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Friscal Trade Experiment 1: Random

Random Trade Wrapup after 3 weeks

Written by Mark Monday, 12 December 2011 19:55

Well after 3 weeks of trading, a dose of good risk/reward ratio, a few missed trades, and a pinch of randomness we're up $969.46 (~19%)! Who would have thought!? I think 3 weeks is plenty of time for the Random FOREX trading "strategy" experiment. It was going to be 2 weeks but there were a few missed trades due to other things happening in life so I kept on for another week. I'll go through a few things that I've noticed in doing this experiment and highlight some important points to consider in your FOREX trading and how Friscal helps address some of these points of interest.

The Results

During the experiment, the demo account history cleared (end of month) so there are a couple of trades that aren't in the screen-shots. Also, it appears that I didn't execute the trade on the 7th December even though the setup was calculated and tweeted (a "der" moment)!

Trades not in screen-shots:

28th November: Order #1753621 sell 0.41 EURUSD at 1.32830 sl: 1.33220 tp: 1.32024. Stoploss Hit

30th November: Order #1779599 buy 0.47 EURUSD at 1.32692 sl: 1.32421 tp: 1.33453. Take Profit Hit

Week 1 Results 

Week 3 Close Results

All up we had: 5 Wins (excluding the $85 stuff-up on the 23rd) and 6 Losses

Friscal's Estimates

Hopefully in following this, you've learned a little about why Friscal is useful in trading and can see that just in focusing on a couple of its calculations it can be of benefit to the FOREX trader. It really was easy to calculate the values needed with Friscal as all I had to do was enter in the ATR(14) for the stoploss pips and refresh the current price and Friscal did the rest. With each calculation in Friscal you can instantly see what dollar values you should expect to see out of your trade. Whilst the market will change between performing the calculations and actually entering a trade, the values given by Friscal still give a good indication as to what you're getting yourself in for. A good example is the trade on the 24th:

Friscal's Estimate for the 24th

Friscal gives us an estimate of $110.21 that we could lose for the trade and we were stopped out and lost $111.77 in the actual trade.

Lessons Learned

The Obvious - Random Trading isn't a great idea

Whilst this may not be a direct lesson learned from this experiment (as after 3 weeks of trading we're up $970), it's a good lesson to learn without sinking money into it. Over time the "Random Trade" strategy wont be a particularly great return (although for this short stint it's worked better than some other systems out there that I've trialled)! As a FOREX trader you always want to increase your probabilities of a successful trade. Usually price will have a tendency or likelyhood to go in one direction or another (and one trader's view of the market maybe the opposite to another trader's) and with a random signal you are simply negating this possible, favourable direction.

You can't trade all the time

Even though this trading "strategy" was not at all onerous there's certainly one thing I've learned from this and that is that life happens! Whilst I had my alarm blaring away 10 minutes before I was due to put on a trade, I was sometimes unable to be in front of my computer, plug the numbers in and execute the trade. Be sure your trading strategy can cope with your day to day life and that you're not designing a trading strategy where you have to trade during important or inconvenient times. It will only frustrate you and cause you to rush your trading or worst still neglect the more important aspects of your life.

We all make mistakes

There were a few trades there where I either pushed the button without filling out one of the trade fields correctly, or I had copied the wrong values into MetaTrader 4. As you can see, there wasn't much money lost in this, but you need to realize that you WILL make simple mistakes when putting on a trade (heck I even wrote down a prepared trade that I forgot to actually execute!). This is regardless of how many years you've been trading, how skilled you are or how good your system is. Be aware of it and re-check your calculations and trade setup values (stoploss and take profit etc).

Importance of Risk/Reward Ratio

As you can see from the results, having a good risk to reward ratio (3 in our case) made our less than glamorous and in fact losing strategy (in terms of number of wins vs loses) into a still profitable strategy. This was simple to do in Friscal as you just tick the box to automatically calculate the take profit price based on the risk to reward ratio. With a tool like Friscal, you don't even have to think about crunching the numbers just set the current price and the stoploss and let Friscal do the rest!

Always ensure that when you're either evaluating a trading strategy, following trade signals or deciding if you should really execute the trade, that the Risk to Reward ratio is sensible. Certainly you want to be looking at a number of 2 and greater and don't forget about your trade costs!

Friscal factors the trade cost (spread cost) into the take profit calculation when you set a risk/reward ratio. As you can see in one of the trades taken, the spread is costing us $10.80. Like a good business, you need to ensure you're covering your costs and you can do that by ensuring you're calculating the take profit values correctly.

Be aware of your trade costs!

Too Tight a Stoploss

While not immediately apparent, watching the price movements around the New York open with the Random Trades, it was clear that having a stoploss as small as it was (between 16 to 23 pips) on a trade was causing trades to get stopped out rather easily. You need to ensure that your stoploss is large enough to allow some price movement before (hopefully) it heads towards your take profit targets and unless you're scalping, 16 to 23 pips is probably a little tight for EURUSD. The size of the stop also needs to be considered with respect to the time period you're trading as well. For example, a stoploss of 25-30pips might be acceptable during the Asian session for EURUSD, however, during the London/New York cross-over there is usually a lot of erratic and sometimes extreme price movement before things settle down. This is especially true during the first hour or so of the New York open.

Summary

Hopefully if you've followed along and you've seen how Friscal can fit into whatever trading strategy you have and I hope I've highlighted some important points about FOREX trading that Friscal helps you with. There were certainly a few lessons (such as making mistakes and not always getting to trade) that popped out to refresh my memory, that I wasn't expecting. So a worthwhile excercise and it has also sparked some thoughts for some new features for Friscal! Stay tuned!

 

 

A likely Stop-out

Written by Mark Thursday, 08 December 2011 17:23

The dice rolled 5, so we're Buying EURUSD

1hr ATR(14): 160 (remember 5 decimal broker!)

Calculations done at price of 1.34170

Friscal gives us a SL of 1.34010 (160 pips) and TP of 1.34718 (548 pips) with a Lot Size of 0.70

 

Nearly there...

Written by Mark Wednesday, 07 December 2011 17:11

The dice rolled 6, so we're Buying EURUSD

1hr ATR(14): 170 (remember 5 decimal broker!)

Calculations done at price of 1.34463

Friscal gives us a SL of 1.34293 (170 pips) and TP of 1.35045 (7582 pips) with a Lot Size of 0.66

 

RBA's End of Year Present

Written by Mark Tuesday, 06 December 2011 17:21

The interest rate on the AUD has been lowered...a nice Christmas present from the RBA!

 

Today the dice rolled 2, so we're selling EURUSD

1hr ATR(14): 240 (remember 5 decimal broker!)

Calculations done at price of 1.33519

Friscal gives us a SL of 1.33759 (240 pips) and TP of 1.32731 (788 pips) with a Lot Size of 0.49

 

Third Week

Written by Mark Monday, 05 December 2011 17:38

I missed out on another trade last week...but we'll kick off again this week and it I'll do a wrap-up at the end of the week.

Today the dice rolled 4, so we're buying EURUSD

1hr ATR(14): 180 (remember 5 decimal broker!)

Calculations done at price of 1.34350

Friscal gives us a SL of 1.34170 (180 pips) and TP of 1.34958 (608 pips) with a Lot Size of 0.65

 

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