Special: Emergency Analysis!

Yes, yes, I know what I said. Stick to the plan. However, I’ve noticed something over the past 2 days of trading, especially today, that has concerned me about my algorithm and I need to do some emergency analysis so I can unwind and unpick my thoughts.

Those thoughts being “Fuck, I might have accidentally made a system that works in ranges instead of trends.”

The only signal I got that matched all criteria today was this one on CADCHF. The trade was taken long at the start of the first white line, and hit my TP concluding the action on the second white line (at the upper red horizontal line, which was very close to the extreme of that move). As you can see the market proceeded to course down. If my target had been a couple more pips stretched out, it would’ve been a losing trade.

Additional to this is how the signal was generated out of a period of consolidation. I have also investigated my 5 trades from yesterday (4 break evens, 1 win). All bar one were showing similar consolidation/deceleration patterns, and the one that didn’t wasn’t even the winning trade. Yesterday’s winning short trade on USDCAD runs for a little more making it a much more comfortable success, but then enters another consolidation before very firmly breaking out long today.

I have seen plenty of signals today that match the trend aspects but haven’t qualified on the basis of price action, or momentum, or both. These ones seem to already be running in a trend or mini-trend direction.

I will say, if I have a winning system I am not particularly concerned by the idea of my system only working in ranges. However when the winning margins are so slight it is deeply concerning. A few pips out on either trade and I could be talking to you today with a 10% loss, not a 10% gain for the week.

I do not expect to be able to trade tomorrow due to work, which might be a good thing. I’m going to check in on signals as best I can and try to assign lines to entries that would qualify if my price action rules were reversed tomorrow. None of the maths, just a simple horizontal line to say “yes, this is an entry”. Then hopefully with as much data as possible I can assess the situation tomorrow night. Even if I have time to trade tomorrow, actively pumping money into the game on the back of this analysis would be really, really stupid.

Obviously, a trend following system or algorithm in a range is going to struggle and vice versa. The importance is identifying that the market is in that position and not taking those signals there and then. However, if I am missing trends yet have a system that if followed correctly can identify consolidation periods, it stands to reason that the profits gained in the trends would outweigh the difficulties suffered in ranges. Theory’s a fine thing.

Trading never stops, does it?