Losing Streaks

Been a bit quiet as there are a few things on my mind. Trading over the past two weeks has been very rough so I decided to take a bit of a breather. This post will be broken down into a few sections.

Topics for discussion:

What I did wrong over the past two weeks?
How do I learn from this?
Learning journal

Topic #1: What I did wrong over the past two weeks?

One of my strategies is to trade fakeouts. For the past two weeks, and last week especially, several major pairs tested all these 4-hour and daily levels that I had plotted. I entered with a contrarian mindset that the pair would reverse as they would with a fakeout play. In hindsight, it's safe to say that these plays were foolishly impulsive as I entered on the first sign of a bearish candle.

My analysis was not well thought out given that we didn't see strong reversal signals. My position size was terrible, which should've been reduced from 2% to 1% or even 0.5%. Instead, I took a streak of losses all at 2% risk per trade. Fortunately, I was disciplined enough not to exceed this risk for each trade I took. However, it still stings to take several losses without even considering that I should've adjusted my risk. What also bugged me a little bit was that I didn't stick to my risk plan of dynamically adjusting my risk based on the current conditions of the market. Yes, there are a lot of opportunities with reversal plays. However, my analysis just took a turn for the worse. Here's an example below on a trade I absolutely got killed on.

AUDUSD 4-Hour

Based on the arrow, you can see where I wanted to enter short. I saw a huge bearish bar followed by two more bearish bars. I considered this accumulation of a short position as price hovered at the 0.6656 level. In hindsight, I should've waited for a much better signal to form, such as a larger bearish bar. This trade was so problematic because I missed the bigger picture.

AUDUSD 1-Day

Over on the daily time frame, you can see the monstrous uptrend up to the point of the stupid down arrow. I'm essentially stepping onto the railroad trying to stop an oncoming train with my hand. I'm embarrassed for missing this bigger picture, not controlling my risk, being impatient, and so much more. If I really wanted to have an exposure into this level, I dare say I could've entered with 0.5% risk and scaled it up to 2%.

Unfortunately, this is just one of several pairs where the US dollar was incredibly bearish and I was on the wrong side. I can only chalk this up to a lesson learned so not all goes to waste.

Topic #2: How do I learn from this?

I think I learned quite a few lessons here. I'll do my best to summarize them below.

Verify the larger market structure. I find that I have a good accuracy rate when I analyze and forecast based off of the larger market structure. This is even evident in the trading ideas that I have published on Tradingview. Trade ideas generated off of key 4-hour and daily levels have worked quite well for me. On the other hand, levels generated off of intraday such as the hourly or 30-minute time frames did not.

Pertaining to AUDUSD and a few other major pairs, I should've realized that the US dollar was in a downtrend. In other words, the US dollar kept selling off so I should've looked for exhaustion or reversal on the daily rather than giving emphasis on the 1-hour and 4-hour. All I could've said was that the price hit a daily level, but it was in a consolidation over on the hourly. That simply wasn't a good enough signal to be going short.
Assess my reasoning. If my reasoning is fear of missing out, then I should NOT enter the trade. When assessing my reasoning, I can then assess my conviction for the trade. Since I'm a directional trader, I'm looking for reasoning that backs up a directional play.
Adapt to my performance. It's not doubt that I will have losing streaks. When this occurs, then this means that I need to reduce my risk per trade down to 1% or even 0.5%. My mistake here was taking on a streak of losing trades, but not making the effort to adjust my risk when things aren't going my way
Take a break. After hitting a few losses in a row, I kept trading. I honestly don't know if I was revenge trading. I still adhered to my 2% risk and never increased my position size more than that. However, should I have been trading or just sitting on the sidelines to watch and observe? I think by sitting on the sidelines and watching the formation play out, I may have missed some opportunities. However, it would've been the optimal decision as I wouldn't have entered on a murky signal.

Topic #3: Learning Journal

In addition to monitoring the currency markets, taking trades, and journaling said trades, I also have a learning journal that I use to detail what I else I should know to improve my trading. Specifically, I'll set up this journal to detail short, medium, and long term learning objectives to improve my trading. This is my system to explore tools and knowledge that will help me to improve my analysis and optimize my entries.

I'll probably go more in-depth into this in another post. What I wanted to touch upon is filtering out the quality of education for certain topics. Most recently, I started exploring the use of Average True Range for trade entries and exits.

Going through several videos, I landed on Rayner Teo's series on this topic. His videos provided a good introduction to using ATRs to set stop losses based anomalies in the trading range as well as looking for entries. I think his concepts and techniques are useful, but I overall did not enjoy the video. In a way, it sounded quite "loaded". Instead of focusing on diving in to really understand the indicator itself, he uses a lot of catchphrases such as "very powerful technique", etc. Maybe it is his opinion, but it always makes me more skeptical. I think filtering out the quality of educational content is very important. I dare say that the old me a few years ago would've been addicted to trading off of the ATR after watching his video.

Contrary to his videos, Tom Dante briefly talked about the use of ATR in one of his videos. In one of his videos, it blew my mind about the potential uses of ATR when analyzing extreme moves. You can find the video via this link. He offers five tips in this video and the ATR demonstration was one of the tips. What I like about this video is the no BS approach to teaching - teach the concept and demonstrate how its being used.

While both have informational value, I put a greater emphasis on the latter simply for the approach in which the content is delivered. Videos with these very deliberate catchphrases need to be avoided at all costs. They're simply too overly promotional of the paid content the publisher is trying to peddle.