You have all heard about “transparency”, right? Well, I believe there needs to be more of it in the online financial world, and I’m here to lead the way for Futures and FOREX traders by sharing, on a monthly basis, the performances of the speculative endeavors that I present and discuss on this website and on Twitter within The Prop Trading Futures Project.
Note that only random trades and setups are shared with the public – but for each of them I’ll make sure to share results, comments and all details about their management. For more information about The Prop Trading Futures Project (PTF) strategies, please contact me or subscribe to my mailing list to keep in touch.
My monthly report is geared towards sharing my successes AND failures with you so that you can learn my wins and avoid my many mistakes. I hope this will help you navigate your trading journey in a more efficient and effective way.
Futures And FOREX Pairs
Futures and FOREX position trading are my bread and butter trading. I usually carry between 6 to 12 positions in any of the 50-60 FOREX and futures markets that I track. I trade multiples of $50,000. Trade, size and leverage are expressed with reference to $50,000 – that is what I call a Unit of Capital (UoC) or Trading Capital.
I seldom trade stocks and I do not mind to stay flat during times the volatility becomes an issue. I risk between 0.3 to 1 % of Trading Capital for each stock. Overall, I do not want my aggregate position in equities to carry a risk higher than 5% of my Trading Capital.
Here we discussed the possible Head and Shoulder formation in Gold and how this market could have been approached for speculative endeavors.
On January 27 I bought 1 April Micro-Gold contract at 1255 on the Retest of the Head and Shoulder Neckline. In doing that I decided to risk 0.50% of a Unit of Capital. My sell stop was placed at 1230/MCGJ.
As of today, February 4, I’m holding my position with an unrealized loss of -0.19%. Going forward I keep my stop loss at 1230/MCGJ and profit take order at 1354/MCGJ, OCO.
- As mentioned in the original post, the Head and Shoulder in subject is not one of the best examples of classical charts formation – I’m sure many TAs would agree on this. Why? Firstly, because of the descending sloping line. Secondly, because of the lack of a well formed right shoulder. Thirdly, because the right and left shoulder lack of any type of symmetry. With the benefit of the insight this could have been better described as a Rounding Bottom – but the benefit of the insight actually means nothing, because as traders we have to deal with real time decisions and analysis.
“When you are not confident about a setup either do not take it or bet small”
- The day of the breakout was not characterized by a Long White Candle (LWC). There was that lack of buying pressure that characterize a valid chart pattern. Due to these issues with the pattern, I decided to keep my risk profile extremely low.
- Going forward I’ll keep my stop at 1230 and eventually add another layer to my long if MGCJ closes above 1280. In such case the stop order would be moved to maintain the risk of the overall trade below 1%.
- As a final note, when trading a precious metal, traders should generally look at the whole precious metal complex (Platinum, Gold, Silver). To increase the possibilities of success in our trading endeavors we may want to get breakout confirmations all across the border. Here I did not wait for that. While I went long Gold on what I believed was a legitimate breakout, Silver (SIJ) was not confirming the signal. Silver needs to clear 2088 to confirm Gold breakout. Do I regret that I did not wait for Silver breakout? No, trading is a matter of trade-off – and not always waiting for more confirmations is the best choice to make.
As I mentioned in my original post, a close above 13.27 in the USD/MXN would be needed to confirm the Symmetrical Triangle forming in the Peso. On January, 23 this FOREX pair decisively closed above that level, and just below a major resistance level between [13.390, 13.4615]. It’s not a good idea to enter a long position below a resistance, even if the temptation can be strong. The following day, January, 24, the market kept moving higher, breaking above 13.50, but then closed within the resistance area. Again, the temptation to go long may be strong in case like this, “hoping” that the market will actually move higher.
In the following 2 days USD/MXN retested October, November and December highs. Then, on January 29, a strong up-day indicated a rejection of prices below 13.2. Seeing that strong rejection (very clearly visible on the EOD chart) at the end of that day I entered a long position on USD/MXN with a stop below 13.17 and a risk of 0.64% (or 64 basis points). As of today I’m still holding that position that, as of January 31 had an unrealized loss of -0.14%.
Sometimes we tend to overanalyze at charts and get emotionally involved with them.
“The key of successful speculation is emotional discipline”
This may happen because we are frustrated, tired or whatever. It doesn’t matter what the reason is though, because as traders we should have a crystal-clear mind when we trade – This doesn’t mean we need to suppress our emotions, but rather recognize them, be aware of how they interfere with our decision making process and be able to always act in our best interest. Seems easy? It’s not, and this is where keeping a trading journal is extremely beneficial for traders.
Chart patterns that offer the toughest emotional challenge to traders’ emotions are the ones with sloping boundaries. The Symmetrical Triangle in the USD/MXN is not an exception to that rule. Sloping lines present at least two issues:
- Do not reflect the real resistance and support price levels.
- Make it difficult for a trader to identify effective stop and entry levels.
It is always wise to chart patterns that present horizontal boundaries and, when it’s not possible, to identify and trade price levels that are “important” for the market. In this case the level between 13.390 and 13.4615 represents an important level of the market and conservative traders should be using it as a make or break level to enter the Long-USD/MXN trade.
As mentioned in my early post I bought 10,000 CHF/JPY at 109, at the breakout of a continuation Head and Shoulder pattern in the daily chart. I was looking for a 40% move of the Franc against the Yen. Despite my expectation, on January 3, 2014 I exited my whole position when my Trailing Stop Rule (TSR) was triggered at 116. I closed my long with a realized profit of $668 (+1.33%).
The multi year Inverse Head and Shoulder in this FOREX pair never fail to amaze me. Anyway, charts are the least important part of the trade and traders should rely on them only as tool to build their trading strategies, nothing more.
“Charts are not predictive tools”
In my opinion the CHF/JPY cross rate is heading towards the measured target indicated by its multi-year chart formation, but these do not (and shall not) influence my trading strategy or make me “hope” that the market turns in my favor when actually the price action goes against me.
On December 29 I discussed a possible Head and Shoulder in Starbucks Corporation. That pattern was actually completed on January 31. I sold short SBUX on January 14 at the open, risking a close above the January 13 high (the rationale is that if there is a valid and strong breakout prices should not retest the high of the breakout day (or the low, if the breakout is on the upside)). I risked $336 (0.67%) for each Unit of Trading Capital ($50,000) on this trade. That is around half of what I risk on average (1.2-1.5% or 120-150 basis points). The reason behind the decision to risk less is the pattern had an ascending Neckline and that the long term trend of the stock is up (I do not like counter trend trades)
I closed half of my position on January 1 with a realized gain of $534 (or+1.0%) for each Unit of Trading Capital. I’m still holding half of it to the target at $69.35 with an unrealized gain of +1.0%.
Right now I’m holding 400 shares of JO (Coffee ETN) from December 23 plus an additional 400 shares that I bought at Friday’s close (as a Scale-In or Pyramid trade).
On Friday I moved my stops for the full position at 23.28. Currently in this position I have an unrealized gain of +1.52% or $760 for each Unit of Trading Capital. Measured targets for Coffee are 27.5/JO and 46.07/JO.
In the January 17 post I mentioned why I was bullish on HPQ. As of January 30 I was holding 625 shares of HPQ at an average price of 28.38 with an average gain of $550 (+1.1%). The measured target above remains at 46, but going forward I will manage this trade with tight stops.