Forex Trading Results 2010-07-30

This week, a new strategy was introduced. This strategy uses daily chart or 4 hour chart to take positions on currency pairs that has potential to move in certain direction. Holding period can last up to a week if required. Only 3 trades were taken resulting in one winning and 2 losing. However, this strategy requires reward/risk ration of at least 2 times before taking trade. That means, I will have less trades taken. Only 3 trades were done within a week resulting in 2 loses and 1 win. However, the winning is much larger than losing trades.



The results is net wining of about 2750. The winning trade is GBPUSD having seen the setup along the major trend and entry was made upon breaking out along with the major trend. The trade lasted more than one day but was taken off after a gain of 140 pips. That was a mistake because it eventually moved further to over 250 pips. I was expecting it to pull back but it lasted longer than expected. The lesson is to listen to the market rather than trying to anticipate based on your own idea.



At the end of the day, rules of trading is important. This is a classic case of not having clearly defined rules of trading or not following rules and let fear overcome oneself.

SSE has turn bullish since early July 2010

Since early July 2010, Shanghai Stock Exchange (SSE) has broken from the down trend channel and it is looking bullish now. This is despite the slowing growth and the various negative rumours of potential financial crisis looming China due to large property bubble and slowing export.

The SSE index is currently around 2570 and the near term resistance should be around 2900 where it is expected to meet the 200SMA. Subsequent resistance at 3150-3300 where one would expect some corrections. (even if it were to advance again)



While the slowing growth due to slowing export is true, the local market and local consumption is picking up. Even though the stimulus effect is waning off, there is still extra inertia from the move and it won't come to halt immediately. Hopefully the recovery in the western world will pick up speed and export will creep back. While slowing GDP is expected in China, the overall growth story is still intact. If the soft landing that China is hoping for can be achieve, the overall long term growth is still optimistic though in a slower pace.

To participate in China Growth while not being able to buy into the SSE stocks, one alternative is to buy through ETF. In SGX market, one can choose United SSE50 China ETF.

Trading Consistency

More trades has been done after the previous post. Based on the log below, as can be seen, the results are no as impressive as before. Many more trades were added but the profit was not as good.



More losses compared to the previous results. Now, let me reflect on what has happened since then:

1. A few hasty trades were put in. Over confidence, greed.

2. After meeting with a friend who does Forex trading for some time, new ideas were added. Testing of new ideas resulted in some loses.

3. New ideas adds to new dimensions to the trades also creates distortions to the existing trading strategy and confidence. Sometimes confusion arise out of new ideas.

4. Psychologically, some complacency might have crept in.

5. Possible Market condition changed. But by re-looking at the charts, this should not have been a main contributing factor. The currency still moves in the same trend on the daily basis and more or less similar pattern on hourly basis.

Conclusion:

1. Do not discuss strategy with anybody. Other traders' ideas may not be suitable for you. Monitor for yourself and feel it for yourself.

2. Keep focus on your strategy that works and do not tweak it if it is still working fine. Doing minor tweak to improve its result is OK but not major switch.

3. Patience is still the king. Do not take any trades that are half chances only. Feel the rhythm of the price movements and always check for margin of error. Only take trades that allows larger margin of error.

4. Avoid counter trend trades unless the movement is clearly a sufficiently deep correction.

China Market still bearish

Since the last update about 2 weeks ago, the SSE has since turned around slightly. I appears that a new trend is form with less steep slope downwards. This could signal potential turn around is near. The prices are moving down in much slower rate and some stocks could be starting to move up. Of course the recent AgBank IPO could also lift the market a little bit. However, recent comments from analyst about the bad practices of local banks could dampen the spirit.



Could see turning around in a couple of weeks if things goes well.

What is important in trading?

Recently, I put my hand on Forex trading. I had tried before and the result was dismay. I started GBPUSD and mixed with EURUSD and USDJYP. My strategy was to scalp whichever that comes with some move. I ended doing too many trades that are not very well setup. That means I took a lot of half-chances and as expected, I missed most of them. Then I stopped for a few months doing other things. Recently, I am back again. This time, I focus on EURUSD and I waited more patiently for setup to appear. Still, my strategy is scalping. The big different is I prepared myself differently in term of psychologically. One, I kept telling myself to be patient. Two, I don't look for big gain. I am not looking to take small gains in a bigger move. That means, I don't wait for the whole move to be complete to get out. I will get out as soon as my target is reach. Three, I lower my targets. The result turned out to be very encouraging.



Now that I have achieve very high return (in % wise), my next question is the most important one. Can I kept my trade consistent? After reading many forums and blogs about trading, I realized that what most traders looking for is CONSISTENCY. Yes, we can make a few good trades here and there but how can we keep getting consistent results?

Taking the above example, the result could be due to combination of the following factors:

1. The market is moving in a certain direction that favors that trading strategy. For example, in a bull run in stock market, everybody makes money.

2. The stake is relatively small and you can be more calm when taking trades.

3. Your state of mind is suitable for that trade at that time. How can you maintain that state of mind? Will you ever get swollen head?

The best thing to do, in my opinion, it to test yourself. Don't increase the stake yet. Do exactly the same thing for another 4-6 weeks to get the consistency first before deciding to increase the stake.

SSE - Bearish since April 2010

There has been so many stories about China Economic growth powering world recovery. But looking at the SSE (Shanghai Stock Exchange Composite Index),the situation does not seem very encouraging.



It appears that the effect of the stimulus package that China had injected into her economy is waning off since mid to late April 2010. Since then, the stock market has been going through correction. The SSE has re-trace 61.8% of the run up from Nov 2008 low to Aug 2009 high. The rally from Nov 2008 to Aug 2009, we saw a 100% increase in the index.

By now, it has given up almost 2/3 of its gains. This is probably the most bearish index compared to Dow, S&P, Nasdaq, FTSE, Nikkei etc. So, how much faith do you want to put into the China growth story?



Dow has given up only about 30% of the gains from Mar 2009 low to Apr 2010 high. Does that mean that there are more to lose for Dow? When would the effect of stimulus package start waning? Will it give up another 30% of the gains few weeks down the road? What will US & Europe do to prop up the market?