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Forex Trading

Curing Self Sabotage With System Development

December 1, 2012 · 2 comments

in Forex Blog

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.

 

{ 2 comments… read them below or add one }

KinsaleForex (Liam) December 3, 2012 at 9:04 pm

Hi Jordan,

Found this post through referrals to my blog. Firstly I appreciate you taking the time to read through my blog and offer a hand. Secondly, I would have preferred if you contacted me before making this post.

I understand that you mean well and it is the generosity and helpfulness of the trading and blogging community that has helped me greatly on many occasions in the past.

In this instance you’ve got some of your facts wrong. I realise you’ve grabbed the information from the relevant sections of my blog (and it is perhaps my fault for not updating these!) but unfortunately this isn’t the whole story. I’ve updated through blog posts instead of the pages you have read through.

1. I haven’t traded these sizes since the end of July / start of August when I began some lengthy back testing for all of August and the start of September. Any trade i’ve taken since has been a value of 0.50c per pip as this is the smallest I can trade. I’m attempting to work on consistency above all else.

2. See number 1. I would also add that I know several traders that use this method very profitably. They also use VSA. There’s a certain amount of subjectivity to this.

3. I feel this is also subjective, for the analysis that I do, 4h simply isn’t good enough. It is doable and i’ve seen it done but trading VSA on a 4h time frame is difficult work. With this in mind, I am leaning more to a 1hr and 15min combination instead of 15min and 5min. I’m yet to decide fully. I’d like to think I have plenty of examples on my blog of the 15/5 combination being more than tradeable.

The last few posts you see on my blog have all been Point and Figure based on 1hr time frames, completely separate to any of the plan that is posted on my blog. I’ve been reading a new book and furthering my knowledge of Point and Figure, a technical analysis method that first started my trading journey.

I don’t have a concrete strategy in place for Point and Figure. I know that isn’t ideal but that is what i’m currently working on. More to the point, i’m looking to tie it in with the strategy I have. Keeping in mind that i’m trading tiny amounts at the moment.

All that aside, I have been struggling with the psychological side of things a lot. Until Friday I had them reasonably in check and this was the first slip up in a long time.

I’d like to talk some more but I felt I had to clear a few things up for your understanding and for anyone else that may be reading.

Reply

Jordan Lindsey December 3, 2012 at 10:16 pm

Hi Liam,

Please let me know if you want me to remove this post at any time. I sincerely see that you have a lot of potential, realized potential, and would like to help you.

Within months I can have you trading profitably with a return on your money regularly. You already have a lot in place but you need to work out some things which will make every difference.

If you are interested we can continue through writing blog posts, commenting, and link back and forth. I am available to get started. I leave it to you to pen the next post.

Reply

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