Win Rate Problems

Not going to lie, this week has been a pretty huge setback. Maybe it's from the (over) confidence gained after the recovery last week. Maybe it's because volatility unexpectedly died down. Maybe it's both.

So what's the damage?

EdgeWonk Performance Chart

I'm pretty surprised at myself for experiencing 13 consecutive losses in a row. Looking back at this at the end of the week, I would say there are two behavioral and one event-driven reasons.

The event-driven reason is that volatility has died down. This is what I visually observed based on the number of overlapping bars on both lower and higher timeframes.

On the macro side, I would not be surprised if everyone is waiting for the Non-Farm Payroll release next Friday. But, the bigger anticipation is the US interest rate hike decision, especially as the annual inflation rate accelerated to 7.9% in February 2022.

As for the two behavioral impacts, here are the two:
  1. As much as I hate to admit it, overconfidence from the previous week may have led to slight overtrading. However, the trades weren't arbitrary. They still followed the signals that I look out for. Except it's more arguable that the quality of the signals were suboptimal.

  2. The second factor is that I didn't focus on structural moves nearly as much. This is problematic because signals from structural moves ensure that I'm able to preserve my win rate. The rest of this post will be a review of my more notable trades.
AUDNZD:

AUDNZD Daily & 1-Hour

  • Price tested and held resisted at the 1.0797 daily high.

  • Over on the hourly timeframe, price made a lower high and then threatened to breach below the 1.0785 neckline.

  • The outcome was a false breakout, which is fine since I did enter with a probabilistically favorable direction.
NZDCHF:

NZDCHF Daily & 1-Hour

  • Over on the daily level, price hit the 0.65 high and stalled.

  • Over on the hourly, I plotted the neckline at 0.64695 since this was a previous relative low.

  • This was a pretty terrible trade. Although price stalled at the daily level, I didn't actually see any clear indication that downside momentum is picking up. For example, price was drifting to the downside as it crossed below my hourly neckline. However, this neckline didn't act as a rejection for further upside potential.
CADCHF:

CADCHF Daily & 1-Hour

  • I had to adjust my daily level. However, the adjustment was minor - moving it from 0.7435 to 0.7445. This is because price tested a new high. However, I did see exhaustion given the smaller-bodied bar after the rally.

  • This led to my two attempts to short this pair. Note that these were two discrete attempts.

  • For the first trade, there was an hourly whipsaw. Price failed to trade up to the upper range boundary. So after price traded back up to the intraday lower breakout level, I took this trade with the mindset that I'll scale in once the lower structural boundary at 0.739 breaches. This trade quickly failed.

  • The day after, I decided to try again. After a very bearish move, price stalled just below the intraday lower breakout level. That's where I entered my short trade. Once again, I would've scaled in if the lower structural boundary at 0.739 breaches.

  • Even in hindsight, I don't see anything wrong with these two trades. I essentially sold short after this pair was heavily overbought.
EURJPY:

EURJPY Daily & 1-Hour

  • This trade was questionable. No doubt about that. Price rallied hard and then a bearish daily bar after hitting the 134.625 highs. At this point, I was already looking to enter short. This was problematic because I deviated from my methodology of taking the time to observe the structural formation.

  • Over on the hourly timeframe, I impulsively acted on the bearish bar that was playing out. If I took the trade as price broke back below the neckline, that would've been more justifiable. However, I entered short when price stalled and then made a downtick. Since there weren't any significant levels here, I essentially entered without the momentum consideration in mind.

  • In conclusion, I consider this trade a mistake.
AUDCAD:

AUDCAD Daily & 1-Hour

  • I have to admit, this wasn't the greatest daily level.

  • As shown on my Signpost over on the hourly timeframe, price bounced off the neckline and quickly exhausted. This was a pretty good indication that upside momentum is dying off. I entered short on the 0.93 neckline downside breach.

  • Although this trade did not pan out, I consider entry decision to be solid.
This recent losing streak highlights a very real problem - it's very difficult to sustain a high win rate. I have talked about this before and I'm revisiting this topic again.

Why?

Because lowering my win rate isn't easy. It means the payoff of a winning trade has to be greater. This also means setting a tighter stop loss, which I can't do?

Why?

Because of broker shenanigans. Due to my broker's tendency to false spike, I need to set wider stop losses to give my trades more breathing room.

I haven't fully figured this out yet, but I am confident in the signals that I have been refining. My short term goal is to recover my account once again. To do this, I'll continue to focus on making plays off of structural levels.

To sustain a lower win rate, this will involve me filtering trades. Trades will need to have have larger planned-payoff. Whether or not this payoff is realized is a different story.