com/index.php?tomorrow=1) will come fast and furious.

Better day, but still flat

Day 2

Today's FX markets were relatively subdued compared to Thursday's wild swings.  I followed more of my rules, but still had difficulty avoiding a few low probability trades.  In one instance, I went long the USD/JPY, while also going long the Nasdaq100 future (NQ).  Both had MACD that appeared to be bottoming (w/i their 5min charts), but the 60min charts of both painted a different picture.  The USD/JPY was in the upper third of its channel (in the 60min chart), and presented little upside potential.  The NQ was also looking toppish in its 60min chart, given how much its moved off its correction low made roughly a wk ago.  The other reason why these 2 trades were doomed from the start was the contradictory nature of the 2.  When the USD strengthens, the equity markets (including the NQ) can be expected to fall.  To make matters worse for the NQ long, even before hastily jumping into it, markets that benefit from higher risk appetite (e.g. EUR/USD, EUR/JPY, AUD/USD, AUD/JPY) appeared toppy.

The losses on these 2 low probability trades were fortunately minimal, i was quickly exited both longs soon after realizing that they were hastily entered into. 

Time to head to much needed yoga, following a wk of intense trading.  One objective for next wk (in addition to following my rules laid forth in yesterday's blog post) is to avoid making trades where I have to keep close tabs...if a high probability setup presents itself, there'd be less need to constantly monitor once the market moves in the direction anticipated, and as a result, less shoulder and back stiffness and pain.

Have a great wkend!

Day 1

What a day...yesterday's market action was quite volatile, particularly in FX.  In fact, in the short time I've been trading FX, I can't remember another more intense trading day.  Yesterday's many 50 pip moves fueled by the deluge of economic data releases and the surprise discount rate hike at 430pm EST kept me glued to the monitor from 745am to 10pm.  W/ such volatility, yesterday should've been a banner trading day.  Unfortunately, due to the breaking of the following trading rules (not in any order), I ended up slightly down.

• don't overtrade
• don't pursue low probability trades (countertrend)
• shouldn't be feeling tense
• remaining flat is a position
• don't hold more than 2 positions in account at any one time (try to focus on 1 optimal trade at a time)
• be patient
• wait for retracements on breakouts
• don't trade in anticipation of trend reversals/breakouts
• hold winners longer (don't move stops up so soon; no need to anticipate loss if trade setup worthy)
• don't create mental conflicts
• don't hedge by having 1 trade offset another...all trade ideas should reflect same forecast opinion on overall market

Other rules that I've violated in previous trading include:

• don't hold overnight (there's sufficient opportunity intraday, offering far less stress)
• be aware of timing of all economic data releases (i.e. forexfactory.com)
• focus on trading FX (as their superior liquidity make them far easier to trade)
• stop trading after day/week's drawdown exceeds limits
• don't trade out of restlessness (blog, read, exercise, cook, clean to tackle boredom during slow moments)
• stop trading after reaching profit targets

I'll come back and add to this list of rules as there are many others that I've forgotten.

It's 816am now and time to get ready for the trading day.
Good luck trading!

Darren