Let me start off by saying that I have been involved with financial markets for almost 3 years now and I have been actively trading my breakout trend following system for about six months. I must say, this current market environment can be really tough. I have been reviewing my trades for the past month and a lot of things pop out to me. For the past month I can split up my losing trades into two categories. My first loss is a trade where I followed all my outlined rules, had an unrealized profit and then the market quickly reverses and I end up taking a loss. My other loss is a trade where I tried to force my trading strategy, thereby breaking a couple of my outlined rules and then realizing a loss. I really wanted to dig deeper into each one of these kinds of losers to see how I can improve.
The first loss is a result of trading a trend following system. As part of my trading system, I am ok with a small gain turning into a small loss. However, some of the losers in this category had a decent profit at the peak until it was quickly taken away. It is easy to say that I should have locked in the profit but as a trend follower, I must have big winners. I noticed a lot of other traders on StockTwits have the same issue. The market would give them a decent sized profit for it to be ripped away. I was slow to realize that in this kind of market, you have to take profits when they are on the table. This is also not an easy environment to be trading with a trend following strategy. It made me realize that I needed to have a shorter term orientated strategy, where a trade may only last one day opposed to my usual holding period of weeks or months.
My second loss is a result of not having a shorter term orientated strategy to implement. I was forcing my longer term trend following strategy in an environment that trends for only minutes or hours. I use a daily timeframe for this breakout trend following system. Therefore, the day after my entry, my trade could have potentially had a solid gain. However, as part of my system I am obliged to let the trend continue. I obviously learned my lesson because Mr. Market was not rewarding this kind of trade.
So my solution for this kind of environment is to use a swing trading style that I will begin to test with small position sizes. I have seen a lot of the breakouts that I have entered becomes false breakouts which would have turned into an awesome swing trade. Ideally, I would love to have both a swing trading and trend following system to trade. Markets are either ranging or trending and I would have a strategy for each condition.
I will post some trade review follow ups to my swing style when the time comes. Good luck to all and happy trading 🙂