Gnome's Trading Diary

[a_gnome]

Let me start by saying that I'm not sure about doing this at all and it's possible that I may decided that I don't want to carry on so be warned! Having said that I do find journalling is a very useful process for getting one's thoughts clear in one's head so I'm hoping to find it all beneficial.

A bit of background info to get started:

I develop trading strategies for a living which are licensed out to a large fund. I work from home, get paid a decent monthly amount for this and also get performance bonuses so it's pretty much an ideal job. However I find this process rather abstract and removed from the actual day to day cut and thrust of the markets and that, coupled with wanting to get another income stream working in case things should go pear-shaped with the fund has lead me to want to develop my personal trading skills. Interestingly enough, despite being a professional programmer, I wanted to develop a non-mechanical/semi-discretionary approach. I know that it's not easy to develop purely mechanical trading methods especially on the short time-frames that I want to trade. I also know that it's not easy to be a successful trader, having tried a number of times in the past. On those occasions I never lost a great deal of money (apart from blowing £10k trading stocks just after the dot com bubble burst) but I never really got anywhere with it before giving up. However, I realised that my work situation offered the ideal opportunity to make a real go of it so for the last year I've been trading FX trying to hone my skills. I'm trading with real money (there's no point IMHO in using a demo account) but am trading relatively small sizes on OandA where there's no limit on how small you can trade. After a while I started to make money fairly consistently and have started keeping a weekly record of how I'm doing. Firstly I should say that I risk no more than 1% of my account per trade and for many trades it's about half that. In the 17 weeks since then I've had a positive week 71% of the time, making an average weekly profit of 0.65% on the account. My Sharpe Ratio is currently 3.6, I'm up 11.1% on the account in these 17 weeks. I want to scale up from small scale trading to full-sized trading so have adopted the approach of increasing my effective account size every time I've made four weekly new equity highs. So far I've scaled up twice and need two more weekly equity highs for the next scale up.

All well and good I hear you say, so why am I writing this journal? Well I'm in a two week Drawdown at present of 2.6%. So far this week I've made back about half that so I'm not particularly concerned about the DD but it's the biggest one so far. Moreover, it has made me focus on exactly what I'm doing and made me realise that parts of my trading strategy aren't properly honed or defined yet. There's a lot of discretion in my trading: I have quite a few entry technique tools in my arsenal but there is a lot of discretion as to when I apply them. In fact I'm certain that it's this discretion of only waiting for optimal market conditions which actually makes me the money: there's not much of an intrinsic edge in the entry techniques themselves. However, I've realised that my criteria for when I'll put a trade on are a bit wooly at present.

So firstly I want to hone my skills so that I know exactly what I'm doing. I also firmly believe that I should be making more like 1% to 2% per week so I'm under-performing at present. Secondly, I want to expand my arsenal so that I have more techniques at my disposal. I've found recently (i.e. over the last couple of months) it's been very hard to make money in these FX markets. I've managed to do it but my number of trades has gone right down from up to a couple of dozen per week all the way to just two or three per week. Don't get me wrong, I'd rather cut down on the trades and continue to make money but I feel that I need to diversify my techniques so that I can maintain my progress and ultimately my income stream. To this end I want to come up with some longer-term trading techniques - all my stuff is intraday at present and some of it is very short term.

So that's where I'm at at present. I must admit I've found just writing all that down has been rather useful in focusing my mind on where I am and where I want to get to. I'm not sure how this journal is going to progress going forward, but I think that I'll just let it evolve in it's own way. As far as comments/replies to this journal are concerned, I certainly welcome them and look forward to some constructive feedback.

Gnome

 

[a_gnome]

I've just spent an hour or so going through the market action this week and actually I don't think that I've missed much. Apart from a decent move in the EUR on Monday it's been very choppy and rangy so all in all I'm pleased to be up 1.4% on the week. What's more I've already added a new entry technique to my arsenal with an old method that I used to use years ago but which I'd forgotten about. I used it this morning for a nice 0.64% profit in Cable and looking back over the last month it would have returned some decent profitable trades.

As far as the paltry number of trades that I'm finding at present, I know that sometimes one just has to ride out tough market conditions in a disciplined manner and wait for better trading conditions to return. Also, there's not been much news out this week to move the market much. Onwards and upwards!

Gnome

 

[a_gnome]

Well, I decided not to trade today (Friday) and instead to stand pat on my weekly total of +1.4%. That's a bit more than half my Drawdown clawed back and another week like that and I'll be back to new equity highs. There was some strong movement in Cable today though it would have been quite hard to get in on and I could easily have been sucked in on the wrong side so quite glad that I wasn't trading actually.

I spent some time this afternoon trying to figure out some new short-term entry techniques - I've got a few ideas which show some promise but only time will tell.

Weekly Stats
Total number of weeks: 17
% Profitable Weeks: 71%
Avg. % Profit: 0.65%
Sharpe Ratio: 3.55
Distance from Equity High: 1.16%

I'm pleased with those figures though I really want to get that Avg. % Profit figure up to between 1% and 2%.

Gnome

 

[a_gnome]

Another week over and it's been a bit of a rollercoaster. I had a couple of nasty losses on my news trading which is normally the most profitable part of my trading. There was nothing wrong with what I did and I'd do it again if I had to but it rather smarts. I was down over 2% on those two trades and I admit that psychologically I did get a bit destabalised and took a "revenge trade" with a predicable loss (-0.5%). At this point I was down a total of 3% for the week though I calmed down and later on made back 1.5% on the FOMC news release - it should actually have been +2% but I got shaken out by the volatility. I traded OK for the rest of the week and ended the week down -1.5% leaving me now in a drawdown of 2.66%.

In a way I'm pleased that all this has happened as it's forced me to look more closely at what I'm doing. I've come up with another entry technique which shows great promise and which fits in nicely with my existing stuff though it still needs fine-tuning. One thing that I've realised is that I was getting a bit "precious" about my performance stats, worrying about it so much that I would pass up on trade after trade so I was hardly trading at all. I'm not going to make my target of 1% to 2% per week unless I actually make some trades and actually it's rather liberating to have my performance suffering as it means that I can stop worrying about it and concentrate more on the trading itself. Some wise trader once said something along the lines of ignore your performance stats, instead concentrate on doing your trading well and profits will come along of their own course. This is something that I need to master. I know that I'm still very much learning but I'm not going to get where I want to unless I'm prepared to get in there and get my hands dirty. Having said all that, there is of course a flip side and my reluctance to trade has kept me out of plenty of losses. It all comes down to experience in the end of knowing which trades to take, being able to read the market conditions and how the market is reacting. I know that once I've traded my way back to new equity highs I'll be more confident in my abilities which will help the whole psychological aspect of my trading. I'll also be more relaxed about taking a big hit so won't get into the whole "revenge trade" thing.

On the whole', I'm very pleased with how it's all going and it's great to have the FX markets finally moving nicely again.

In the spirit of not being so focused on my stats, I'm doing much reduced Weekly Stats this week.

Weekly Stats
Total weeks: 18
Total % Profit: +9.6%
Distance from Eqty High: 2.66%

Onwards & upwards!

Gnome

 

[rsh01]

Hi Gnome, so you are trading with trend? You mention its very discretionary but how about posting a chart of a trade you took with reasons why you entered so we can get some inclination to how you trade? Time frames, how you define a trend, enter on pullbacks etc etc. Not asking for your secrets, just cannot see much constructive criticism coming your way otherwise.
Interesting to hear your reasoning for trading also.
Gl with the trading, and the thread.
R

 

[a_gnome]

Hi rsh01
Thanks for your comments. I entirely take your point about this journal not being very likely to attract many comments etc. - it is rather a self-indulgent affair at present with not much in the way of practical detail for people to get their teeth in to. Having said that, I do find it useful to be able to waffle about my trading and how I feel about it etc.

To give people some idea what I do, I basically trade with the trend and make entries on pullbacks within the trend. I do this on quite a few time frames from very short term such as 10 sec charts, up to 5 minute charts. I have a few different entry methods for getting in on the pullbacks and always deploy a stop loss. Exits are more discretionary but involve either exiting at the previous market high/low or using projected profit targets of some sort. I prefer to trade the London morning session but also follow all the main news releases which can often generate good tradeable volatility. The element of discretion comes in not so much on when to enter but more on whether to take the trade or not. I strongly feel that if I've read the market correctly and it looks highly likely to resume the trend then the actual entry method isn't so important. If I'm not so sure as to how likely it is to carry on then I'll often pass up on a trade.

I may post a trade example or two in due course.


Gnome

 

[a_gnome]

Well, I've not posted for a couple of weeks. This was partly because last week it rather felt like I was losing my way totally. I was starting to fret about my lack of progress and started to do trades that were rather "non-standard". It's a testament to how my trading has come on that despite all that I did manage to end up (0.2%) on the week. In the past such random behaviour would have resulted in large losses.

This week I decided just to stick to trying to trade correctly each day without worrying at all about the weekly P&L and it's worked much better. I do have to admit though that it was Thursday with its plethora of news releases where I did best, making nearly 2% and I managed to add a little bit on the NFP today. As I'm up a shade over 2% on the week I've decided to stop early rather than to trade for the rest of the afternoon.

Weekly Stats
Total weeks: 20
Total % Profit: +11.9%
Distance from Eqty High: 0.4%

As you can see from the stats, I'm now just 0.4% off my equity highs. I'll certainly be pleased to see the back of this drawdown but I do believe that getting a DD like this is telling me that there's something that I'm not doing right and it's prompted me to tighten up my game and to concentrate more on just trading day by day, rather than fretting about the overall P&L.

Onwards and upwards!

Gnome

 

[a_gnome]

Another week over and I managed to make just over 1% this week which, thankfully takes me to new equity highs again. I'm still missing some good trade entries and I've had to "re-calibrate" myself as far as my attitude to some trade set-ups. One of the issues is that the really good pullbacks for entry in a trend can look scarily like a reversal at the time of entry. I've got to learn to just jump in and take these. That scariness is in fact my entry edge and by fading the move I'm getting in in a good place.

I did some experimental trades this week, my first counter-trend technique and a larger time-frame entry, both of which worked out well though I was trading tiny size (1/10th normal) so the P&L impact was negligible. I'm also pondering the issue of scaling into trades though I don't really want to trade smaller size if the first entry works out so at the moment it looks more like a double up which I'm not very happy with. Still some work to do on this.

I've also started looking at the AUD as a trading currency which so far seems to be working out well and is adding to the possible trading set-ups that I have.

I've also joined a Skype trading room (invitation only so I'm not going to mention which one it is) which has been very useful for following what other people are doing. There's always something to learn from following and talking to other traders and it's already got me thinking about some new approaches.

Weekly Stats
Total weeks: 21
Total % Profit 13.0% (risking max. 1% per trade)
Average Profit per week: 0.62%
Distance from Eqty High: 0%

I still feel that I can do a lot better than this and I should be making 1% to 2% per week but I've got to learn to be more aggressive with what I'm doing. As result of this new equity high I'm going to increase my trading size for next week. The idea is to keep increasing my size as I get better. I'm now fully acclimatised to the current trading size and the money at risk doesn't faze me at all so I feel very comfortable going up to the next size. The idea is to be trading a proper full-sized account (perhaps $50k) by the end of the year. However, if I just jumped in and started trading that size right now then I think that the daily P&L swings might freak me out a bit, hence the gradual increases. This will be the third size increase that I've made now.

Onwards and upwards!

Gnome

 

[a_gnome]

What an "interesting" week (I'm stopping on Thursday as I'm off on holiday tomorrow). In terms of performance it was pretty terrible with a net result of -2.26% but that rather belies the strides that I've made this week. I've started keep a strict "what I should have got" score so that I can more accurately gauge the potential of the method at that came in at a stonking +4.2% so I know that what I am doing is basically sound. So how do I explain this huge discrepancy? Partly it's an issue that I've had for a long time of jumping out of trades too early. Sometimes I grab a small profit rather than letting it run a bit more, other times I scratch the trade only for it to go on and make a profit. This must have cost me at least 2.5% in profits alone. There was also a really stupid trade where I put on a position in Cable, completely forgetting about a forthcoming news release which would otherwise have "veto'd" the trade. That cost me 1.4%. I also started experimenting with a small counter-trend strategy but have now abandoned it - fortunately it didn't net cost me anything to try it out. One other method which I've tried out but have now abandoned is the approach of doubling up on deeper retracements. This has the obvious benefits of getting a better average entry on a deeper retracement but of course the downside is if the market keeps going you're left with a huge loss. I took such a hit this week for a crippling -2.5% - had I stuck to my standard 1% risk I would have had a much better week.

Despite the poor headline performance figure I'm actually rather pleased with my trading because I feel that I've made some really good progress. On Thursday after reviewing the difference between what I was getting and what I should have got I vowed to hold positions to their full profit target as clearly I can't be trusted to judge it myself. I managed to hold on in a Eur/aud trade even though it came within half a pip of my target before backing off a considerable way. Eventually it got there I'm pleased to say and I know that without this new discipline I would have taken profits after that near miss at a far worse point. I've also manage to get clear in my head a couple of details on the strategy which I realise weren't that clear: the idea of "veto'ing" a pair from a trade if something doesn't stack up - this is often because its' trading into support or resistance on a larger time frame or of course if there's an impending news release! Also judging what sort of pull-back to expect depending on how far the market has already moved - very often it's the pairs that haven't actually moved as far yet, i.e. the laggards, which are the best ones to play for a pull-back. I've also started to get clear in my head a new entry technique for nice fast-moving markets - this should come in hand on some occasions, especially my news trading. I'm also starting to work on what the market needs to look and behave like in order for me to do my scalp trades.

Weekly Summary
Total Weeks: 22
Total % Profit: 10.8%
Average Profit per week: 0.49%
Distance from Equity High: -2.26%

I've off for a well-deserved break next week but I'm more optimistic than ever that I can make this trading viable.


Gnome

 

[a_gnome]

Wow, what a volatile week! I started the week on a 2.26% drawdown from equity highs. After having missed so much stuff last week I decided that I was really going to go for it and to take all my signals. The result was a massive series of losses and by mid week I'd lost a whopping extra 5%! Then Draghi failed to deliver at his press conference and in the ensuing melt down I started to make back. In fact for the rest of the week I made money consistently and ended up only -0.8% down. At one stage when faced with such losses I was starting to think that I'd have to go right back to trading smallest size again, in effect start again from scratch so I'm very pleased that I've managed to trade my way out of that mess. The one part of my trading that has remained consistent is my news trading and it was this that brought me all my profits this week whereas my standard pullback trading just lost money.

Getting losses like this to me means that I'm doing something wrong so I really need to sit up and take notice. The bottom line is that if I just blindly take all my signals come what may then it's not a winning proposition. To me what makes it all work is the context in which the potential trade occurs: what sort of trend is this pullback occurring in; what's happening on the larger time frame; where is the support/resistance located? All these sort of things define the context and I am coming to believe that really it's the context that makes all the difference. Sure, my entry methods are giving me a bit of an edge but on it's own it's not really enough to generate the consistency that I'm after.

For me, the development of my trading approach is an on-going iterative affair. Each week I sit down and analyse what I've been doing wrong and then decide how I'm going to approach the next week. I'm not entirely sure what approach to adopt for next week yet. Suffice to say, the gung ho approach clearly is not for me and I think that I'll go back to a more thoughtful and considered approach.

One bright spot in all this is that through closely following these markets I've come up with a new ultra short term approach which is looking very promising especially in highly volatile markets such as post NFP. I'm not sure whether I'm ready actually to put money on it yet but I'm going to track it closely for next week.

Here are the stats for the week

Weekly Summary
Total Weeks: 23
Total % Profit: 10.0%
Average Profit per week: 0.43%
Distance from Equity High: -3.05%

 

[a_gnome]

I've not done an update for several weeks so sorry about that. Usually in such cases it's because things have gone rather pear-shaped by in my case it's the reverse: things have been going very well, which is nice. There have been a total of 5 weeks trading since my last update and I'm pleased to report that they've all been positive ranging from +0.8% all the way up to +2.5% this week. After my rollercoster week last time I reported I realised that the key to success for me is being very selective as to when I trade by considering market context, market tone and higher TF's. When conditions are poor (as they have been recently) I can trade as little as 3 trades in a week and it's this discipline which is making me the money. This week I increased my size again and am pleased to report that I feel pretty comfortable with this new amount.

I'm starting to look at a longer-term trend following approach and have put on a couple of tiny trades to test the water. This could nicely complement my current short-term day trading.

I'm still tending to get out too early on trades: this morning I bailed on a trade taking +0.6% when I should have got at least +1.5%. But in general things are going well. I had an excellent Non-farm Payrolls report today, taking a total of +1.6% from 2 lovely little scalps in Dollar-Yen.

My trading statistics are as follows:

Weekly Summary
Total Weeks: 28
Total % Profit: 17.1%
Average Profit per week: 0.61%
Distance from Equity High: 0.0%

As you can see I'm at new equity highs which is always where I like to be. My average profit per week is creeping back up nicely though I'd really like to get it up above 1%: my rolling average over the last five weeks is +1.4%. Remember all this is with risking 1% per trade though I'm thinking in due course of extending this to 2% once I get to trading full size on my account. I know that I'm not officially looking at it but my Sharpe Ratio is now a nice 3.2

All in all it's going along nicely and I'll keep increasing the size every few weeks as long as I don't hit any snags.

 

[a_gnome]

I realise that I've not posted in my journal for several months now. This is mainly because things have been going rather well and I hadn't felt the need to unburden myself.

So what's been happening in the intervening months? I've been carrying on making money and increasing my size. My stats are now:

Weekly Summary
Total Weeks: 46
% of Weeks that ar Profitable: 74%
Total % Profit of Account: 29.2%
Average Profit per week: 0.64%
Distance from Equity High: 0.0%

My weekly Sharpe Ratio is a stonking great 3.7 which I'm very pleased with.

In terms of methodology I'm still trading a variety of techniques. My news trading is going well, I do regular scalp trades and short-term pull-back trades. I'm currently in the process of refining a long-term (for me) swing approach for when the markets are quiet. This is making some progress so I'm trading it at 20% of full size at the moment. Still risking a maximum of 1% per trade (or 0.5% for scalp trades) though I think that when I'm finally trading at full size I'll double this. I've got lots of ideas for strategies which I need to "refine". This refining process involves trading them in tiny size until I get the basics right and then in slightly larger size until they start to make money consistently before they get to be a fully-fledged official method.

So all in all it's going great. This year I'm up 5% already and from next week I'll be at a new larger trade size again. The size is now large enough that the money amounts are becoming quite significant. I want to make sure that I can handle these larger financial swings comfortably, knowing that I can make back any loss without too much problem. I'm at about one quarter my full maximum account size now. So, onwards and upwards!