How to make 16% return in 1 month. 6 powerful lessons*

(*This article contains many notes to myself for future reference in order to improve and reflect)

The first trading month of 2019 is now completed. It had a very slow start.

It took the market almost two weeks to get going. This is understandable, given the 1^st Jan was on Wednesday.

Most of trades were back to their desks only week starting 7^th Jan.

We had many losing and cancelled trades during the first few trading sessions.

It has been difficult to trade without the access to the Commitments of Traders report. As we know CFTC didn’t publish any stats due to the government shutdown.

Its only this week they resumed business as usual. It will take them another few weeks to catch up with reports.

Once the market got into a full swing, we had some major moves in currency and commodity markets throughout January.

Brexit and U.S government shutdown were on the top of the wires all month.

GBP crosses swung widely but, despite bad press British Pound managed to climb to 3 months highs.

US Dollar was stronger but then it lost some momentum when the FED downgraded the outlook.

GOLD took off and moved another $40 during this month. Oil also moved up substantially

Overall, business was good. A lot of volatility on major currency crosses, Oil and Gold.

I would like to share the summary of my monthly analysis to show you what worked for us and what didn’t.

It is crucial for any trader to review his performance on regular basis, no matter if its daily, weekly or monthly.

Trading is a game of the mind and the statistics.

You need to be confident that your strategy makes money

And this confidence lies in the numbers.

If the numbers back up your approach in the long term, you will gain more confidence in what you are doing.

This in turn, will make the trading a routine less exposed to biases and doubts

So, this month as usual:

we missed a lot of good trades, we also missed many losing trades.

Unfortunately, this is part of the game and cannot be 100% eliminated

nevertheless

We managed to return a whopping 15.83% over 36 trades

This is a record month in term of performance but also in term of trading volume

(not if there is a correlation or anything…)

Trading

Am I making money here?

• We placed a total of 36 trades
• We had 14 winners and 13 losses.
• Which gives us 51.85% accuracy. It’s ok but it was lowest in months 🙁
• 9 trades either didn’t fill or broke even after being in profit.
• Best performers were commodity currencies with:
• USDCAD cashing $676, AUDUSD $597, OIL $460
• Worst performers were USDJPY -$192 and EURUSD -$388

So, it seems like the popular pairs lost money while the profits were made on Lonnie, Aussie & OIL. This is not how it felt during the battle though. If you ask me 2 weeks ago, I would imagine we were making money on GBP and USD pair and Aussie was rather slow moving.

Well…The power of stats shows otherwise!

$$$ values are based on account with closing equity of $14,172

Risk management

Would I give myself $1mill to manage?

We managed to keep risk to reward ratio high, which came at 1:2:29 and was 3 months high! This was mainly due to extending profit taking levels on two trades towards the end of the month ( hence the feeling we were killing it on GBP )

Long AUDUSD

Aussie really gave us an excellent opportunity.

A typical long trade on a pull back within the larger uptrend.

Low risk high reward

Short USDCAD

A similar scenario played out on USDCAD.

Perfectly timed short position on a pullback to the resistance within larger downtrend.

Always likely to produce profits and high risk to reward.

In this case, the trade would have done much better if left opened.

It had a potential of making 3,4 or even 5 times the risk.

These are fantastic examples of how great the trend following strategies really are

1. Both trades had a very small stops, which allowed to trade a larger lot size.
2. Both trades were entered in an perfect place and time within the larger trend
3. There was plenty room to the next resistance and support
4. Both trades took multiply of the risk carried.
5. And both trades were closed prematurely.

On the other hand, short USDJPY was closed out earlier ( $63 loss )

This market was moving nowhere this month.

I decided to kill this position after few days of sideways price action.

So

The combination of extending winners and cutting the losses short produced high risk to reward ratio, which in turn produced large $ return, even with low accuracy

This is how the money is made in Forex

If the strategy is able to produce high risk to reward ratio, it doesn’t need to be accurate at all.

A winning strategy takes many small losses and few big winners.

Lessons to note:

1. Accuracy is meaningless KPI
2. Let your winners run as much as you can
3. Don’t marry your positions and kill bad ones quickly
4. Profits come unexpected and you never know where is it going to show up
5. Take all signals without hesitation because the previous point
6. The more you trade, the lower the risk, the better chance to catch unexpected

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