LIMIT LOSSES
A brief roundup of my previous post. In October 2022 I restarted trading forex after a 2 year hiatus. I made one quick (less than a week) profitable trade, and I thought I was invincible. Then I entered a second trade, which went strongly against me, and I kept doubling down, and doubling down, and it kept going against me. So now it is December 2022, and I want to quit trading. But I will only do it after I limit my losses as much as possible. That is right. Initially the plan was to close my positions at breakeven, but as price moved far away from my breakeven point, I started lowering my exit levels. Better get out now, before the price goes even lower. Of course I planned to open more positions at lower levels, but as my bias was now to the downside, I was not waiting for breakeven anymore. It is interesting how our thinking changes depending on price. The usual advice when trading is buy low and sell high, but as the price goes lower, you think it will only go even lower, so it is hard to buy. Human nature.
So at the end of December, I broke my self esteem and started closing positions at a loss. I wanted out, and at least I was waiting for retracements and not closing using stop losses. On Dec.22, I closed 2 lots at 132.70 for a loss of 30,000 yen. On Dec.28 I closed 1 more lot at 133.80 for a 62,000 yen loss. Now I was back to 6 lots, and looking to add. I added 1 lot at 132.87 on Dec.30, and this was my last trade of the year. In terms of closed trades, 2022 was not that bad. Putting swap points and buying and selling, I made 66,382 yen. In terms of unrealized losses though, I had over 500,000 yen negative balance. But in 2023 everything was going to change. I had a strategy to exit positions on the way up and add on the way down. New year, new luck!
2023 - LET'S GO!
I am not putting the start of the new year in a new post, as not much changed in terms of this story with the new year start. Actually, the year change was just a weekend at the end of 2022, and on Monday, Jan.2, trading resumed for 2023. I had 7 lots opened, and I was looking to close on retracements on the way up at predetermined levels. In terms of adding, I did not use limit orders anymore. The big 7 yen fall of Dec.20 scared me shitless. If I had waited for the market to sort itself out without a limit order on that day, I would have been able to buy at much better levels. So the new strategy was to wait for the close of the daily candle and then put in an order if the selling looked exhausted. Honestly though, I was just paralyzed, scared to buy, so for the whole of January, I did not add to my position, but more on that later.
I started 2023 by closing 2 lots. On Jan.5, I first closed 1 lot at 132.30 and then 1 more at 133.30. The total loss was 132,700 yen. Ouch. Take my medicine and move on. I was now down to 5 lots and looking to add. Adding was hard psychologically though, as January was a bad month for my position. The highest we got to was 134.70, and the lowest was 127.21. Looking in retrospect, I should have backed up and loaded up the track back to 10 lots, even more as the price went under 130. And yet, I did nothing. I stayed at 5 lots scared shitless of the downside. Again, in retrospect it is obvious I should have added to my position. But at that time I was waiting for a better price. Everyone was talking of lower levels. The yen is headed to 120, the bank analysts said. Some even said 110. The USD is dead, they said, the FED will be cutting rates soon. So I waited for lower prices, promising myself that I will add at 127 and 125. But we never got that low. 127.21 was the low of 2023, and maybe we will never see that level again.
FEBRUARY - CONTINUE MANAGING THE POSITION
So I was unable to add below 130. On Feb.7 I closed one more lot at 132.70 for a loss of 123,000 yen. I was now comfortable closing positions on retracements at a loss, believing that I will be able to buy at a lower price. I was now down to 4 lots. And actually on the following day, Feb.8, I added 1 more lot lower at 130.90. It was my first add with the new rule to add. It was based on the close of the previous daily candle. It had to be a selling exhaustion candle for me to act. That meant that the candle was negative, but the closing price was more than 50 pips higher than the low of the day. I got that signal on Feb.8, so I added. And then I closed that add at 132.20 for 13,000 yen profit - my first profit of the year. A bit later in that month, on Feb.17, I closed 2 more lots at 134.50 for a loss of 170,000. I was now down to only 2 lots. Rip the Band-Aid off and look to add lower.
MARCH - SMALLER POSITION SIZE AND REGAIN SELF-ESTEEM
March trading started on Mar.8 with a closing of my last 2 lots at 137.40 for a loss of 132,000 yen. The price had recovered quite a bit, and I was happy to be flat. Now look at the title of this post. Okay, I lied. Initially I was indeed thinking of quitting trading when my positions were closed, but how can I quit just as I was starting to establish a good trading strategy? I couldn't. So I kept stalking the USD/JPY trade with buy orders at lower levels. Luckily, the US banking crisis gave good buying opportunities.
It was on the same day I went flat, Mar.8, that I got back in. I bought 1 lot at 137.35, then 1 more at 136.70, then 1 more at 135.40 on Mar.10, and 1 more at 133.80 on Mar.13. I was back to 4 lots. Doing the math, I had a little bit better average price compared to the positions I closed on Mar.8 and Feb.17. Then on Mar.13 I added 1 more lot at 132.40. Up to 5 lots and ready to buy more, but also looking to close on the way up. On Mar.15 I closed 2 lots at 135 for a profit of 38,000. Then on the same day I bought 1 lot at 132.50. I was taking good advantage of the volatility, range trading. We were stuck in the 130s, so I planned to keep on extracting profits by buying low and selling high.
On Mar.20 I sold 1 lot at 132.60 for 1,000 profit, then bought 1 lot at 131.40 closing it for 8,000 profit at 132.20 on the following day. Bought again at 130.60 on Mar.24 and sold on Mar.30 for a 21,000 profit. So I finished March with a very nice record, holding 3 lots open.
APRIL AND MAY 2023 - SELL AND FLAT AS IT GOT AWAY FROM ME
Following the March banking crisis in the USA, it did not look like the USD will be strong. I was really cautious, expecting that we will never see 140. I had 3 lots open then, and I had orders to close a bit higher. I did open one more on Apr.5 at 131.35. Then I closed 2 lots on Apr.10 at 133.05 and 133.35 for a total loss of 3,500. Opened 1 more on Apr.14 and closed it on the same day for a 9,000 yen profit. I was trading off of Fibonacci retracement levels and it was working well for me. I had 2 lots left, and I closed both of them on May 1 at 136.95, which was the 200 day moving average. The total loss was -1,500. I was flat again, waiting to add at lower levels.
On May 3 I bought 1 at 135.85, then 1 more at 133.85. Then on May 5 I sold 1 for a 11,000 profit and was left with my last 1 lot. I closed that on May 17 for a 12,000 profit at 137.05, the 200 day moving average. It felt smart to trade off of the 200 DMA. I was expecting the price to stay below it, but then it went higher. I still thought it can't go too far. But then it took off. And never looked back. It was over.
WRAP UP OF THE WORST TRADE OF MY CAREER
From November 2022 to May 2023 I attempted to do a carry trade in the USD/JPY. As the trade went against me, my position got too big for me, and I wanted to quit trading. I persevered though and managed to limit my losses by selling on retracements. The end of the trade was in May 2023, when I closed my last lot. I did want to continue trading, but the price just got away from me. So I now consider this trade finished. The total loss was 362,109 yen. Adding it to the Oct.2022 lucky profit, it is a total of negative 305,762. Live and learn, move ahead.
So did I quit trading, you might ask? No, I broke my promise. As I traded my way out of the horrible trade of November 2022, I figured out a good system to manage trades. True, sometimes trades will get away from me, as happened in May 2023. No system can predict which way the market goes. In reality, had I held my USD/JPY positions I opened in Nov.2022 until now, I would have profits and not losses. But that is not trading. I took the 305,762 loss and moved on. I will make it up and then add some profits on top of that in the future through methodological systemic trading. How exactly? I will explain in following posts, so stay tuned.