Since the beginning of December I have been working on developing the Levels strategy. Hmmm, 4 months is quite a stretch!
However, as I have mentioned, the last three and a half trading sessions have seen a change in tact. I took 38 trades over 3.5 sessions. Win Rate of 45%, RR of 1.3. Net Profit was 1.1R. Though those results include a meshed up Friday afternoon where I lost 2.2R via some emotional-induced trading. In comparison I took 72 trades in just under two months with the Levels strategy and lost 7R.
I call this the K7 strategy because of in a game of blackjack, if you could choose your first card – then any ten-value card would give you an approximate 14% advantage. Whereas a 7 gives you a slight disadvantage. In the casino you cannot choose your first card – you need to bet first and then you will get dealt a card at random. Using this as an analogy – in trading you only get into a trade when you firmly believe that the first card is a King.
But am I not jumping around from one idea to another?
To start, one could argue that I am deviating from my plans to further develop and refine the Levels strategy (and heavily from my March Operational Plan). But I guess in a way that is actually what I am doing i.e. developing and refining it – though maybe more significantly than anticipated. I am not doing something completely new. I am keeping the base, making some refinements and throwing out what I perceive as the bad aspects.
Keep what works/What stays the same:
- FX-focused squawk
- MT4-based platform strength/weakness platform for currencies
- Risk Management & Position Sizing
- Chart Setup – several EMA’s, no other indicators
- Plotting key levels on the charts (primarily 1H timeframe)
- Looking for technical patterns around key levels
- Looking to 1H timeframe for the present trend/sentiment
- Heavy focus on Cable and DAX
- Use of strength/weakness matrix to identify momentum
- MT4-based platform for measuring volatility across various asset classes (newly developed – thanks Mr. Wayne!)
- Cease trading on Oil (because of proportionally high transaction costs)
- Picked up heavy focus on EURUSD – because of currently high volatility and proportionally low transaction costs
- Trades take place within the completed/completing/anticipated patterns – this is a bit tricky to explain
- Entry tactics – getting in at cheaper levels – waiting for retracements rather than entering on the breakout levels
- 1/2 on stop-entry, 1/2 on confirmation disappears
- In a nutshell the entries are more aggressive, finer, and sometimes outright ballsy
- Odds of success shift more into my favor because of the good entries
- Willingness to look more widely in terms of instruments to trade – depending on short-term momentum, volatility and transaction costs – e.g. USDJPY and FTSE trades
- Re-introduction of pivot lines on charts for currency pairs being traded, as these tend to be very well respected
- Simpler position management: mostly all-in/all-out with conservative stop tightening
- Paying attention to 1M timeframe from time to time
- Stops and targets become slightly tighter – e.g. mostly 20 pips on Cable and EURUSD, 20-30 points on DAX
- Consequently transaction costs will on average be 5-6% of stop/target size
- Aiming for at least 6 trades in every single trading session
What I have noticed in the last 3.5 sessions
- Risk of going bonkers (wreckless trading) is higher due to more trades and more flexibility in entering trades
- Profitability is better
- Trade duration decreases
- Documentation of individual trades becomes difficult – because there is more of them
- Tiredness comes on more quickly because of increased concentration
- I ‘feel’ better – less emotionally attached to trades – I am less concerned with the outcome of each trade – additionally less emotional capital is burned because the position management is simpler and the durations are shorter
- It seems like I am better at this trading – meaning my analysis turns out to be correct more often
- Feedback on what’s working and what’s not is much quicker with K7 because of the increased trading frequency
- Overall I “felt” much better trading K7 than Levels – is it because of less structure and a bit more flexibility?
I got annoyed and frustrated with the “Levels” strategy in its current development state – why?
- It wasn’t suitable for testing – or at least it took me forever to get a decent amount of testing done – will it be better with K7? I will continue live trading all of next week, rather than testing – as long as I am profitable, I prefer to learn in the real trading environment, rather than in the testing environment
- The position management was difficult – it is simplified with K7
- The trading frequency was very low – given that I was sitting at my desk in front of the screens all day – it seemed like I was not leveraging my time effectively – with K7 I should get at least 30 trades a week
- Often there would be good moves in my instruments that I simply would not catch with the strategy – K7 is more inflexible in terms of getting into trades, and it catches the moves more often
- It seemed that often I was not getting in at good price levels – with K7 I do, even though invariably K7 will get me into some losing trades than I would have avoided with the Levels strategy
With the suggested changes, it really feels better when I trade it – it’s a lot closer in nature to the futures trading I have been doing for a colleague from time to time
Notes added on 31st March
Variables taken into account in making K7 trading decisions:
- 1H Trend
- Pivot Lines
- Support/Resistance i.e. Key levels
- Round numbers e.g. handles, 00’s and 000’s in the indices
- Congruence across instruments
- Strength/weakness from lower timeframes
- News schedule
- Entry levels – looking for cheap entries i.e. retracements
- Price action on 5M & 15M
Being aware of the decision-influencing variables will help in designing testing – to be honest I can’t see how I could possibly create a solid testing environment that would allow me to incorporate the above variables.