Hi FC..
Well, fair play for posting the results etc even when they do appear pretty bad.
Whilst you say that you are following ‘your system’ in an attempt to improve your discipline doesn’t you system, to a good degree, break several of the ‘golden rules’ associated with trading? Cost averaging a losing position is generally regarded by most experienced traders as the number one ‘no no’.
As you have pointed out, the FTSE has trended of late. I wouldn’t say that it has trended in an extraordinary manner but it has clearly broken above several levels of previous resistance. Would this not be the time to be hedged (and safe)? (Talking in hindsight now of course!!).
As I see it, your basic system is designed to work well in the more frequent range bound markets. FTSE obviously spends a good deal of its time range bound and that has happened for several years. The problem is that any system designed for range bound markets normally gets caught out in a trending market and vice versa. On that basis you clearly need an extra set of rules which protect your capital against such a situation.
At the moment I would suggest that you are using a ‘range’ type system when there is in fact no range established.
From a mathematical point of view, are you not looking for a larger and larger pullback as time proceeds? In effect, the strength of your cost averaging is getting watered down as you add more and more positions.
I’m all for positive thinking but there has to be a limit.
Don’t get me wrong, I’m not knocking you here (or your system), the market could quite possibly pull back to your ‘break even’ level but will it have been worth the risk when compare to the worst that could go on to happen?
Good luck,
Steve.
