February 2010 Trading Performance Review

I barely traded this month. The total number of trades in February for my forex demo account is ten. That’s far from my regular 150 – 250 trades a month. Ever since my trading system was broken because of technical difficulties, I’ve changed my priorities in trading. I spent most of my time in February learning a new programming language to ramp up my quant and automated trading projects.

I also tried a few longer term trades this month. The results haven’t been uplifting. I am about breakeven by the end of the month with a net gain of …. $2 in a $5550 demo account. As you can see, there’s really not much point in me continuing paper trading at this stage. It is taking valuable time away from me to fix what’s broken so that I can use my previously profitable trading system again. As such, I’m going to put near 100% of my effort to program a semi-automated trading system for the coming weeks, or probably months.

On another note. Seeing that it is tax season here in Canada. I thought about my tax situation and considered opening a Questrade TFSA trading account (affiliate link) to legitimately avoid income taxes from trading. But after considering the cost and benefit of such a move, I concluded that a TFSA trading account isn’t cost effective for me at the moment.

As I’ve spent most of the month doing backend work, there isn’t very much to review for my trading this month. So let’s just dive right into my statistics for the record.

Performance Statistics

Monthly Metric February (January)

Sarting Fund $5,550.02
End of Month Fund $5,551.99

Total Net Profit $1.97 (-$67.42)
Gross Profit $37 ($375)
Gross Loss -$35 (-$442)
Profit Factor 1.06 (0.85)
Net Profit % 0.04% (-1.20%)
Max. Drawdown % 0.50% (3.95%)

Sterling Ratio 0.00 (-0.15)
Excess Return -0.02% (-1.26%)
SDev Return per Trade 0.15% (0.11%)
Kurtosis -1.36 (1.85)
Skewness 0.79 (1.01)

With only ten trades this month, I don’t have enough samples to make meaningful calculations for the above statistics.

95th Percentile P&L $12.55 ($12.23)
5th Percentile P&L -$6.60 (-$8.43)
Net Profit Mid 90% Only -$4.75 (-$117.84)

Interestingly, I noticed that my typical top and bottom 5th percentile profit/loss are quite consistent.

Total # of Trades 10 (186)
Percent Profitable 40.00% (41.45%)
# of Winning Trades 4 (63)
# of Losing Trades 6 (89)
# of Break-even Trades 0 (34)

My percent profitable trades seem to be near 40% month to month. That’s good to know as it’s useful to calculate my statistical return expectancy as I’ve done in my TFSA trading cost-benefit analysis.

Average Trade Profit % 0.00% (-0.01%)
Average Winning % 0.17% (0.11%)
Average Losing % -0.11% (-0.09%)
Ratio Win% / Loss% 1.59 (1.20)

By being more discriminating in my trades, I’ve effectively increased my win/loss ratio. That’s good.

Max. Conseq. Winners 3 (8)
Max. Conseq. Losers 5 (20)
Largest Winning Trade $13.81 ($22.66)
Largest Losing Trade -$7.08 (-$14.30)

Avg. Time Held [hrs] 1.67 (0.73)
Avg. max. unrealized profit/ Realized profit (11.59)

Goal for March

My goal from January is to learn MQL4. I changed my plan since then due my lack of faith with using a proprietary scripting language. I learned Python programming this month and is now learning to use specialized libraries to serve my trading needs.

My goal for March is to write a rudimentary data analysis and visualization program for historical forex data.

What aspiring traders can learn from an Olympic athlete

Tales of great traders like Jesse Livermore, Paul Tudor Jones, or George Soros are inspirational. But there may come a time when a trader look at their trading performance over the years and say to themselves, “Why am I wasting my time with these average returns? I could never be like them!” For amateur traders such as myself that hasn’t “made it yet” but haven’t gone bankrupt yet either, finding the energy to grind this out year after year is not a trivial task. I have attempted to answer this question myself in my About page. Then last week, I came across a quote by an Olympic athlete whom has said it more succinctly than ever. Here’s what she said.

“I look back, I used to think I was really good but I wasn’t. That’s okay. Everyone has a different path. Some people are really good when they’re young. Some people aren’t. If you like it and you want to keep doing it, just do it.”

Kristina Groves, Canadian speedskater

If you like it and you want to keep doing it, just do it.

Like an athlete that finishes last in the line or an artist without a clientele, I am trading because this is what I love doing. It doesn’t matter to me if I am not wheeling cash to the bank yet. As long as I’m not doing more harm than good to my bank account, I will continue trading. Simply because this is what I love doing.

Source: thestar.com — Kristina Groves: Big heart, big results

What to do when life gets in your way of trading?

Sometimes, things in life will get in the way of your trading. From down with a cold to your internet service provider acting up, there are times when your are not able to trade in your ideal zone. What do you do in these disadvantaged circumstances? Do you take some NyQuil or whip out your Blackberry, and then continue trading? This decision certainly depends on the severity of your handicap and your trading responsibility. If you have a massive open position with no stop, you’d better suck it up and do something about it quick. For amateurs such as myself with nobody to answer to but my own account, I would scale out of my positions and then stop trading to focus on fixing my obstacle. I am faced with this question recently and here’s what I’m doing about it.

I have been practicing paper trading forex for the past few months working out some trading signals and strategies before going live. During this time, I have become very fond of the 3-hour chart. My strategy essentially boils down to making high-level decisions on the weekly and daily charts, then executing my trades on the 3-hour and 1-hour charts. I’ve written specifically about my basic setup and how I scale into a trade on the 3-hour timeframe. This latter technique, along with managing my stops, are the basis of my risk management. So imagine the disruption to my perfect world when I was barred from trading at my day job last month.

The first step I took is to adapt my trading strategy. I tried trading a longer timeframe so that I don’t have to move my orders every few hours. But the inability to limit my risks is really getting to me. That was the best part of my trading system and now I can’t use it anymore. This is one big hole into my trading strategy. So rather than continue on trading with a handicap, I’ve decided to cast my trading aside to focus on remedying this problem as soon as possible. Here are my 2 reasons for it.

1. There are always opportunities in the market.
2. There is no handicap system in trading.

Since my best trading system is effectively broken at this point, I cannot perform as well as I should. Rather than compete with the rest of the world in a handicapped state, it’s better for me to ease back on trading to put my effort to fixing my shortcomings. The longer I delay, the more my demo account would be unnecessary exposed.

In fact, continuing to trade full force with a handicap would just be reckless and arrogant. I am just scrapping by when I’m well. I can’t imagine how deep my drawdown would be if I trade without my best technique.

Here is my trading plan for the next few weeks. I will trade another strategy using a longer timeframe. I will limit my risks and focus by holding at most 2 positions at a time with maximum of 0.2% of account at risk for each. The majority (about 70%) of my usual trading time will be spent on learning MQL 4 and developing automated risk management systems.

That’s the story of my problem and solution. What do you do when life gets in your way of trading?

January 2010 Trading Performance Review

2010 didn’t begin well for me. I experienced my biggest drawdown so far at -3.95% (see Figure 1 for my account balance graph) in my demo account. Given that I only risk 0.2% per trade, this is a relatively substantial setback.

Ironically, I was in the process of filling paper work to open a live account when this performance setback hit me. Change of plan. Now I’ll have to postpone live trading until I can at least recover my demo account balance.

To do that, I tightened up my risk exposure and focused on playing only my best setup. By the close of the month, my demo account is sitting at -1.2% for January. At least I have made it some way from the bottom with a few good trades. This is also the first negative month for me since beginning trading forex in September, just 4 months ago.

January 2010 Demo Account Balance

Aside from my performance, a notable change this month for my trading is the fact that I’ve been barred from trading during the day. This forced me to trade less, which is a good thing. On the other hand, I’m not able to manage my stops as often as I would have liked. As such, I’ve been helpless at times and watched some profitable positions turn sour. Whereas before, I would have at least moved my stops to breakeven when the price moved away enough. Obviously, this calls for a drastic change to my current trading strategy. For one, I’m looking at higher timeframes for my trading now to catch slower moves. Secondly, my top priority for the next few months is to develop some trading bots to manage my risks while I’m away.

Performance Statistics

Monthly Metric January (December)

Sarting Fund $5,617.44
End of Month Fund $5,550.02

Total Net Profit -$67.42 ($148.33)
Gross Profit $375 ($591)
Gross Loss -$442 (-$443)
Profit Factor 0.85 (1.34)
Net Profit % -1.20% (2.71%)
Max. Drawdown % 3.95% (1.91%)

Sterling Ratio -0.15 (0.41)
Excess Return -1.26% (2.66%)
SDev Return per Trade 0.11% (0.12%)
Kurtosis 1.85 (17.38)
Skewness 1.01 (3.30)

95th Percentile P&L $12.23 ($11.97)
5th Percentile P&L -$8.43 (-$5.73)
Net Profit Mid 90% Only -$117.84 (-$46.96)

Total # of Trades 186 (276)
Percent Profitable 41.45% (40.77%)
# of Winning Trades 63 (95)
# of Losing Trades 89 (138)
# of Break-even Trades 34 (43)

Average Trade Profit % -0.01% (0.01%)
Average Winning % 0.11% (0.11%)
Average Losing % -0.09% (-0.06%)
Ratio Win% / Loss% 1.20 (1.94)

Max. Conseq. Winners 8 (9)
Max. Conseq. Losers 20 (18)
Largest Winning Trade $22.66 ($47.44)
Largest Losing Trade -$14.30 (-$11.64)

Avg. Time Held [hrs] 0.73 (0.26)

Goal for February

My goal from the previous month is to think more and trade less. Well, I managed the latter part but the former still requires work as evident by my negative return this month. For February, my strategy is to keep trading with half the risk exposure (i.e. 0.1% per trade) to recover my account back to its all-time high in beginning of January. I’m just about 2% away at this moment.

My goal for February is to get acquinted with MQL4 so that I can begin to develop expert advisors to manage my risks during the day and overnight.

Closed EUR/CHF and GBP/CHF Shorts: Best. Trade. Ever.

As I was saying earlier this week, I have been stockpiling in EUR/CHF short in my demo account (Fig. 1). Aside from that, I’ve also stocked up some GBP/CHF shorts this week (Fig. 2). Both positions are now closed because of my adjusted stops. These positions have single-handedly lifted me half way out of a deep drawdown in my demo account. These trades netted me about 1.5% in my demo funds. Yes, you read that right, a meager 1.5% gain and I’m calling these my best trades. No, it’s not like I haven’t had good trades in terms of the money made or the fastest pips. These shorts aren’t even close from just looking at the numbers. Heck, it would have been a lot more profitable if I shorted Euro and Pound with a Dollar or Yen counter this week. So why?

If you read my post on measuring trading performance, you may recall that I don’t measure success by profit alone. It is performance in terms of amount risked that matters in trading.

These shorts in EUR/CHF and GBP/CHF are my best forex trades ever (in my 4 months of fx trading so far) simply because I risked no more than 0.2% at any given time (most of the time there were no explicit risk as my stops have locked in profits) to make that 1.5%. 1.5% gained by risking maximum of 0.2% gives a Reward/Risk ratio of 1.5/0.2 = 7.5!

There were several occasions when I had doubts to add to my position or were pondering about taking profits to settle my worries. Despite all of that, I soldiered on, managed my stops like they were my babies, and piled more into the position according to my plan and trading setup (Fig. 1). By the time I started scaling out, I have built my biggest (non-scalp) position. That gave me a lot of freedom in scaling out as you can see on my exits shown in Figure 1 (red dots).

This Reward/Risk ratio is the highest I have achieved in recent memory. I have always read about 10x or even 20x trades at the SMB Capital blog. Those guys can achieve this type of reward/risk ratio day in and day out (I’m not affiliated with them). I guess that’s the difference between the pros and me. This is definitely something I am strifing to do myself. Executing consistently high reward/risk trades.

How I might do that? By continuing to improve on my trading skills and my understanding of the forex markets.

EUR/CHF, 3-hour

GBP/CHF, 3-hour