Wednesday, December 12, 2012

Some recent failed trades

Here are some charts of three trades I've recently taken and which have resulted in two losses and one break-even trade. As a rule, I lose more often than I win (although I try to attain a 50% win rate) but the average size of my winning trades is historically at least double the average size of my losing trades, and which brings about the overall positive expectancy.

Here is the chart of UK stock Noventa, which exhibited all the characteristics I look for when entering a trade. I entered in mid November, and as you can see, this shot up over the next few sessions. Then, as soon as it went up, it went down again. My failing on this trade was not to utilise what I call the Uniform Risk Exit (refer to this post) on a portion of the position, as at it's ultimate high, there was a near 5R profit.

Here is another UK stock, Imagination Technologies, which I shorted after breaking out to new lows again in mid-November. Despite the strength in the general market, this continued to slowly fall until price started moving up towards the end of last week, (I believe the house broker issued a note on the company, 4 days prior to the release of a trading update). I was stopped out of this a couple of days ago basically at break-even. Today saw the release of the aforementioned trading update, resulting in a gap up before price fell back, creating that ugly candle.

The last chart here is that of US stock Keycorp, which I shorted when price fell to new lows in November. This particular trade started off well, but in a matter of days I had been stopped out as price reversed. This is despite the chart still exhibiting a pattern of lower highs and lower lows.

In all the above cases, I had rigidly stuck to my basic system rules (although I should have used the Uniform Risk Exit rule on Noventa, which is discretionary, and reserved for use only when there is a very sharp expansion in open risk on a trade). Therefore, despite following the system rules, and entering the above trades at the correct times, I ended up with two losses and one break-even trade.

As I mentioned above, a trend follower generally has a lower than 50% win rate, so any trade utilising such a strategy becomes ingrained in taking losses when they are hit, and using good risk control to encounter periods of poor performance. In times such as these, you have to grin and bear it, and continue to look for new setups and opportunities.

No comments:

Post a Comment