Lessons from my trading journey this year

Disclaimer: Everything written in this post is purely my own opinion and should not be taken as fact. I am not a financial advisor and my opinions do not constitute financial advice. You must take responsibility for your own actions.

Introduction

I recently learnt about hive.blog and leofinance.io and my initial impressions are that it is like a less censored version of Reddit, that rewards its users and has potential to grow, so I thought I'd give it a try.

I have been dabbling in trading for many years, seen and tried many different ideas/products, but never really cracked it. During lockdown this year, I decided to use that dead time to give forex trading another try - the equity curve you see above is my year-to-date live trading performance.

I currently monitor 26 currency pairs using mostly hourly charts. As you can see from the equity curve, my performance in the 1st half of the year was terrible as I jumped from idea to idea and traded impulsively. At the lowest point I decided to focus on just 1 idea and wait for good trading setups and my performance improved. My account is now headed in the right direction and I just need to keep going to see if I can be a consistently profitable trader or if this is all just a big fluke.

OK let's analyze some stats:

Analysis

• The number of trades is grossly inflated because each trade may have 2-4 positions, allowing me to take partial profits or losses at different levels.
• The profit factor of 1.18 is really low (gross profit/gross loss) - it means for every $1 traded, I average a return of $1.18. My target for next month is to get this higher.
• My maximal drawdown of 37.45% is unacceptably high but the graph shows that I have started to reduce the size of my drawdowns over time.
• I lose 68.07% of my trades!!! What this means is that a monkey flipping a coin to go long or short is more accurate than me in guessing market direction!!!  :D Winning only 24.55% of shorts is particularly disturbing and needs further investigation.
• I keep my losses small and try to run my winners for more, which is how I end up profiting overall.

Main takeaways

1. You don't need to be right all the time in trading as long as you cut your losses and run your winners. I used to think that I had to predict where the market was going and then take it as a personal insult when the market moved in the opposite direction. Now I find it incredibly liberating that I don't need to predict - I simply react to whatever the market decides to do. As long as your trading expectancy is positive, you can make money long term. Expectancy is calculated as (probability of win*average win)-(probability of loss*average loss) . In my case this = (0.3193*16.87)-(0.6807*6.70) = 0.825901. This means my average profit per trade is £.0.825901
2. I have proven to myself that the main account killers are: over-trading and low quality trade setups. Taking less trades that are much more high quality is the key to profit! 
3. When in a drawdown, be patient! Trying to over-trade your way out a drawdown just makes the drawdown last even longer.

I hope you found this post interesting or useful. I was thinking about making future posts on my hard-earned knowledge about trading and the markets. If you have any suggestions or questions leave a comment below. Thanks for reading!

 

Posted Using LeoFinance