Trading Recap: April 2021

Execution quality is improving, but it still needs work. This can be seen in April's equity curve. As mentioned in a previous post, I scaled down to trading a relatively small (and fixed) risk. Specifically, I used a $5 risk per trade since it allowed me to adjust my position size in accordance with my stop loss. This led to a relative "flat line." So time to go over what happened after that.

April 2021

I am surprised that I've had less profitable months this year (2021) as opposed to last year. However, I am where I am and it's a matter of continuing with what I do - backtesting, live trading, and trusting my stats. All of this centers around execution quality.

Now back to the topic at hand. My equity curve was relatively flat, but it still sloped downward. During this process, I was still having more losses than wins. Although I was trying to target a higher R-multiple in order to sustain a lower win rate, realizing the target is much harder said than done. When I have to force a higher R-multiple, my probability drops, hence the lower win rate. It drops because I am now forced to require that price move significantly in my favor in order to recoup the previous losers.

This leads to the concept that I now classify as execution quality. This is the idea that you have to have the highest quality signal. If a signal looks like it's there but the price action is terrible, avoid the trade. This could be a sign of illiquidity that happens to be similar to a signal you recognize. I'll highlight some of my trades later below.

With this idea of execution quality, I started setting targeting a lower R-multiple. I previously did not because that would require me to sustain a higher win rate. Isn't this a bit of a dilemma? I would either have to sustain a higher win rate by targeting a lower R-multiple or sustain a higher R-multiple with a lower win rate. Which one does one go for?

I think this comes down to an optimization problem and the need to trust your stats. In my backtests, my three signals are there. When they pay out, there's great momentum. However, executing those signals perfectly in real-time is the challenge. After all, everyone is right in hindsight. To bring this full circle, I believe that this is why execution quality is so important. By resisting the urge to act on sub-optimal signals, I believe this will lead to profitability without having to hit home runs all the time.

As I scaled up, my equity curve ticked higher. Targeting a lower R-multiple led to more winners. However, it also means I have to keep the win rate up. There was a nice string of winners at the end of April. However, I admittedly did experience a small setback in the beginning of May. Since I'm already late to making this post, I might as well go through some of the key trades made this month so far.

GBPJPY Fakeout

I took this trade near the end of April. Standard fakeout (false breakout) play off of a structural level. This is one of the signals that I watch for.
I previously would've tried to target an R-multiple where price spanned from one level to the next. This would be difficult to achieve probabilistically speaking.
Instead, I targeted only 2.75 R where there was another minor level showing previous strong order flow.

EURUSD Level-Fail

This was a trade that I took this month. Unfortunately, the execution quality was very poor.
This type of play would basically expect a level to invalidate and no longer hold. This can be observed here as price threatened to breach below our support level. As price drifted higher, I sold into it. This is highlighted by the color coded red and green areas.
This was a sub-optimal play. To ensure a high probability of success, the actual move would've needed to follow the path of the yellow arrow. This basically indicates that price tried to trade higher but failed. When price trades on a lower high, that's where the entry would be. This would be depicted by the red arrow.

My execution quality still needs work. If I can filter out plays that I shouldn't be taking, I'm confident that my setups will work based on how the results of my backtests.