This is the review of my fourth week of day-trading with the 5EMAs Forex Trading System.
These are the trading results for the past four weeks of day-trading with the 5EMAs Forex Trading System.
My Forex Day-Trading Results
Since I started forex day-trading from October 8th 2007, these have been my results week-on-week:
- End of Week 1: $10,513.20 (+5.13%)
- End of Week 2: $10,983.56 (+4.47%)
- End of Week 3: $10,206.23 (-7.08%)
- End of Week 4: $9,620.75 (-5.74%)
In the first two weeks, my trading was going great. An increase of +5.13%, and then again of +4.47%. It was in the third week onwards that my forex day-trading started hitting the wall.
Day trading of any sort, especially discretionary or semi-mechanical, requires discipline, focus and commitment over the long term for success. It’s much different from position or end-of-day trading.
Trading the daily charts requires one to pull up the charts, analyze them and should be able, within an hour or two at the most, make a decision whether there is a trade.
Forex day trading, on the other hand, requires one to be at or near the computer for extended periods of time. When a signal or trade set-up conditions occur, you have to be ready to give the trade a once-over, and decide if you’re going to pull the trigger.
Review Of My Intra-day Trades Over Last Week
The past week, I took a total of 10 trades again. And the result was a drop in the account of -$585.48 or -5.74%.
Out of the 10 trades, 6 of them are classified as “bad” trades because they have violated a day trading rule already determined in advance. 5 of them were losers, and one of them was a winner.
The result from taking these 6 bad trades is -$481.27.
By NOT taking these bad trades, the result for the week would have been -$104.21 instead of -$585.48. As you can see, mistakes are costing the trading results to suffer more than what a “good” trade would have actually lost.
One of the major factors to trading success is to slowly and steadily cut out your trading mistakes, until your trading is as close to mistake-free as possible. This doesn’t mean that losing trades won’t happen, but now they don’t happen because of not following your trading rules.
Trading success is a result of education, self and market knowledge, and making steady progress of consistent improvements over time.
The review of my day-trading journal shows me making the following mistakes:
1. Entering Late After A Trade Has Triggered
I’m usually working on other things on my computer while the MetaTrader platform is running in the background. Sometimes, I even am away from my trading desk for periods of time before I coming back.
This is really bad for day-trading. Simply because my mind is focused on things unrelated to day-trading. When a signal occurs, it usually takes me a while to get back to my charts, and then a couple minutes more to analyze and enter a trade.
I noticed that my entries were late, sometimes by 10 - 15 pips. In a trade where I’m targeting an initial profit of only 25 - 30 pips, it can make a difference between breaking even or losing on a trade.
2. Entering Trades That Didn’t Fit The Rules
Other mistakes that I made from a lapse in concentration were entering trades that didn’t meet the rules. Since I trade set-ups other than the 5EMAs System, I took an entry on “automatic”. Staying in the trade would have resulted in a profit, but because it wasn’t part of the 5EMAs trade set-ups, I exited for a small loss.
That certainly didn’t help the 5EMAs Forex Trading System results.
3. Holding Positions Open Over News
Another mistake (this one was made with full knowledge) was holding positions open over the FOMC announcement. Holding short term trading positions over news is a no-no. This caused two trades, which would have produced a net profit if closed out before, to end up in losses after being stopped out by a spike caused by the FOMC interest rates announcements.
4. Increasing The Number Of Forex Pairs I Watched
Initially in the first 2 weeks, I focused only on trading the EURUSD, GBPUSD, USDCHF and USDJPY. I started adding new pairs into my trading watchlist because I wanted to have more opportunities to test out the system.
While I did get more potential opportunities setting up, I wasn’t familiar with the intraday behavior of the additional pairs. It’s true that for most day-traders, you should focus on a few main pairs at the most. The reason why, is that you’re familiar with the behavior in the current market conditions.
For example, when the EURUSD was trending and started to shift into a mini-consolidation, I was aware that I would need to watch out for potential trading ranges to form. When it broke out and started to trend again, I was also more conscious of the current market stage it was in.
But when I added additional pairs to my list, my attention and focus started to wander even further. I had to become familiar with how the new forex pairs like the AUDUSD behaved, and it didn’t help my already diluted attention.
Lessons From This Week’s Day-Trading Experience
There are a couple of lessons that anyone can learn from my day-trading mistakes. They are:
- Focus On Trading One System First
Master the rules and nuances of one trading system first. There’s something that can’t be taught through reading the pages of a textbook, or just by watching the markets.
As you trade a system, you start to notice the finer points of when a trade “feels” right. When all the rules and criteria line up to put probability in your favor, practicing that trade over and over again starts to imprint that pattern and “picture” into your subconscious mind.
The next time the same or similar set up occurs, you get sort of a “feeling” about the trade. You seem to instinctively know that it has a good chance for success simply because you’ve “practiced” it many, many times.
It’s why good trading habits are crucial, because when you practice lousy trading habits you internalize those pictures of low probability trades into your subconscious. And this makes it harder down the road to even know that you’re subconsciously doing something wrong.
- Focus On Only A Few Currency Pairs
As a day-trader, you don’t really need to watch that many currencies to make good profits. In fact, watching too many might cause you to dilute your attention and focus which results in losing track of the “feel” of the currency you’re trading.
If you do want to add new currencies into your day-trading watchlist, it might be better to add one new pair at a time instead of 4 - 5 simultaneously. Adding one pair allows you time to get familiar with it, while still being able to stay in tune with the flow of your existing watchlist.
- Not Trading When You’ve Missed The Ideal Entry
Once you’ve missed the optimum time for an entry, don’t rush in to take the trade. If you’ve missed the entry window, then take it into your stride and wait for the next trade to set up. In trading where “timing” is a key component for taking pips out of the market, you don’t want to enter late.
It may be tough to watch a potential trade continue moving and hit your profit target, but that could be a good lesson for you to be more disciplined in watching your trading rules. In most cases, it’s better to miss a good trade than jump in and lose.
- Holding A Day Trading Position Over News
Well, you should already know the outcome of this one, so it’s not much point in repeating it.
My Personal Thoughts
To be a successful day trader, it’s consists of more than just having a good system.
You need other non-trading related characteristics to be successful, just like in almost any other industry in the world. It’s just that winning and losing in trading is so much easier to spot in terms of your trading results.
Does this mean that you can’t be a successful forex day trader?
If you are a newbie rushing in with the dollar signs in your eyes, you’re going to have a hard time become a consistently successful trader. While the actual act and technical skills of trading may be simple, it takes time, experience, practice and constant improvement to weed out those bad habits and thinking patterns that cause you to lose.
That’s the hardest part of trading, because it’s also a journey in self-understanding and personal growth. You have got to find yourself as a trader, in terms of where you are best able to trade according to your personal characteristics.
And self-understanding comes only when you are tested time and again by the markets, where your ability to do what you set out to do is put through the fire.
Frankly, I’m not sure how good I will be as a day-trader simply because it’s not really my trading sweet-spot. After the first week, I was already getting a bit antsy about implementing a day-trading routine. My discipline and focus started to slip seriously in the third week, and by the fourth week I was testing things out for the sake of testing things out.
I suppose that’s kind of unfair to the 5EMAs Forex Trading System, which does cover many basics and solid trading set-ups. But I did say I would publish the wins and the losses, the good and the bad.
If you are seriously thinking of being a forex day-trader, I hope that you do learn some things from my experiences that will help you become a better day-trader!