New month, new challenge. Over the past few weeks, I have been planning my comeback to forex trading. Had to put trading on hold for a bit while I focused my energy on re-starting my SEO campaigns and eventually turn it into a profitable business/agency.
The advantages with starting an SEO “agency” is the possibility of automating most of the workload. It takes some good amount of effort to start, prepare and setup a new campaign but once that’s done, everything is automated so you can focus on other side hustles, such as trading, knowing it’s all operating smoothly. Also, SEO takes time. Depending on how competitive your niche is, we’re talking at least 3-4 months before seeing any real results.
For this new challenge, I decided to follow 2 strategies which I found on the internet. A few things which I thought was intriguing, bold claims such as +3000 students, +1000 copies sold, 5000$ to 25,000$ 6 months challenge, 3:1 reward-risk, 65% growth in a month and more. After reading the strategies, I realize they are somehow opposite to the other. One is based on reversal trending waiting for confirmations on tops or bottoms, the other is based on continuation trend following.
Before we dive into things, these 2 courses actually convinced me to try a new money management strategy. 5% risk per trade with a reward to risk of 3:1 and will move our stoploss to breakeven once it reaches 2:1. No partial close or trailing stop, full close when we reach 3:1 price point.
The reason for the 1:3 risk reward ratio instead of the usual 1:2 is simply based on a visual approach.
As you can see, there is quite a difference when looking at both charts. Using a 3:1 ratio makes the growth potentially exponential as compared to the 2:1 which is more of a linear growth. Also using 2:1, we average 300$ total balance as per the 3:1 is around 2000$.
Even using a 30% win probability gives you a positive chart using 3:1, which is a very interesting find as it clearly shows that even if you are right only 3 times out of 10, you would still be a profitable trader. If you had use a 2:1 approach, you wouldn’t stand a chance at being a profitable trader in the long run unless you increase your win rate at 35% and above (>35%).
Since most traders always feel like they are closing their trades too early, going the 3:1 route ensures you stay longer in the market before an eventual pullback. If you reach a 3:1 trade, you know you are working towards growing your account exponentially, because of this you actually lower the win rate % needed to stay profitable meaning you can be wrong more often and it helps you to stay in the market longer than the usual 2:1.
We entered a trade here using the trend continuation strategy. It met all the requirements but unfortunately was not a winner.
- 3 red bands above the 3 upper timeframe blue bands
- 5 candles bodies above 3 blue bands
- 5 bars before CCI turns color to green
- Positive trend overall
As you can see from chart above, we put a trigger to move our stoploss to breakeven once price reaches 2.0 mark, then fully close the trade at 3.0 mark. Another strategy would’ve been to do a partial close at 2.0 mark, another 3.0 mark then close at 5.0. While it might help you catch longer trades, I think the idea of splitting too much may hurt the process of growing the account. Also, another reason why I don’t use partial close is because it is much more difficult to evaluate a strategy’s performance if I am constantly changing the size of the orders.
Unfortunately, even after following all trading criteria, we ended up losing 5% of the account on this trade. Not the best start for a new month but with our new money management in place, not too worried about recovery.
Leave a Reply