Trading Recap: March 2021

One of the biggest challenges with forward and backtesting is that order entry is always optimized with the latter. Despite only focusing on three setups, my actual execution has been less than optimal. This is something that I still have to work on. Basically, knowing when to sit out or wait even when the price action "looks good."

March was a downright horrible month for me. I took on steeper losses and it really made me wonder if I can really continue with this. Two of the major losses were explained in an earlier post where I reviewed the GBPNZD and CHFJPY trades. In short, slippage and a tighter stop. Here's my performance since the start of this year.

EdgeWonk Since January 2021

There were a couple of sub-optimal trades that I took. Rather than going into a more in-depth discussion on them, I'll provide a quick summary. This way, I'll be able to allocate more time explaining what I plan to do about a shitty first quarter.

GBPCAD & EURCAD:
  • Both of these pairs were in a downtrend. 
  • Around March 23rd, both pairs appeared as if they were bottoming out.
  • After a small rally, I prematurely bought into both pairs as they were in the process of making a pullback.
  • I should have waited for price to pull back to the next key level and watch the reaction. Price breached the level I expected it to support and then traded lower.
CHFJPY:
  • This pair experienced an upside breakout and then began pulling back.
  • I saw price slow down as this pair pulled back to the previous breakout level and bought.
  • Shouldn't have done this at all since I already know continuation patterns don't work for me. An alternative would've been to reduce my position size, which I didn't do either.
These three pairs gave me the most trouble over the past month. To add even more pain to the wound, I didn't size down. In fact, for GBPCAD and EURCAD, I sized up to 2% risk as I considered these to be structural moves. The only problem is that I didn't wait for the structure to get established. If I did, I would've observed that the levels previously plotted will be breached. At the end of the day, I have not been sticking to my 1% risk tolerance as tightly as I should've.

With that said, I have some slightly different objectives for April. The first is to bring my risk per trade down to $50 rather than $100 to represent 0.5% risk. In addition, I need to prove to myself that I can get to this full 0.5% risk limit by generating a positive R rolling five-trades. Here's what I mean.

If you take a look at the end of my performance graph, you'll see that it flatlined. This was because I decided to trade the smallest volume possible until I can get my "read" of the markets back. Each trade was for one micro-lot (0.01) or 1,000 units. I would continuously sum up my last five R-multiples. If I am on a losing streak, then I cannot size up to my standard risk. I can only do so when the sum of my last five R-multiples is positive.

What I think this does is that it takes P&L out of the equation. It allows me to trust the statistics of my setups. If I am able to generate a positive R sum, then I know I am not making any stupid mistakes and executing my setups well. This is something that I will be focusing on from April onwards. If I am experiencing a losing streak, drop down to trading a micro-lot. My losses right now don't stem from poor setups, but rather poor execution. The latter is what I need to work on the most while losing the least.