Tuesday, June 10, 2008

The Dollar Isn't As Weak as THEY Thought!-- IFCN Wk 27 -Tue- Equity: $777.35

After the huge run-ups in all major currencies-not-the-dollar near the end of last week, we are having the exact opposite reaction this week. Maybe the strong currencies of Europe aren't that strong after all.

Contra Felicem vix deus vires habet.
(against a lucky man a god scarcely has power.)

We've had some big profits in Forex this week. Maybe a little better than we normally would, but I can accept any help from chance. Too many times I've been forced to accept the dark side of chance so....

This morning when I opened up Oanda I had a positive surprise, two winning trades I didn't expect. I found I was short Eur/Usd and Gbp/Usd from sell orders I thought I cancelled.

Some details about how I handle the Challenge account. Perhaps understanding the process, AND the trading thought processes for this type of an error may be of use to you. I've had many emails about this part of trading FirstStrike, so here is my way of actualizing the FirstStrike theory.

After putting in the orders early Monday morning, I go back to my regular trading accounts and put orders in for my other systems and markets. After that, sometimes I can get some welcome sleep for a few hours. Mid-morning I check the Challenge account to see which trades got filled so I can cancel the opposite trades per pair.

I've deduced that I only got 3 of the 5 opposite FirstStrike orders cancelled on Oanda when I got one of many calls about the grain markets which are currently in a critical stage. (Read: high potential trades)

The reason I'm not all that concerned about that kind of mistake/slip-up is this--- the reverse orders ARE, after all, viable FirstStrike orders which have a stoploss order attached.  Worse case-- if they get filled, they would either be profitable or be losses like every other FirstStrike trade I take.

But, nevertheless, this occurrence was a mistake in my trading. Overtrading versus your money management protocol is breaking your rules. So, when I observed this breach, I moved the protective stoploss orders to breakeven so no abnormal downside risk will be suffered. Problem solved.

Now the only possibility is extra potential gain from the mistake. A virtual “free trade”.  

If the trade was a loser when I recognized the error, I would simply exit the trade. If the trades got triggered and then stopped out, I would have suffered additional losses not factored into my money management concept. 

I actually keep a record of my mistakes, my corrections and the financial outcomes of each of the episodes. I recommend this highly. Someday I will go into this deeper, and explain how you can gain a huge edge in the market from this “error” log. (I guarantee you that Nick Leeson never did this! Barings Bank will never be the same because of it!)

This brings up another good point. Seeing the obvious success of the “second” trades this week, shouldn't I be taking both trades? Or, possibly even more, if I should get stopped out of the first two?

There is nothing materially wrong with taking the “second” trade. It is a great trade with a fine expectation of just a little less than the first trade of the week. One of the greatest negatives to taking both trades per pair is the real risk of all 5 trading pairs getting “double-thumped” for a total of ten losses for a week. In just the last six months, we've had multiple weeks in a row where we would have lost 9 – 10 times trading both the 1st and 2nd trades. If you were trading in excess of 1% per trade you could have some sizeable losses in a couple of weeks.

But, if you have done the necessary money management research and system testing to confidently take both or more trades every week, it is up to you. As this week has shown so far, the second FirstStrike trade of the week can be a huge winner.

At some time in the future, the Challenge account may expand it's trading to multiple entries per pair. In the meantime, one entry per pair will suffice.

As a side note, if I were only trading 2 – 3 pairs, I would most definitely be taking both trades per pair if the opportunity arose.

This week's current FirstStrike trades:
  • eur/usd: long @ 1.5830, stopped out at 1.5770 for a 60 pip loss.
  • eur/usd: short @ 1.5730, stop 1.5730. Trade in progress.
  • gbp/jpy: long @ 208.18, stop 207.28. Trade in progress.
  • gbp/usd: long @ 1.9742, stopped out at 1.9682 for a 60 pip loss.
  • gbp/usd: short @ 1.9642, stop 1.9642. Trade in progress.
  • usd/chf: short @ 1.0160, stopped out at 1.0220 for a 60 pip loss.
  • usd/jpy: long @ 105.83, stop 105.23. Trade in progress.
Any trade not stopped out before Friday-- exit on Friday just before 15:00 CST.

Maybe this week will be a generous one. I'll take it.

Current equity is $777.35.

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: newsletter@infiniteyield.com and tell me to which address you would like it sent. Please do not use AOL, Yahoo or Hotmail addresses. Nothing personal, but they've been known to filter out more good mail than actual spam. Try a Gmail address. It's free, simple and perfect for traders!

No comments: