That should give you an accurate mental picture of my attempts at day trading forex (AUD vs USD aka. the "Aussie"). Although I haven't updated my trading spreadsheet with individual trades past the end of last financial year (30 June), I have now plotted monthly totals to see how I've performed in my first year trading Forex - not too flash overall, although the trend has at least been in the right direction so far this year:
I initially started with a $1,000 account with CMC Markets in March 2007, but trading losses in April and May forced me to choose between cutting my losses and stop trading altogether, or throwing some good money after bad. I eventually decided to add some more funds to my CMC account and keep on trading. Of course I promptly lost this extra $1,000 trading during June and had to "top up" my account with another $1,000, and then another $1,000, and another. By September I had "invested" a total of $4,000 into my trading account, but although I had lost money overall, my trading performance had improved slightly. From losing an average of between $10 and $35 per trade in the first three months, I was breaking even in Jul, losing around $5 per trade during Aug, and then finally making over $500 profit in Sep, with an average gain of about $10 per trade.
The wheels fell off during October when I lost almost $2,000 in just 25 trades (averaging a loss of nearly $80 per trade). My account balance ended up below $250 (insufficient to trade the minimum $25,000 Aussie CFD with 1% margin), and I had learned the hard way that it doesn't pay to leave trading positions open overnight (or while at work) without using stop loss orders!
I didn't trade at all during Nov/Dec, but finally decided to put in a "last" $1,000 into my account in late Dec, and to start trading again in the new year - but with a more disciplined approach to using stop and limit orders on any unattended open positions. (Dw had talked to someone who trades Forex professionally, and we decided it was about time we watched the free educational DVDs CMC Markets had given us when we opened our trading accounts!). Part of the motivation for resuming trading was to have something to "play" with to avoid the temptation to fiddle with my general asset allocation during the recent stock market woes.
Although I still lost a small amount during Jan '08 I did at least us stops to control the size of my losses when things didn't work out as I had anticipated. Although there were times when my 13 point stop was triggered soon after I opened a position, only to see the market change direction and move in the direction I had expected, AFTER I had been closed out! I also learned to set up "OCO" (One Cancels the Other) paired stop/limit orders against my open positions. For example, if I went long $25,000 AUD at US$0.9350, I would then setup a $25,000 OCO order with a limit of US$0.9395 and a stop of US$0.9332. The exact number of "pips" I set the stop and limit from my initial price depends on the recent volatility, resistance and support levels, long term trends, moving averages etc. etc. I tend to look at all this stuff and form an overall "gut feel", rather than trading purely on the technical indicators. OCO orders are good when I leave positions open unattended - my losses are limited and I'll take a reasonable profit if the market moves in the direction I expect. Using just stop-loss orders would control my losses, but don't help when the market moves in the "right" direction while my open position is unattended, only to drop back before I get a chance to close my position. Then again, using an OCO order doesn't let "winners" run, so I tend to set the limit further from my initial price than the stop.
Trading during Feb and Mar was actually profitable, with an average gain of $10 per trade. Apr so far hasn't been as good, although I'm currently up a few hundred dollars for the month. I'll stick to trading the minimum position for the moment ($25,000) and see if I can be consistently profitable for the next few months. My "goal" for trading during 2008 is to try and average $10 profit per trade most months, avoid any months that I "blow up" and make huge losses by not trading to my plan, and hopefully end the year with close $5,000 in my account.
If I can trade my way back to my initial account balance I'll then think about trading larger positions ($50,000 or $100,000) in 2009. Theoretically performance shouldn't be affected by the size of my trades.
My monthly gain(loss) is tabulated below, which shows number of trades each month, average gain or loss per trade for the month, and cumulative trading results. Hopefully during 2008 my cumulative gain(loss) per trade will continue to trend towards $0, and eventually become positive.
Copyright Enough Wealth 2008