1.8% Profit per Day Compounded over 220 Days

[expiated]

(Each of the last three days the loss has gotten smaller.)

I’m perfectly aware that I could easily be wrong, but I think it’s a settled matter. Going forward my chart setup will be a version of the two charts I posted yesterday, except that the final chart does not look as complicated, which is why I’m not posting its image. (Unfortunately, it might be so simple that other traders could easily figure out exactly out what I’m doing, and though it might be a character flaw, I’m not so magnanimous or altruistic as to publicly share such intellectual property for free.)

The CHFJPY trade unfolded perfectly, but instead of being satisfied when it was time to go to bed, I reentered the position and then retired for the night, given that the pair was still trending southward. However, the rate failed to hit my target before reversing north all the way to 112.47, which stopped me out and took back some of the gains I enjoyed.

Had I been awake later on when price fell back down to 112.23, I would have reentered the position and recouped all of my profits and more, but I was still asleep at that time.

This brings me to a point I want to make in answer to a question someone asked me in another thread. The question was…

“How was your system during EUR fall today? I am really interested how it works on such moves.”

Before I answer the question, let me preface it by saying that I used to try to trade based on what I anticipated the market was going to do. For the most part, that is no longer the case (unless I am going to bed, as happened last night, but even then, I will normally exit all my positions first, but I simply fell victim to overconfidence yesterday because of how well the strategy was working).

I mention this because, just by coincidence, I am currently stuck in a position with EURJPY, and if it does not climb back up to 131. 12 in the next 24 to 48 hours, I’m going to end up having to eat a big loss. The upshot is that the system is now perfected (I hope) so let me share how it should have worked.

Again, I am basically using only two envelopes and three moving averages now—so, so simple! There is no need for any proprietary indicators whatsoever (though I am using one in combination with the lowest moving average because it enhances my ability to clearly see what price is doing—but it is not necessary—and I also have a proprietary indicator version of the final chart, but again, this is totally supplementary).

The point I need to stress is, this approach is 100% hands on! It requires traders to react to price action, in accordance to what the chart is communicating at each moment, because the information conveyed by the charts is timely, accurate, precise and detailed. Let me at least give you a close-up so you can see what I'm talking about…

This is the proprietary indicator I coded myself (see above). Note how clearly it communicates when and where the price cycle is reversing direction. Had I been using it when I purchased EURJPY, I would have exited my long position at 131.12 when the cycle began to reverse downward.

If I were still interested in buying the pair, I would have done so again @ 130.82 and exited at 130.90. And if I were still convinced that there was no way the pair could continue to resist the structural pull to the north, I would have entered a long position one last time @ 130.60 and exited with my profit at 130.75.

Of course, I could have continued “riding the waves” in this same manner if I'd wished, but since the general overall day-to-day trend is bearish, I’d probably have been inclined to wait for price to climb back high enough to begin shorting the pair once more.

It’s no surprise that this is all so crystal clear to me in hindsight—but is it going to work in real time??? Given that it was working last night with CHFJPY even BEFORE I was using the above proprietary indicator and its accompanying simple moving average (exiting with profit and then reentering the position to collect some more depending on when price surges and when it pulls back), I think so.

I’ve been demo trading based on the same basic principles since November 2015, with some versions of my implementation yielding an 80% to 100% daily success rate, and others resulting in several days of consecutive losses, as I experienced this week. However, if things go as planned, I’m hoping it will all be worth it, and I will now be able to trade with a ridiculous amount of frequency, and yet maintain my 90%+ success rate.

If this happens, it will be very nice indeed. But if not, I will simply go back to a proven version that is not quite so ambitious.

 

[expiated]

I mention this because, just by coincidence, I am currently stuck in a position with EURJPY, and if it does not climb back up to 131. 12 in the next 24 to 48 hours, I’m going to end up having to eat a big loss.

As EURJPY’s exchange rate started climbing toward breakeven with respect to my upside down position yesterday, it began to falter at a level where I was willing to accept the loss, so I exited at that time so as not to miss out on the opportunity to reduce the size of my potential deficit (see the portion of the line chart below circled in red).

However, not long after that, the rate shot upward, and in fact, had I remained in the trade, it would have even been possible to reap a significant profit—but so be it. Though the loss was significant, at least it was not the giant hit that it started out to be initially.

Anyway, the main reason for this entry is to note that I might have finally worked the bugs out of my new system, which I’m hoping will eventually enable me to trade with ridiculous frequency with a 90%+ win rate.

The chart below is based on the same three simple moving averages and two key moving average envelopes I was using yesterday and the day before. But in implementing the newer approach in real time, I found myself thinking that it would be nice if there were a way to make the price cycles even clearer, and of knowing when the probability of executing trades successfully was at its peak.

I therefore tested a number of proprietary indicators I coded in the past and kept the ones I found to be the most helpful. Then I deleted any graphics from the last version of my chart setup that I then found to be superfluous. The result is the chart you see above.

I also needed to do something about the fact that my average profit trade was less than my average loss trade, and I believe that the tools on this chart will enable me to do that. So far, every trade I have executed using this new setup has ended in success, so perhaps I’m back on track to returning to daily profitability.

As for the person who expressed interest in my system and requested that I contact them privately, my primary motivation for posting these entries is to document my failures so I do not overlook them or fool myself into believing my system is better than it really is, and to open myself up to public critique as a means of measuring the degree of confidence I have in what I’m doing and to make sure my actions are defensible.

It is not so much to promote my system, per se. So if there are any questions an individual has or ideas that someone wishes to share that are not suitable for public viewing, I suspect that it is probably the kind of communication or the type of opportunities I should probably let go by (should pass on), but thanks for your inquiry! I appreciate it.

 

[expiated]

 

[expiated]

This was my first trade of the week, and less than what I hope my average returns are going to be, but I will take what I can get. I was actually hoping to short EURAUD, but I dozed off at the time everything aligned itself properly. That trade would have probably yielded at least about 70¢. There were a lot of other opportunities in the meantime, but unfortunately I was napping all the while. Now it looks like I’m going to have to wait a bit before the markets align themselves properly once more, so in the meantime, I created the following anatomy of a proper trade setup.

 

[expiated]

Japanese political issues are messing up my long position with CADJPY!!!

 

[expiated]

Sunday afternoon and evening (here in the United States) I ran into the same problem I encountered previously, where the latest rendition/iteration of my system worked great on Friday, when markets were trending, but only half the time on Sunday when exchange rates were noncommittal. And on top of that, my average losses were significantly greater than my average profits.

In evaluating the situation, here is where I concluded…

As you can see above, the crimson moving average is without question the best tracker of the intraday “waves.” And what was formerly the squiggly blue market bias moving average (now green) provides the best representation of the rate’s general direction.

The dark green line that formerly represented the intraday trend has been deleted, given that it was not the best indicator of the rate’s general direction, and appeared to simply be lagging behind the crimson moving average with respect to the intraday trend.

Note how the candlesticks continuously zigzag higher and higher when the squiggly green general direction moving average is sloping upward. Entering long positions when pullbacks occur under such conditions would appear to offer opportunities to execute trades where the potential reward-to-risk ratio is something like 2:1 or 3:1.

And if a trader accidentally enters a position when an apparent pullback turns out to be a full-fledged reversal (as just occurred all the way to the right), a well-placed stop loss should keep the resulting losses to a minimum. What’s even better…shifting the setup to a higher time frame results in things looking even more promising…

It looks like entering a short position when “price” makes contact with the upper band of the dynamic support/resistance “envelope” during periods when the choppy red general overall trend line is progressing southward often offers opportunities to execute trades were the potential reward-to-risk ratio is something like 3:1 to as much as 10:1, and the same is true in reverse when the choppy red line is northbound!

This is likely to entail making trades that are more akin to swing trading than day trading, which I have rejected in the past because I’ve regarded my success rate as dismal when trading in that style, and five years ago I swore off trying to anticipate what price might do in the future, opting instead to trade based solely on what price is doing in the present.

At that time however, I was not yet coding my own indicators, and I suppose it’s possible that what I have available to me now might enable me to do what I could not do then. It will mean entering positions with less frequency, but since it appears that I will be making three to ten times as much with each trade, I don’t suppose that will be a problem.

I know that what I am describing is not “position trading” per se, where investors hold on to assets for days, weeks, months, or even years, but I think of it as position trading in the sense that I will only be placing orders when the candlesticks are at key locations.

 

[expiated]

CHFJPY has been bearish ever since February 2nd and is in a region of dynamic resistance, so I’m hoping to see the rate come down to hit my take-profit target @ 112.28.

 

[expiated]

CHFJPY has been bearish ever since February 2nd and is in a region of dynamic resistance, so I’m hoping to see the rate come down to hit my take-profit target @ 112.28.

This trade (CHFJPY) unfolded as anticipated.

I might now be looking at the second opportunity offered by what I’m hoping is a new and improved version of my system and chart setups—a USDCHF long position—based on circumstances arguing that the pair is in a region of dynamic support.

If the exchange rate does not come down before it goes up, kicking me out of the position with a loss, I’ll be looking at a potential 3:1 reward-to-risk ratio—the first time I will be seeking such an "ambitious" return.

 

[expiated]

I might now be looking at the second opportunity offered by what I’m hoping is a new and improved version of my system and chart setups—a USDCHF long position—based on circumstances arguing that the pair is in a region of dynamic support.

Two notes to myself:

Second note:

I lost out on other opportunities while waiting for USDCHF to recover from its fall (I can only be in one position at a time for now). Also, it’s a good thing I pocketed some profit, because the rate just fell back down to 0.9474.

Both of these developments argue in favor of my former position, which is that if carried out in a competent manner, intraday trading has more profit generating potential than swing trading. I’ve therefore concluded that in my case at least, and in relation to this new version of my system, I need to go back to working on perfecting the former as opposed to the latter.

 

[expiated]

The U.S. Consumer Price Index came in at 1.8%, just as forecast. Yet USDCHF shot down to 0.9442 to stop me out of my trade.

Again, I’m glad I already pocketed most of my available profit while I had the chance. I’m now hoping to recoup all of my loss and still end up with a little extra with this CADJPY long position.



By the way, this development is yet another argument in favor of intraday trading vs. swing trading.



UPDATE: CADJPY hit my take-profit target, so I’m now long USDCHF once again, but this time I executed an intraday trade (from about 0.9450). Since USD fundamentals came in as forecast, I would think the pair is still bullish, but I have no way of knowing for sure.