At the time I thought I responded well. I told him about my chart setup, going with the trend, and making sure my parachutes were in place to minimize risk.
It was a great response, and true at the time I said it.
But while I've been good at keeping myself in line emotionally and with writing this blog, I have completely lost my way strategically. He was right to assume I was gambling. For the past few days, I have been and I've been losing to the house.
As those of you who follow my blog know, I started off so well. In less than a week I earned $8,000 on a $50,000 account.
My balance today reads $54,022.72.
Now don't get me wrong, it certainly isn't a bad balance. I started with $50,000 and could very well be in the $40K region now.
What really disturbs me about the $4,000 I lost is not that I lost it. I fully recognize that some of my trades will be unsuccesful. It's the fact that this streak of unsuccesful trades was entirely preventable.
One of my rules was to stick with a strategy. I was to use three indicators: Bollinger Bands, PSAR, and RSI. It worked for me in the beginning, so there's no reason it shouldn't continue to work for me in the present and future.
So why is there a MACD indicator on my chart now? Mainly becuase I lost my way. After a few trades didn't work with my go-to three indicators, I thought, "Hey, why not add another." The MACD quickly became my new favorite toy; I couldn't stop playing with it. I ignored the others, didn't even pay attention to what they were doing.
I titled my first forex blog post "Regrouping." It looks like I need to do that again. This time though there needs to be more specific parameters in place.
I confess, since learning how to properly put in trailing stop losses (thanks "Paul"), I haven't once done so. Yes, I'm the stupid skydiver who doesn't have a reserve parachute in the jumpsuit. And to make matters worse, I am the one who wrote a posting about the importance of having a second parachute.
Another issue is my indicators. I need to nail down what it is I am looking for when these indicators are in place. Am I buying when the RSI is below 50? No, but yet that is exactly what I've been doing. Am I waiting for the price to pass the last PSAR red dot? In theory, yes; in practice, no.
I admit I'm a little turned off by military training. In my high school sports playing career, I severly disliked coaches yelling at me as a way to bring about my best performance. All it made me want to do is stop and ask them to use their nice voices. You catch more flies with honey than vinegar, right?
But there's something about the structure of the military that appeals to me. You know what you need to do because someone above you tells you what you need to do. I enjoy free-thinking and creativity, but I'm not sure what place they have in forex trading, or money matters in general. Would I hire a "creative" accountant to handle my money? Probably not.
Perhaps I need to approach my goal of sticking with a strategy with some military-like discipline. I'll temporarily split my personality in two: one will be a strict drill seargent, and the other an out-of-shape but determined recruit. Here's how I see the scenario playing out:
Seargent: You will only trade when the following criteria have been met:
- The RSI has dipped above 50 and risen higher than its previous high.
- The Bollinger Bands are tunnelling upward--not horizontally or downward.
- A green PSAR dot is present and the price has passed the last red PSAR dot.
Under no conditions will you execute a trade unless all of these criteria are met. Do you understand!?!
Me: Sir, yes sir!!
Seargent: What time frame will you be using!?!
Me: Nothing below the 1 hour time frame, SIR!
Seargent: Of course nothing below the 1 hour time frame. That would be stupid. Are you stupid!?!
Me: Sir, no sir!!
Seargent: Then why is it that you were frantically switching between the 1, 5, 15, and 30 charts like a chicken with its head cut off!?!
Me: Well, you see, I lost my way a bit. Had an emotional few days--
Seargent: WHAT!?!? Emotion, who? Lost, what? This isn't Oprah, cadet.
Me: Sir, yes sir!! I was stupid, but I won't be moving forward.
Seargent: You better not be. Now what parachutes will you put in place?
Me: I will use trailing stop losses. Forty pips below or above the entry price.
Seargent: And when will you take the profit?
Me: When the stop losses are activated or when I see signs of a price reversal in the charts.
Now, unlike in the military, I will not use physical exercise as a punishment or behavior correction technique. I also will retain my right as a free thinker to amend my stop loss parameters if I feel they are detrimental to my earnings.
Let's see how this new approach of mine works. Soldier, fall out!
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