Sunday, January 20, 2008

Week 6 - Fri- Current Equity: $533.55

This week showed a good example of how a loss protection scheme can affect a week's results.

Earlier in the week when the GBP/JPY had more than 500 pips profit I went to a breakeven stop on half of the position and trailed the other half at the 50% point of maximum achieved profits on the position.

The market was volatile, retraced 50% of its maximum profit point quickly, and then continued all the way back to the entry point for the week where the breakeven stop was sitting and got filled.  It went very little further and then declined for the week. If no adjustments had been made to protect profits already accrued, the total profits on the trade would have been very large- 395 pips. As it was, the combined profits from the two exits due to "profit protection" was equivalent to 136 pips on the position. Easily another $10 - $12 dollars in equity could have been gained by just following the straight plan of holding until Friday if the original stop wasn't hit.

The question you need to ask is: what are the odds of a trade recovering after a very large counter move?

Since this is just one sample of how this could and did work out, it can't really prove anything to anyone.  Only knowing what the results might be after 100 to 500 similar situations would begin to be sufficient to guage whether it might be acceptable for a trader to make this deviation.  I have done this work in the past, and I am quite happy to execute the same exeception to protect profits in a similar situation.  

These opportunities are indeed rare and traders do well to explore the benefit/risk ratio of any changes that they introduce to their trading plans.

Alpha account trading recap:
Start of week equity: $ 522.80

Completed FirstStrike trades:

EUR/USD: BUY 1.4865, stop 1.4805. -stopped out 60 pips loss
GBP/USD: BUY 1.9644, stop 1.9584. -stopped out 60 pips loss
USD/JPY: SELL 109.49, -closed out Friday for 151 pip profit
USD/CHF: SELL 1.0946, stop 1.1006. -stopped out 60 pips loss
GBP/JPY: SELL 212.37, -stopped out for an equivalent of 136 pips profit. If the protection rule was not used; 395 pips profit
Total of 180 pips in losses
Total of 287 pips in profits (546 pips without using protection rule)
OneNightStand Exit(s) on 01/14/08 :
OneNightStand 01/18/08 entries:
Total losses: 0 pips
End of week equity: $ 533.55 (includes unrealized P&L)
Total Gain on Week: $ 10.75 (2.0% increase)
Unrealized P&L: $ 00.00

See you next week! 

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: and tell me to which address you would like it sent.

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