Hi everyone,
I have been trading forex for 4 years now, but have only started showing signs of profitability in the last 6 months after testing out several strategies. I finally created a day trading (5 min charts) strategy, which is discretionary and I have tested it for 2 months now. I started trading this on a demo account in April, then started trading small money in May.
I was up around +35% on my account for May trading 1% per trade, with a 60% win rate trading the main forex pairs, which was extremely good. However, this week has been poor where I’ve had 5 out of 5 losing trades this week and my first losing week of the month, reducing my gain to +30%, which is of course still very good. All the trades I entered this week have had no follow through. I have been kept in the trades for several hours before eventually getting stopped out. It seems like the markets want to go my direction, but there is not enough volume to push it past new highs and so the trades reverse on me and stop me out.
Because my strategy is still new and I haven’t been trading it for long, I am nervous about how this strategy will perform in the future, just because this week has been poor, but I know very well a drawdown week like this is normal. I hope it doesn’t continue like this for the whole of June. I wanted some reassurance from experienced traders about the types of drawdown patterns you have when you trade? Has this week been bad for you as well, and could it be because we have non-farm payroll tomorrow along with the bank holiday we had on Monday the reasons for a bad week?
Thanks for your help!
Surely there’s insufficient trading time to draw serious conclusions. Just keep your head down.
But what really worries me (apart from day-trading altogether) is the word “discretionary”. What does this mean in the context of your particular strategy?
Thanks for your reply. I don’t have any thoughts of quitting my strategy. I will still trade it with small money at least for 6 months. I just wanted to know if my performance outcome sounds normal for an experienced day trader.
By discretionary, I just meant that I don’t follow a mechanical strategy. I judge the overall trend on the higher timeframes using the MACD, then I use confluence with a bullish/bearish candle to enter a continuation of the trend after the pullback.
30% still sounds good… but…
As was stated above…you havent tested it for long enough to know what to expect. You dont know if 30% is normal…or if it is higher than what you can expect longterm.
True…NFP does have an effect on the market a few days before it comes out…less liquidity. But this should not affect your strategy. In fact your strategy should be telling you not to trade…but instead it is giving you False Signals.
My questions and comments
- When you say you look at the Trend of the Larger Charts. Which Higher Time Frames? 4Hour and Daily?
Im not a fan of MACDs or indicators in general. Candlestick Patterns along with Trend Lines are better at correctly identifying trends.
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Maybe you have been trading profitably when the Higher Time Frames and your 5 Minute have been trending nicely together… but it is possible that the Higher Time frames have changed their patterns and are forming Consolidations…which is now complicating your analysis.
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It is also possible that - as is common at month ends - trends are switching from Uptrends to Downtrends and vice versa and you are being caught by this transition period.
Can you give me an example of some of those 5 trades?
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Hi, thank you for your excellent reply.
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Throughout the month of May I was having an average of 3 trades per day, but this week it seems to be more like 1 or 2 per day, so it does seems like this week has not got me into as many trades. (Two of the five trades this week I could say I broke my rules and should not have entered them).
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I use the 1 hour and 4 hour charts to do my analysis, but I also look at the 15m and 30m to have a better picture of the shorter term trend.
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You are totally right regarding your last comments and I am glad you mentioned this because no mentor has ever explained this to me in detail. My best trades were when the 5 minute chart and the higher timeframes were trending nicely together and I also do feel like the markets are in a consolidating period at the moment generally. I am looking forward to June to see what happens. I also wanted to mention that my strategy is able to gain high risk/reward trades and I had many 3:1 and 4:1 R/R trades and a couple of 6:1’s this month, which I guess gives me more room to have losing trades and still be profitable.
I have attached an example of today’s losing trade on USDJPY where I went long at the candle where the 3 white arrows are, along with the 1 hour and 4 hour charts. On another day, this trade would have potentially broken past above those highs, but instead went up, down, up and then stopped me out a few hours later. I had a feeling it would get stopped out after it did not move quickly enough as this happened every time this week.
Thanks again!
Here is another example going long on GBPUSD from yesterday just before the New York session open:
As someone else previously mentioned you simply dont have enough occurrences to know if you have a bad strategy and happened to get lucky with a good winning streak or that you have a good strategy and was unlucky with a losing streak. It sounds like you need to continue to trade your strategy and use either a small amount of capital or test it in a demo account. In either case your goal should be less about making money and more about understanding the success of your strategy. You need a statistically significant number of trades to know if your trading method is going to be successful in the long term. Even veteran traders with successful strategies have long losing streaks. That brings me to my second point, which is to not over risk on individual trades. You need to be able to sustain a losing streak without blowing up your account too bad. Recovering a loss becomes exponentially more difficult after about the 30% draw down point. It should take a lot more than 5 consecutive losses to get to that point, if you are risking properly. And if your trading strategy is as successful as you think it is then you should be able to make plenty of profits while keeping your risk lower.
I will give my general comments and then speak to your trades
- Well general response is that using the 4 Hour or 1 Hour are not that reliable to identify a reliable trend unless they align with the Daily.
Here are examples of how I use the Daily to predict the market on a few Currencies this week.
I also prefer to use Trend Lines and Consolidations rather than Indicators to see the market a lot more clearly.
- Using Resistance and Support to identify Ranges and Pennants helps tremendously . This allows you to see when the Trend has ended/paused.
Trading the movements within them as Trends can be profitable. But doing so on the Smaller Charts is less viable because the candles and signals tend to be weaker.
USD JPY
In terms of this pair…the 4H and 1 H were in downtrends since May 22nd.
1 HOUR CHART
Any up movements are viewed as temporary rallies ahead of the resumption of the Downtrend.
As the Downtrend came to an end, the market then began to move sideways to form a Range…
The Uptrend you saw and traded was actually a Bullish movement within this Range. However, because
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This was a Smaller Time Frame
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This was a Range not a trend
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The area you traded had weak candles
The probability of success was always gonna be low…
GBP USD
Same things can be said about this pair where both the 4H and 1 H were in downtrends - which were in sync with the Daily Chart. So any trade bullish would be low probability of success.
The area you traded appeared to be where the market was beginning to transition to Uptrend - hence subject to volatility and weak signals. So trades either bearish or bullish would not work out. The market was rallying but since it was still below the Downtrend Line, it was not yet an Uptrend.
So these are the reasons you had losses - misreading low probability movements within Consolidation/Trend Changing Transitions for Trends.
As I stated, maybe switching to/adding Trend Lines and Consolidation Setups to your analysis along with the Daily Chart would help to avoid these traps.
Bad week may come. But the problem is- a strategy tested only one month, may not give you desired result. Market doesn’t not behave in a same way all the year. Market is even changing in a pattern. To find a good strategy it needs a lot of time and experiments. Most of us are not willing to do that. As a result we lose years after years.
