How’s your batting average?
I am not a baseball fan. I am a New Yorker. These two statements are mutually exclusive and cannot be uttered aloud on the streets of New York during these final moments of the post season play as the NY Yankees play the LA Angels tonight to secure their 40th World Series, far more times than any other baseball team, ever. They are pretty awesome. Even I have Yankee fever. I have likened forex traders to poker players before, but a forex trader can certainly also be compared to a baseball player, especially when it comes to the hitting, and maybe even more so. It is astounding the amount of statistics held on each of these hitters: percentage of hits for each time at bat, percentage of hits when against a lefty pitcher, percentage of hits against a righty pitcher, home runs per at bat, runs batted in, on base percentage… and on and on and on. So when Alex Rodriguez approaches home plate and he is sporting a .285 batting average it is fairly easy to guess that he may hit during this time at bat. Let’s compare how batting stats can be attributed to trading. Its all about probabilities and helping your confidence. I keep my weekly and monthly percentage of winning trades and my weekly and monthly profit ratio. But if you trade more than one strategy then it is important to track each strategy separately. You may be profiting 80% of the time using your intraday trend following strategy, and profiting 65% of the time using an intraday contra trading strategy. Similarly you may be profiting 71% of the time using a swing trading strategy. Or, if you trade more than just one session per day, you should track those separately also. For example, you may be 79% winning trades during the NY session and only 54% winning during Asia trading. Hey, this is fun, let’s not stop there! Do you trade more than one currency pair? Then you gotta track those separately too. You may find that you are 52% winning on the EURJPY trades but 86% on the EURUSD trades. How about percentage of trades reaching ultimate profit target vs. trades hitting break even or an early taking of profit. Do you trade NFP each month and how’s that working out for you? Certainly each week and month varies as we move through different cycles of the year. I thought I was already being thorough with my statistics on my trading but this baseball thing has got me thinking… I have some more work to do. In the meantime, GO YANKEES!
Stress free New York session: avoiding econ news trades
It is often said that patience is the hardest thing to master for traders, but it is truly your ace in the hole to wait for the right entry and then wait some more for your profit target to be reached. As I have mentioned, I am an intraday forex trader: I get up around 06:30am New York time to start my trading day. I am rarely in overnight trades. I decided early in my trading career that patience was hard for me, so the quicker intraday trades made more sense for my style. But the noise associated with the smaller time frames of intraday trading, especially around economic news releases can be stressful and easier to make mistakes. My favorite days to trade the New York session are when there is little or no economic news releases scheduled. When there is no news to move the market, then the market looks more to the overall technical bias for its direction. Mondays are typically non econ release days, and since it is the start of the week, it is a good bet that the previous week’s bias will continue on a Monday. On average there are two days during any given week that will not contain economic news during the New York session. I can usually pick off about 50 pips on each of those days on the GBPJPY trading the prevailing trend. If you can have the patience to not trade unless it is a non news day, averaging 100 pips per week ain’t bad. I went back and reviewed my non news day trades for the past 3 months and I have shown 94% profitable trades just on those. Remember, this thing of forex trading is not a sprint, but a marathon of patience and emotion-free execution of your strategy. Taking some stress out of the mix could certainly help to keep you on track and avoid the noise of the news. Good trading!
End of the month and quarter: confidence reigns
It is hard to believe that 2009 is half over today! For those of us who have been “the glass is half empty” because of the recession/depression/economy gone bad, maybe the second half will be better. But for intraday forex traders, this market has actually been quite nice for making consistent pips, especially this second quarter. Typically I pull in about +200 pips per week, but my average has actually increased to almost +250 per week in the past few weeks. The thing with forex trading, as soon as you start to celebrate your wins, you may get knocked down a few notches with some losses, but so far so good. In June my average weekly winning percentage actually decreased from 82% to 79% winning trades, but my losses have been lower, therefore my overall pip intakes has increased. Pretty cool. I guess I am quite a geek for being so interested in the statistics of forex trading, but truly it is just as important to track all of that each and every week, as it is to actually do the trading. The reason: it will improve your confidence immensely in order to properly act at each trade opportunity rather than second guess yourself. I “feel” better about entering a trade when I have my trade entry confirmation when I know that they past 4 weeks I have seen 80% of these exact trades do win. It makes me sweat less. Along with the confidence of consistent trading, tracking the stats week in and week out will help you determine best days of the week to trade, best times of the month and year to trade. These markets are so cyclical. I have mentioned before in another post that during different times of the year the New York session is good and easy trading, while other times the Asia and/or London are much better and smoother. One way to track your weekly/monthly/yearly trading performance is to track your profit factor. Profit factor is your Gross Profit divided by your Gross Losses. For example: if you make 10 trades in June and 7 are profitable for $15,500, and 3 are losers for $4,100, your profit factor is $15,500/$4,100 or 3.78. The goal is to keep your profit factor consistently about the same, and definitely above a 1.0 profit factor, which is break even. It will make you feel pretty good when you master your trading strategy each month with a consistent profit factor, and the cash you made will make you feel pretty good too. July here we come!
Forex madness..
The definition of madness: Repeating the same thing over and over and expecting different results. Could it be that many new traders in the forex market are too quick to brand a perfectly good trading strategy as “madness” if it produces 2 or 3 losing trades in a row? Personally I think there are many, many winning strategies out there, but way too much time is spent on looking for the very best one, in my opinion. A winning strategy that works for me may not work so great for you. Do not give up on a strategy so quickly, test it for at least a full month to 3 months to really get a feel for it and track its true winning percentages. Its like surfing: if you are a good surfer and the wave break outside your beach house is pretty decent, and you surf it and surf it, but then maybe you think, hmmmmm, I should go try out New Zealand, they got good waves there. So you spend a whole bunch of money and time to fly to New Zealand only to be disappointed because the wave break is waaaaaaaaay far out there and your arms get so sore from paddling. Then on the last day of your trip you catch some gorgeous waves, and you meet another surfer dude who invites you to his beach party that night, only when you get there a gang of thugs smack you over the head and steal your wallet and the bottle of rum that you brought. Bummer! You finally get home, after the long flight, drop your bags, and glance outside to your very own quiet beach with the perfect little wave breaking and you think, Man, I missed this! Forex, its just like that..
Flawless execution
Some people think flawless execution means always buying at the low and selling at the high. This is not the case. Actually flawless execution means acting on an opportunity (whether entering a trade or exiting a trade) the very moment you realize that it is an opportunity without hesitation. Unfortunately this is easier said than done, but it can be learned. Flawless execution does not mean perfect winning trades every time, it means always being able and flexible to immediately ACT when you see the opportunity in the market when it reveals itself. We as traders have this constant conflict: I am a risk-taker because I am a trader, but, I want guaranteed outcomes every time. These two things can not work together. And so, we hesitate when we see an opportunity. This hesitation along with the fear of making a losing trade was killing my trading career fast. Luckily I learned (before I lost all my trading account) to practice taking every trade opportunity that the market presented, no matter what. Track the results, and shoot for 60-70% winners per month. Because I figured that my system was good, it was just my identifying of trade entries and exits was needing more practice. So that is what I did. And within about 2 months, my trading improved drastically, because I stopped beating myself up and was getting better at ACTING and EXECUTING in the market. Take the action and then move on. This was a huge lesson for me.
Learning to love to take a loss
I think the hardest part of trading every day and becoming profitable was when I finally, finally learned to love to take a loss. It took a long time to change my thinking about trading and to bang it into my brain to cut losing trades quicker and to let winners go longer. Sounds simple, I know. Emotions ruled my trading at first. I kept thinking that I could find the perfect strategy and not have to worry about taking too many losing trades. I searched and searched. I came across this quote that I keep in front of me while I trade every day: “Your losing trades do not diminish you as a person. You are not your losing trades. You are also not winning your trades. They are simply by-products of the business that you are in.” I had to take the emotional attachment out of my trading. I kept holding onto a losing trade thinking that it could, should, might, hopefully turn around and go in my direction. Well, at least half the time that does not happen, so I would end up losing more. I learned to close losing trades as soon as I saw that it was a loser, whether that be a couple pips loss, 20 pips loss, whatever. Move on to finding another trade. Then likewise, hold on to winners longer. I do like to take half profit when a trade reaches a first target or +50 pips. Then let the remainder run longer and move the stop loss up to protect profits. Once I learned to LOVE to take a loss and move on to another trade, I found that my weekly gains started to compound so much faster. Trading is such a head game. By predefining and cutting my losses short quicker, I am making myself available to learn the best possible way to let my profits grow!! If you can change what losing trades mean to you and realize that getting out of a losing trade as soon as you define it as such, you will be able to release yourself from the stress that those losing trades probably cause you now. Less stress, less fear of loss, more time to win! Thats the name of the game.
Jennifer Shotts
Casey Stubbs has been trading for 14 years. He started trading in the stock market and moved to Forex. 
Richard draws from his extensive experience trading to write insightful trading articles for both fundamental and technical analysis.
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