November 17th Recap

Didn't have time to update on Friday. It was a horrible day. Down -133 pips on two trades. But it brought something up to the surface that needed to be dealt with and the end results are going to be very profitable in the long run. I took two back to back max losses. Now one trade was a trade that ended up being a double top and reversing. However I got short out of the rejection and was rattled out of my position on a retracement before it walked right down to my profit target without me.

This has happened over and over and over again. So I decided to delve into the issue a bit more with some backtesting of my live trades taken over the past couple weeks. The results were staggering. Over 22 trades using my tighter initial stop placement ended with a net -38 pips and a 57% win rate. By simply changing my initial stop to the previous swing high/low my win rate went to 81% on the SAME TRADES and overall profitability increased from a -38 to a +232. I can't even begin to tell you what a difference that is.

Basically my findings supported what I had long suspected. For those of us who don't trade pullbacks into a trend it is not only improbable, but unprofitable to try and achieve a 1 risk, 2 reward scenario. I had been placing stops at points in a trade that would allow me to keep this "holy grail achievement" that all traders are supposed to use to be successful right? The reality of the situation is this: The 1 risk, 2 reward is a falsely coveted rule of trading for a lot of people. We try and achieve that risk situation because we believe (and are told) it will grow our accounts faster and with less risk. The reality of the situation is the exact opposite. By taking on a bit more initial risk I can stay in my trades regardless of the whipsaw after i'm in them.

In fact my backtesting concluded that I was only flat out wrong about a move where I lost the entire initial stop less than 10% of the time. Those kind of odds make this kind of risk strategy well worth it in my opinion. It would be one thing if I was hitting 40% win rates, but with less than a 1 in 10 chance of taking a max loss on a trade the larger initial risk equals more profit, more of the time.

Pullback traders are able to automatically place stops at the low and by trying to call tops and bottoms to pullbacks can achieve low risk, high reward setups and sacrifice a lower win rate as a result. However, we don't all trade like that, and thus, we need to accept higher initial risk values as long as we have a sound and scalable method that performs higher win rates to offset the higher initial risk.

I also did some testing on scaling out of a position on partials at various targets in the trade but we'll leave that summary for tomorrow. I found some very interesting things!

As for today, I took one setup (the only one that fired off today) and it worked perfectly up to my profit target.

Trade Results:

USDJPY: +29.86