Here are the ups and downs of this week:
Pace PLC loses £294. AUD/JPY lose £770. Silver gain £363. USD/JPY gain £115. EUR/GBP gain £523. Broker cost was a gain of £18 (the increase was interest earned as we were up with USD/JPY for several days).
Net for the week was a loss of £45.
The (unexpected) last minute strength of JPY took away a potential two grand gain for this week. That is how it stood financially. In ‘how well we traded’ terms I was pleased with this week. We called the market correctly in everything but a late dip against JPY. That is the nature of the business.
The central area for improvement is the risk/reward amounts. We didn’t manage better than 1 to 1. To make money consistently, this needs to improve to an average of 1 to 3. That is winning need to be, on average, three times bigger than the losses.
Take AUD/JPY above for example. Our stop was 110 points (often called pips) away. That means I felt that the trade had the possibility of going up at least 330 pips. Three times the risk. Or, 3R. If I didn’t, I more than likely would not have taken the trade. It’s a necessary filter to keep the risk-reward balanced in our favour.
The critical reason for this is simple. At 3R we can lose some 60% of the time and still make a profit. Okay, it will make it hard work, but a profit none the less. We aim to have the statistic the other way round and win 60% of the time. Importantly, however, if we are not achieving an average win of 3R – we lose long term.
So keep an eye out in future for the ‘R’ which I will post after each actual win/loss. If you see 1R consistently on the wins, you will know that we are not cracking it.
From this week’s charts:
We know from the COT (commitment of traders) report that gold and silver were ready to buy. We had to be careful however of the long-term trend against both of these commodities. Therefore we waited until, in this instance, silver went long and retraced to provide a long opportunity in the direction of the COT.
Very nicely done. I came out – correctly – at only 1R because the overall trend was still too strong on Silver. We may get another opportunity to buy this coming week.
Gold, on the other hand, did not retrace and I was left watching it go up – even though I knew it was going up. There are strategies to jump onto the train and, influenced possibly by Silvers retracement and thinking gold will do the same; I missed one.
There are positive buy signals above. And signs to jump on board. Hindsight remains wonderful!
Sometimes we can do better. I’m pleased with that EUR GBP to buy above. It was an excellent call; if I say so myself, however, I came out way too early. At only 1R. You get the picture. Why did I come out at 1R when the market for EURGBP was going so strong? That, as we have already mentioned, is the area for improvement.
I had a buy order in place with EURUSD and missed a great buy by only a few pips, the chart then zoomed up. But I’m happy with that as the trade (although missed marginally) was correct.
USDJPY above, was this sell instinct? I bought USDJPY on a retrace, from a recent Up, on the one hour chart (chart above is the daily chart to show the week). I was looking for a 3R with this one, and we sat at 1R all week. I noticed the move down (unexpected strengthening of JPY) and sold with a small gain of £115 (all week the profit had been £600).
The interesting thing about trading is the necessity to detach yourself from profit. Regarding ‘pips’ is better. If we’re emotionally attached to money amounts – up and down – we cannot trade emotionally detached or to the best of our abilities, consistently, over the more extended period.
Worth a mention about S&P below and FTSE.
For those in traditional funds, they would have taken a battering this week. The FTSE is a similar picture. I realise that those in managed funds, for the long term, then this is only a 20% blip downwards. However, I would like to take the 20% back up, without having suffered the down bit.