Trade plan analysis

Last week I did not have time to write my weekly post as I was traveling. However I did do my usual analysis and made some trades. In this post I would like to share with you the analysis I did on five months of trading my trade plan. I thought it was time to do such an analysis as I am not making any considerable amount of money trading. I am not losing any money, but after 5 months of trading I am only up 4R. At an average of 2% risk per trade that means I made about 8% on equity. This is not bad for a managed account / fund, but for the time and effort I am spending on trading, I could say that I would appreciate a higher return. And more importantly, the return was not consistent, as you will clearly see below.

So I went through all my trades and made a worksheet with all trade outcomes in terms of risk (R). I plotted a graph with the cumulated R of all consecutive trades . Let's have a look:

Cumulated R of all consecutive trades April - August 2012
What does this graph show? Well, it shows that first I traded slowly down in April (trades 1-27). Than in May I traded from -2R to 12R. That was the 28% plus month of May (trades 28-47). Than I gave it all back to the markets in the months of June and July (trades 48-79). Finally August ended in an upbeat giving the end result of 4R (trades 80-95).

Seeing all this was a bit shocking, as this is not consistent at all. So I decided to find out what the graph would look like if I would only have traded pairs that had a profitable bottom line, or in other words a positive cumulated R.

Cumulated R of trades in profitable pairs April - August 2012
Now this looks consistent! Of course this is looking back, but it does give me an indication of what pairs I trade best. The losing pairs that all ended with a negative cumulated R are pretty consistent too:

Cumulated R of trades in losing pairs April - August 2012
So here are the winners and losers.

Pair Cum R
Pair Cum R
AUD/USD -7,3
Brent Oil 2,6
CAD/JPY -0,5
GBP/USD -2,7
NZD/JPY -1,0
NZD/USD -0,5
SPX500/USD -2,7
XAG/USD -1,1
XAU/USD -1,0
Total -16,7
Total 20,8
End result

From the winners most trades were made in Brent Oil, EURUSD and USDJPY. The graph of the cumulated R for these pairs combined looks like this:

Cumulated R of trades in most active pairs April - August 2012
Looks reasonably consistent and it is a big enough sample size to convince me that there is some edge at play and not just luck.

Even more consistent are the EUR based pairs only although the sample size is smaller:
Cumulated R of EUR based pairs traded April - August 2012

While the USD based pairs show consistency as of this month (trades 12 - 19):

Cumulated R of USD based pairs traded April - August 2012

In conclusion: I traded best on major EUR and USD based pairs and Brent Oil. This makes sense as these pairs have greatest liquidity and therefore highest technical purity in price behavior. This matches best with my trading strategy, which is price action based. It is also interesting to see that I did not perform well on Aussie and Kiwi pairs. This has to do, I think, with the timing of my trades combined with my preferred trading platform Oanda FXtrade. I mostly place orders around the New York close, while the daily candles on FXtrade close 7 hours later (midnight New York). For pairs traded most actively in the London and NY session, this is not so much of a problem. However AUD and NZD are actively traded in the Asian session. This means that the candle I saw on the NY close can and will still change substantially before closing. And this clearly messes with my price action entries and ultimately my bottom line. So if I would want to trade these pairs I would have to change my timing. Or I should at least look at charts with proper NY close daily candles. Another option could be to not trade these pairs of the daily, but 4hr.

So as of now I will only trade following pairs according to my trading plan:
  • Brent Oil
Let's see if I can put my edge effectively at work trading these pairs.