Trading Results, 5/26 - 5/30 and Breakout Strategy Revision

Here are my forex trading results from this week:

Week 5 (5/26 to 5/30): -59 pips

Results by pair for the week: GBP/USD down 55 pips, USD/JPY down 32 pips, EUR/JPY up 56 pips, GBP/JPY down 28 pips.

I didn't record the total pips to date in this week's post because I'm working on changes to the basic strategy, as I talked about in last week's post. This week, I didn't follow a set strategy, but rather went on my gut based on support and resistance levels. I didn't do great, but I did beat what the basic strategy would have produced by 220 pips (the basic strategy, which works fine in most market conditions, was down 279 pips this week, as the forex markets continue to fight several tough technical levels). Most importantly, upon reviewing this week's trades, I was able to make what I think will be some good edits to the basic strategy that should make it more profitable in all market conditions (make sure to see the details below).

Analysis:

1. One quick thing to note is the effect that Memorial Day had on market volatility. It was down across the board, but was virtually quiet in the US session, which makes profitability on a breakout strategy awful tough. I had to close out a record 3 trades manually (i.e. they didn't hit SL or TP by 4pm EST). Had I not traded at all, I would have been profitable for the week. So, next year, I think I'll take Memorial Day off with the rest of the traders.

2. I'm only going to include one chart this week just to reinforce the points I made last week about the importance of support and resistance levels in the forex market.


The above chart is from the GBP/USD from Tuesday. The set-up period is in between the yellow bars. When I looked at this, I saw that the pair didn't have much room to the resistance above, but did have some room before hitting the below support. Thus, I only placed the sell entry order, and not the buy. As you can see, that paid off, as the pair started up, but reversed when it began getting close to resistance. It then had a good run down and made it to my TP with no trouble.

Strategy revisions:

OK, here are the proposed revisions to the basic asian breakout strategy. On a quick back test (past two weeks), it looks good. On the four pairs I'm trading, it produced less overall trades, but was much more profitable. This past week, the following would have produced 7 wins and 5 losses for a gain of 150 pips. Two weeks ago, it would have produced 6 wins and 1 loss for a gain of 220 pips.

Here are the changes:

1. ONLY trade WITHIN the current support and resistance channel
(i.e. whatever S/R lines the candles are in between at the time of set-up is where you consider trading. If the bars have not broken above resistance or below support during the set-up period (22:00 to 5:00 GMT), the TP level for a buy or a sell must be within that channel. If the candles have broken resistance or support, however, then you can place your entry and TP based on the next channel)

2. If the market is in a clear TREND (defined as trending on both the 4-hr and 1-hr charts), ONLY trade IN THE DIRECTION OF THE TREND. If it's not trending, trade either way.

3. Set Take Profit and Stop Loss based on the following for pairs GBP/USD, EUR/JPY, and
USD/JPY:

1. If there is less than 40 pips room from entry to the nearest support or resistance line--> NO TRADE
2. If 40-59 pips from entry to the nearest S/R line --> set Take Profit/Stop Loss at 30/20.
3. If 60+ pips from entry to the nearest S/R line --> set TP/SL at 45/30.
4. If 3 or more candles on the 1-hr chart are touching a line of support or resistance, set TP/SL levels at 30/20 regardless of distance from the nearest S/L line.

4. For GBP/JPY, follow these rules:

1. If there is less than 60 pips room from entry to the nearest S/L line --> NO TRADE
2. If 61-79 pips from entry to the nearest S/R line --> set TP/SL at 45/30.
3. If 80+ pips from entry to the nearest S/R line --> set TP/SL at 60/40.
4. If 3 or more candles on the 1-hr chart are touching a line of support or resistance, NO TRADE.

This is how I will be trading this week. Hopefully it will continue the results it produced during the backtest.

Here's a couple of other things on my mind that I'm thinking about incorporating into the strategy:

1. Using Fibonacci Levels and/or Pivots to supplement support and resistance.

2. Money management such that each trade would represent the same percentage win/loss of account size...i.e. change the lot size based on the number of pips of your TP/SL so that your TP/SL always represents 3%/2% of your total account size.

That's it for this week. Check back next weekend to see how this strategy is doing. In the meantime, remember you can get brief updates by looking at my Daily Trades Spreadsheet.