Forex Breakout Strategy Results

I started trading the strategy I described in my previous post on April 30, so I've been at it for about two weeks. I've been trying to keep close track of what's working and what's not. First, the results:

Week 1 (only Wednesday - Friday): +180 pips

Week 2 (Mon 5/4 - Fri 5/9): -60 pips

By pair, GBP/USD is performing the best, up 135 pips with only one overall losing day out of 8 trading days. Next in line is EUR/JPY, then USD/JPY, which have been profitable by 45 and 15 pips, respectively. GBP/JPY, the worst performer so far, is in the red 60 pips as of 5/9.

Analysis:

As I look over my trades from the first 8 days, two things are catching my eye that might work their way into rule changes.

1. First and foremost, GBP/JPY is by far the most volatile of the pairs I'm trading, and as such, my take profit and stop loss levels may be too small. Basically, my stops are getting hit on reversals, when it would have turned around in my favor. As the price motion seems to be sufficient, I backtested GBP/JPY with a take profit of 90 pips and a stop loss of 60 pips over the week. This maintains the risk:reward ratio I'm trading on the other pairs, but allows for greater price fluctuation. The results were impressive. Trading at TP:SL of 45:30, GBP/JPY was down 105 pips on the week. With 90:60, it would have been up 150 pips. That's a swing of 255 pips in one week. If that's consistent, it could have a huge effect on my bottom line.

2. This one doesn't have as much data to support it as does the one above, but this week, when EUR/JPY or USD/JPY were trending downward in the Asian session, they appeared to continue that trend into the London session. However, it seems that they were retracing harder with this behavior than with a typical breakout and hitting my stop losses. Here's an example:

As you can see, my entry was picked up, only to reverse to my stop loss, only to reverse again and continue the trend. As I said, the data is limited here, but I'll be watching for more setups like this. If it holds, I'm thinking about moving my risk:reward to 1:1 on these trades, i.e. 45 pips take profit and 45 pips stop loss. On the chart above, I have "Alternative Stop Loss" in orange marked at 45 pips. As you can see, the trade would have been profitable with that setup.

As of now, I've made no rule changes, as I want to make sure that I get enough data to support my changes. I'll post my results for this week and analysis this weekend. Soon, I'm hoping to get a spreadsheet linked from the blog so you guys can see more detail from my trades. Within the next few weeks, once I start settling in on my rules, I'm going to try to start doing some backtesting too, to see how the rules would have fared trading in earlier months. Happy trading!