Forex

The blog’s been silent since Sunday which usually means I’m busy doing other things or concentrating on trading. That has definitely been the case this week. I’ve been participating in the forex trading contest, getting Metatrader primed and ready for backtesting expert advisors again, finishing the development of a new AJAX forex position size calculator, trading for real, and working my real job. Being busy is probably common for a lot of you out there too who are trading forex but have real jobs and responsibilities.

I’ve searched around for a forex position size calculator but what I mostly found were pip value calculators, excel calculators, or calculators that were part of some proprietary trading platform (like Oanda’s.) I didn’t find what I was really looking for which was a simple calculator that gave me a recommended position size in units and where I just had to enter my account balance, the percentage I want to risk on a trade and my stop loss. So this is exactly what I developed. It’s completed and in beta at http://www.forexcalc.com. It currently only works with accounts in USD but I’ll expand on that later. You have a choice of determining the position size for 110 currency pairs, way more than you’ll ever need. It also works no matter what your account size is. It can be $1 or $10,000,000 though I doubt anyone with an account this big would utilize it.

Popularity: 10%

I’ve been emulating my real account trades with my demo account for the January forex trading contest. I’m currently in first place with a return of 11.16%. After today though, my return will drop 2 percentage points to about 9% since I lost 2% on a trade. I don’t know if this will be enough to hold on to the lead.

This is an overview of how I’ve been trading so far in January 2008:

1. I have been risking exactly 2% on every trade. No more, no less.
2. I’ve been using my forex position size calculator everyday when figuring out my trade size and find it very handy. Some of you have commented the same.
3. My R-multiple on every trade has been 2R. For those of you that haven’t heard of R-multiple, it’s really just an abbreviation for reward-to-risk. 2R means my reward-to-risk is 2:1.
4. I’m not watching my positions so there isn’t any fancy money management going on. I haven’t once set my stops to breakeven. I’m just letting them ride. If they hit my target, they hit it. If they don’t and stop out, so be it. This is quite different from what I’ve done in the past. In the past, I’ve been quick to set my stops to breakeven when they move a little in my favor. The consequence of doing this was typically a gain/loss of zero. I can’t tell you how many times I’ve moved my stop to breakeven only to see it get stopped out. Then I have to watch as the price goes back in the direction I was trading where it hits my initial target price. This to me was more frustrating than losing. I’d rather stick to my guns on a trade instead of playing it scared.

Popularity: 11%

Do you have a problem with exiting your positions too early? I always have. It’s one aspect of my trading that concerns me because I’m never sure if closing it early was the smart thing to do. Let me give you an example which just happened to occur today. I went long on the EUR/CAD before the European session open. I went to bed and woke up to see the position up 80 pips. I had a 100 pip stop loss and a 200 pip target. I was a bit surprised to see it up this much so quickly. I thought about it for a minute and decided to close the position and take the profit. Why violate my pip target? Based on my experience with the ebb and flow of the currency market, I figured there was a good chance that the price will not continue in my direction and retrace, wiping out any profit I had. I’ve seen this happen so many times. Today, this didn’t happen. The EUR/CAD continued going up and would have easily hit my 200 pip profit target. This frustrates me more than losing. Here are a couple of ways I’ve handled a position that goes in my favor by a substantial amount:

1. Close it out based on feel or maybe fear. I’ll do this even if I have a target set on the position. My rationale for closing it is that either I’m satisfied with the amount of profit or I’m fearful that if I don’t, the pair will turn against me and wipe out my profit.
2. Close a portion of my position based on feel or fear and leave the other portion open to run if the pair continues in my favor. From my experience, when I do this, more times than not, the remaining portion gets stopped out and I lose the profit. Almost always, when I close a portion of my position for profit, I’ll set the stop to breakeven on the remaining portion so I won’t lose any money.
3. It runs to completion and my target price is hit. This almost always occurs when I don’t have time to monitor the position. The target price usually gets hit very quickly. I typically obtain my highest reward to risk in this scenario.

In scenario #1, I feel good about the trade if I close it out and then it does exactly what I thought it would, turn against me. I don’t feel so good if the pair continues in my favor after I’ve closed it and would have hit my target.

My feelings in scenario #2 and very similar to those in scenario #1.

In scenario #3, I feel great about the results of the trade.

So which is better, any of the three scenarios or flat out losing money on a trade? I think not losing money is best but the first two scenarios can sometimes lead to losing money. If I’m not getting a decent reward/risk because I’m exiting a position too early, when I do hit that losing streak (trust me, it will happen), my losses could be much greater than my gains. How many times have you closed a position early when it at a negative and not going in your favor? I can count the times on one hand.

I’d love some feedback on what your experiences are and if you can relate to my possible problem. It hasn’t affected my profit the last month and a half though. I’m up over 13% this month alone but like I said, this could be short-lived if I don’t address this now.

Popularity: 12%