Gilas' Journal - Learning to Manage Risk

[Gilas]

I’m trying to qualify for a prop firm (which I will not name here). I’ve been trading forex for almost 2 years and have blown up several accounts. I’ve gone through the same cycle over and over again, which is making 5-50% profit in a day for several days and then losing 30-70% of the capital in a single day. I kept getting told by people that I was risking way too much but was too stubborn to listen. I wanted to get rich quick through compounding gains, and I thought very highly of myself and believed I could find ways to make huge profits everyday consistently.

Now I’m tired of repeating the same cycle, and on the suggestion of a friend signed up for a prop trading firm evaluation program where essentially I paid them some amount of money and the gave me a $10K account which I have to trade with very strict loss limits and max position limits compared to what I was used to. If I lose 4% of the account it gets closed, if I gain 6% in profits I get a payout and the capital is increased to $40K. Thereafter, they double the capital every time the new capital makes 10% profit, and the profit sharing is 50/50.

I was quite skeptical at first, but hey I’ve already blown away so much money I’m willing to try anything. I had some problems adjusting the first week but after watching lots of videos and reading books and articles on trading psychology and risk management I’ve noticed my performance improving stats wise, although the profit is definitely much smaller than what I’m used to. On the other hand, the account is hopefully far from getting blown up.

Here are my stats from metatrader 4 for the past two weeks.

I keep writing down paper journals whenever I’m in the mood but then get lazy whenever I hit a bad patch. I’ve started this journal to record my progress and be able to better analyze what I’m doing. Feedback, both positive and negative, is very welcome. I’d like to see how people think of what I’m doing.

Essentially I do one of three things.

System A. I look at the daily chart and determine my bias. Then I look at 1H charts for intraday consolidation and entry areas/some kind of rejection signal and the 15m chart to enter. Typically these will be rejection candles with wicks. The entry areas should be near some kind of key zone, i.e. intraday supply/demand zones, previous days’ highs/lows/closing price, pivot points, Volume Point of Control (VPOC), Camarilla Pivots S3/R3. Some confluence among key levels leads to higher conviction. I will enter double the size I want in 4 tranches (i.e. 4 entries of 0.02 lot) as the price consolidates, with a tight 1/4 Average Daily Range stop, then exit half the position at the other end of the consolidation, hoping for a pullback where I will exit the other 1/4 or perhaps the remaining 1/2 if it does not develop into a reversal.

System B. Look for clear ranges on the 1H that have developed for several hours. If price just came from an intraday consolidation at key levels and broke out then formed another consolidation, or some kind of M top/W bottom pattern, I will take a position at one end of the range in the direction of the previous breakout. I view this as a consolidation/continuation pattern.

System C. Wait for major news and open 4 charts related to the currency (i.e. EUR GDP news, open EURUSD EURJPY EURAUD EURCAD, depending on what looks to me like it has some kind of sideways consolidation happening), and if 2 or 3 of the pairs has started moving in one direction but one pair has not moved yet take a trade in the direction the other pairs have moved.

I am continuing to refine my process, and would be glad to answer any questions people have regarding the logic of those 3 systems. Also, I trade about 6-14 hours a day, with an average trade length of about 3 hours per trade.

Looking forward to your comments. Thank you!

[Gilas]

I’ve identified several of my trading errors/bad habits as well, which I am trying to minimize:

1. I hate taking losses. I used not to use stops but the prop firm requires all positions and orders to have SLs. Now I set SLs all the time BUT have developed this bad habit of moving the stops. I should stop doing that.
2. My stops tend to be too tight (which is why I keep moving them). I should learn to place better stops and accept the loss.
3. I tend to enter way too early. I should learn to wait for the 1H candles to really form some kind of consolidation.
4. I add to my positions as the price goes against me.
5. I exit way too early (because I’m usually stuck waiting for a losing trade to move in my favor).
6. I take trades without zooming out and looking at the market structure and the daily candles.
7. I take revenge trades with larger positions.
8. When I have a good winning streak I tend to forget about risk management.

These are the demons I’ve identified so far. I am sure I will find more demons while journaling my trades.

[Gilas]

I’m up 1.75% now. My goal is to average 0.5% a day, or about 50$, to get to 6% in 2-3 weeks. Any day where I lose 0.5% I will stop and rest for the day. I have had 3 losing days and 8 winning days, so hopefully in 15 more trading days (3 weeks) I will maybe have 4 losing days of no more than 0.5% (total 2%) and 11 winning days of 0.5% (total 5.5%) for a net of gain 3.5%, which will take me to 5.25%, nearly to the 6% target. Maybe I will hit that 6% by then with a bit of luck, fingers crossed.

[renoisland]

First off, Congratulations on the success curve you’ve shown. A lot of nice things have happened for you and that’s a great thing. I hope great things continue to happen.

I notice you shared many stats with us. You shared percentages, dollar amounts, and even time frames. I don’t think I saw the word pip anywhere on your post. I read in a book a few years ago to stop mentioning money and start harvesting or generating pips. The word money compared to the word pip is such a radical difference. One obviously generates the other, they go hand in hand. I don’t know if this will help you. It certainly helped me by lowering my stress level.

I hope your objectives are reached. That… is up to you.

[Gilas]

Thank you for the encouragement. I don’t think in terms of pips per se. I tried it before but it made things worse. When I would gain say 20 pips, I would think well I should have put on a larger trade and made more money. But in reality psychological issues would crop up once a trade is in a certain amount of profit in money terms. Right now my standard entry size is 0.02 lots, so you can extrapolate from the stats that I average around 11 pips profit and 15 pips loss per trade. But if I traded 0.1 lots per entry like I used to I would likely be happy to get out with just maybe 5 pips of profit. It’s something I am working on.

[renoisland]

Do you think a Trading Constitution would eliminate any psychological issues that you say crop up? A Constitution is something that traders recite daily to get their mind ‘ready’.
Trading is 20% mechanical, 80% in your head.
Hope this helps-

[Gilas]

Not sure what a Trading Constitution is.

[renoisland]

Kinda like a ‘mission statement’, a set of rules you follow. It can be a very helpful thing. Another word is a personal ‘vision’. Mission statement might be the best word. Your mission statement is designed to put good stuff into your head before your trading day begins.

[Gilas]

I see. I think what would help is to be clearer about my trading rules, and monitoring the success and failure statistics of my 3 strategies. The worst problem I used to have is I am familiar with so many trading styles and indicators and strategies over all timeframes, and so I traded last year ANY setup I could see. Have been more discerning this year and have only last month finally decided on those three setups that I have had success with. Time to validate them now. If I had these statistics I think I would be able to have more confidence and follow my rules. Still, making larger amounts of money per trade will take getting used to I think, especially since the areas where I trade can have quick choppy moves before finally moving smoothly in my favor.

[renoisland]

I had the similar issue on multiple strategies. I finally said to myself… ‘enough’. You are well on your way. Best wishes and many pips to you!

[Gilas]

Here are my trade ideas for 26 Dec 2018.
Short EURCAD

Here’s the daily chart:

Here’s what that looks like on 1H Chart:

Here’s my idea for shorting GBPCHF, but I doubt it will go back into my preferred entry zone

Will update my trades tomorrow.

[Gilas]

Shorted EURCAD USDCAD AUDCAD. Would have wanted to get a few more trades in other pairs but spreads were too large when I saw potential entries a while ago.

Will probably move my stops closer after Japan opens, or close some of the trades at a loss should I be wrong.

[Gilas]

Closed everything. Spreads are still pretty wide and lots of countries still on holiday. Also going to sleep to get some rest. Otherwise I would leave a few trades open. Satisfied with the 0.13% gain after two hours of trading. Will trade again during the European session.

[Gilas]

Made 0.3895% yesterday all in all. Account is now up 2.40%. It’s quite tedious but steady as she goes. Here are the additional trades I made.

Done for the day. Made 0.263% today, still a lot of time but I’m feeling quite tired.

You can see the times I entered and exited the trades, server time is GMT +2.

As I mentioned above, questions and feedback are quite welcome.

[Gilas]

Could not sleep so traded some more. Lost a bit on USDCAD shorts but made that back and a bit more on GBPCAD shorts, which I suspect I entered too early and exited early as well. The consequences of bad decisions I guess. Up for the day 0.36% and overall 2.5%

[Gilas]

Made $26 but decided not to hold on to my GBPCAD shorts over the long weekend so took a $6 loss to end the day with $20 gain. I spent several minutes thinking about it, and decided I was going to spoil the weekend by thinking about the trade rather than just taking a break, so went ahead and cut the positions.

My thesis that the CAD is undervalued has not really materialized, but thankfully have still been able to make some gains by taking profits when I could and accepting that prices are just ranging and not really in trend.

Update of my stats overall.

Account is now at 2.70% gain after 3 weeks. Need 3.30% more to meet the target 6%. Slowly but surely I guess.

Made an fxblue account in case anyone wants to look at additional stats:
https://www.fxblue.com/users/gilas

P.S. I know the very small % gains are not “sexy” but I’m focusing on discipline. If you look at the fxblue page though, the account has made 2,015.4 pips in the past 3 weeks. Unfortunately I average 16 pips per win and 18.4 pips per loss, need to tighten that up. Maintaining a 68% more or less win rate.

[momoisnyc]

We manage around the same win rate about. Slow and steady will keep you compounding mate. Keep at it!

[Gilas]

Thanks @momoisnyc. Actually the good thing about this prop firm thing is if what they advertise is true, they’ll increase the capital to $40K once I make 6% ($600). Then supposedly every time the account earns 10% ($4K profit on $40K, $8K on $80K, $16K on $160K) they’ll double it until I get a max allocation of $1.2M. So I don’t need to shoot for the moon, after all 0.5% gain a day = 11% a month and that triggers the doubling of capital. So it’s not really compounding that will allow me to trade larger someday.

But really I’d be happy to do the 10% every 2-3 months and just have a nice smooth equity curve. Although of course I would not turn down opportunities where maybe the market gives me 1% or better in a single day hehehe, I would just count myself lucky then.

[momoisnyc]

I like your thinking mate. I truly wish you the best and I hope to read more on your journal. You have a good goal in mind and it’s very attainable as well. I hope you reach glitz galore on that mate. Cheers to making our goals achievable.

[Gilas]

Thanks. I hope I can maintain the patience and discipline necessary. It gets quite tiring some days. I understand now what some senior traders say about the worst thing to happen to newbies is to experience profits quickly. I feel like I’ve tasted the forbidden fruit and am not content with small gains.

Here’s what I did in 5 weeks early this year. I blew that account two weeks after.

It’s been rough. I’m only coming to terms with the idea that longevity is the goal, and risk management is the key. That 4 week period seems like a fevered dream now, but the 2 weeks after where I blew that account is a haunting nightmare.