What Type of Trader Am I?
This post is dedicated to my FX trading. This month has not started well. I took on a few losses, which may have been attributed to taking more trades as a result of my confidence building up last month. Not only that, I think I would need a better review of my trading style.
I did my best to annotate my positions as accurately as possible. As you can see, I got in at a pretty sub-optimal level. It's literally nowhere. Price moved against me for the hours following my entry. It reached a key level and sold off. This is where I decided to adjust my stop loss and set it to a bit above breakeven, meaning slightly in the money.
My ability to read order flow on the lower time frames continues to be a hit or miss. I'll be dead on sometimes, but completely miss other times. This is perfectly fine as no one will have a 100% win rate. The problem is that the win rate must be sustainable with my reward to risk. Currently, this isn't the case. One reason why will be explained in the following example.
Can I call I trade perfectly and still not make any money? Yes. I experienced it at the start of this month with my AUDNZD trade and it still stings quite a bit. I discussed this trade in my previous blog post. The entry was sub-optimal, but the overall directional move (down) was in my favor. I won't go into the entry criteria as this post will be treated more so as a post-trade review. Here's a chart of what happened between my initial post and now.
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| AUDNZD 1-Hour |
Price hit my stop loss, which effectively scratched my trade, and then just tanked lower. In fact, it's still poised to go lower given that we're not seeing any significant daily support or buying pressure. This trade is what made me want to reflect and remember what type of trader I am.
So exactly what type of trader am I? The more I thought about it, the trading style that fits me is the one that I never really expected. While I wouldn't say I'm a scalper or day trader, I do look at the intraday time frames for a more than beneficial amount. I've always felt this need to constantly enter and exit with a holding period of a few hours at most. Why? Because it feels like trading. Because it feels like you're constantly looking for the next opportunity.
While, in fact, this isn't the trading style that fits me as I've had better success with wider stop losses and letting these pairs take on a larger directional move. If I were to be asked what type of trader I am, I'd say I trade structural price imbalances. In point form, here's what I mean.
- I have a day time job. I'm not going to go too much into that, but this simply means that I can't commit full 8 hour session to stare at my charts and take trades intraday.
- Furthermore, I wouldn't want to do that. This is due to two reasons.
1. Reading the order flow on the 1-hour and lower timeframes has never been my strong suit. I often find too many false signals. When my win rate is lower, my R:R ratio needs to be even higher. Trying to force this isn't going to work. Instead, why not filter out the noise by going onto the higher time frames? In the case of my AUDNZD example, the hourly time frame was quite ugly as price didn't respect these levels cleanly. However, the signal generated by my analysis of the higher timeframe structure remained accurate.
The reason I'm having a hard time accepting the fact that I need to focus on the higher time frames is that I'll need to take less trades and wait for signals to play out. However, I'm not trading for the sake of trading. I'm trading to, ultimately, make money. If I'm losing money on the lower time frames, I can cut my losses simply by not staying on the lower time frames. This thought process is much easier said than done. I guess that's why they say that the market is the ultimate personality test.
2. The second reason, I believe, that relying on lower time frames won't be feasible in the future is increased market noise. I'm not going to go on a fear-mongering rant that we're all doomed because of high frequency trading. There are various reports, like this one, that discuss how algorithms contribute to the majority of the trading volume. A byproduct is increased volatility, or noise, on the lower time frames. You can either complain about the impacts or adapt by focusing on structures developed on the larger time frames. The volatility created by algos can allow you to get filled at a better price if there are illiquidity spikes that work in your favor even if price is starting to drift away at your desired entry price.
Note that this is my opinion at the time of writing this. It will change as I gather new information and factor that into my decision and analytical processes. - A string of smaller losses and big wins fit my poker playing style. The poker player equivalent of a scalper would be someone that consistently find opportunity to pick up small pots when everybody else misses their hand. I'm not like that. I have no problem paying a small fee to enter hands and make plays for a potential big win. This needs to translate into trading as well. I need to effectively manage my risk to the point where one win can cover my average string of losing trades in a row. That's the premise of comparing your win rate against your R:R ratio.
My goal for the rest of this year:
Getting out of a trade needs to be due to a proper reason, which includes identifying a structural change in price momentum. It CANNOT be related to profit or loss such as the fear of giving profits back. My job is to make plays, not worry about my fluctuating P&L.