Today, I was reading a blog post from Liam at Kinsale Forex Trading about how self sabotage caused a bad decision on Friday, causing a loss which prevented him from having a profitable trading month.

I was hoping to be able to say that this was my first profitable month since March this year, unfortunately due to Friday, this wasn’t the case!

Peaking at Liam’s posted results for 2011 and on a demo in 2010 it seems there is a lot of potential here.

  • More winners than losing trades (does not make a profitable trader or system however)
  • Keeping a blog and track recored (very important for success!)

Going on seven consecutive months now without putting up a profitable one I would like to step in here and help Liam turn this around.

He has a strategy written out but he did not follow that strategy on Friday has he closed the trade outside of his plan and the reopened and closed another trade which was also outside his plan. This is the first problem. From my experience traders trade outside their system only when they do not fully trust it. If you know by following your system you are going to systematically take money from the markets you are simply not going to do otherwise since you know if you do you will lose money instead of collect it.

As I said in the last post I entered long at 1.3010 on Thursday and held it over night, it didn’t get stopped and I woke up with it in profit. Over the course of the day it was moving around quite a bit and I made the decision to close it on a further down move in the evening. My volume analysis at this point was right and we pushed down further.

 EUR/USD 1hr PnF

With regards to point and figure, I should not have closed, we hadn’t triggered the next sell signal so I should have held the position. This occurred to me after closing so I chased it. Went long again and it dipped lower, I panicked and got out.  Got angry and frustrated myself so I walked away and left the computer. Mistakes made.

Came back later to see it up and what would have been in profit again.

Okay, Liam has excellent self knowledge here. Aside from chasing a trade and entering and exiting outside of his system what caused him to panic though?

#1 He is trading too big.

It is very good he is taking trades in two pieces (1% each) but this is simply too big. Ten losing trades in a row equals a 20% draw down. Trading too big  causes traders to close trades too soon rather then allowing trades to play out according to plan.

Sticking to his strategy of taking each position in two trades (is good) the total of these two pieces should be 0.50% of his account balance.

#2 Risk to reward ratio is favorable but not beneficial enough.

The initial risk to reward on the first trade is 1:1. The second trade positions has an initial risk to reward of 1:2 (slightly better maybe since trades are moved to +1 pip but uses a trailing stop (which can benefit or cut profits)).

This needs to be changed. Sticking to his plan for two trades entered for each position the stop loss should be moved to +1 pip and what is take profit for the 2nd trade should be the take profit level for the 1st trade and the take profit level for the 2nd trade should become +100 pips.

Risk to reward now becomes favorable at 1:2 on the first trade and 1:4 on the second trade. His win to loss ratio will now lessen but his overall profitability will increase.

#3 Time frame is not ideal for Forex trading.

The 5m and 15m time frames must be dropped and focus must be on the 4h also on the 1h when Liam sees a fast moving market.

This is an open invitation to Liam. Over the next six months working with me I will help you turn the corner into a constantly profitable trader. You have what it takes.