Forex Account at close of business 2/16/2010
Posted by The Diatribe Guy on February 16, 2010
OUTSTANDING ORDERS @02/01/2010 settled by 02/16/2010
o/s xauusd 0.02 buy 1080.00 closed on 02/01 +49.20
o/s xauusd 0.02 buy 1090.00 closed on 02/02 +46.09
o/s xauusd 0.02 buy 1100.00 closed on 02/05 +33.69
o/s usdchf 0.01 buy 1.0632 closed on 02/05 +9.32
o/s usdchf 0.01 buy 1.0700 closed on 02/05 +6.96
o/s usdchf 0.01 buy 1.0750 closed on 02/05 +4.63
o/s usdchf 0.01 buy 1.0802 closed on 02/12 +2.12
New Orders since 02/01, already settled – ALL are GOLD BUY orders (XAUUSD)
Date of entry / Lot size / Buy Price / Date of Settlement / Net Profit
02/05 0.02 1050 02/08 +40.30
02/05 0.02 1060 02/09 +28.50
02/04 0.02 1070 02/11 +43.19
02/04 0.02 1080 02/15 +37.99
02/04 0.02 1090 02/16 +35.99
02/04 0.02 1100 02/16 +34.49
New Orders Since 02/01, still outstanding as of today – ALL BUY GOLD positions
Date of purchase / Lot size / buy-in price
Current Equity Balance: $2,941.26.
Assessment of Risk:
It is important to go into the Forex market with eyes wide open as to the risk that comes with this kind of trading. To provide an example of where I’m at risk, and the kinds of things a person would need to very strongly consider when playing this market, I’ve put together a spreadsheet that assists in letting me know where I’m at from a risk standpoint.
Since my strategy is to trade Gold LONG only (ignore my few outstanding short positions and positions against the Yen) my equity risk is directly related to a fall in prices. Since I don’t hold profits, but instead cash them in, I don’t mind a fall in prices. It presents a buying opportunity. The risk, however, is that prices continue to fall without a rebound, meaning that I am unable to cash in on those profits.
Currently, I have position sizes of 0.01 lots at $10 increments from $1130 to $1230, and then I have position sizes of 0.02 lots at $10 increments from $1120 and below. Assuming I would continue to enter in this fashion as prices lower, it is good to know what that can meant to my bank account.
The most recent low point in the gold price occurred 2/5/2010, at $1044.05. I have a current total account balance of $4,100, disregarding current negative equity positions. Since a dip down to that price produces negative equity of $2,150.65, I am currently protected against a drop to that level.
How about the next previous low? Gold hit $1,026.37 on 10/29/2009. A drop to that price produces negative equity of $2,662.53. So, I have enough in my account to absorb this, as well.
The next low occurred at 9/29/2009, and the value was $984.90. This produces negative equity of $4,108.90, which is about where my account balance is.
I know that I am currently in too aggressive of a position. I do have extra funds set aside that I could transfer in if needed, so I’m not too worried about it. But if I did not, I would have to have a different plan.
Some things you can do to trade like this and reduce the overall risk: (1) As price hits new highs, don’t buy long positions, but set entry points at least $50 below the new highs and start your entries there. I plan on doing this if we get back up to higher dollar amounts anyway, because the overall target yield isn’t that great anyway under this strategy, and it’s not worth the risk. Hey, even though I thought this through before trading, it doesn’t mean there aren’t improvements that can’t be made along the way. (2) If you are limited with funds, don’t increase position sizes as price lowers. For example, if I didn’t increase sizes to 0.02, and kept it at 0.01, then my equity risk at $984.90 is $3,127.50. At a price point on the next low – $930.15, last seen 8/17/2009, the negative equity is $4,645.5, down from $6,542.65. And if we go all the way back to the low of $679.55 – last seen 10/27/2008, the balance goes from negative $25,234.45 to negative $15,425.20. (3) Increase the spacing in your buying increments. If I not only keep my lot size to 0.01 but also only buy every $20, then a drop to $864.70 builds negative equity of $3,520.70. A drop to $679.55 brings that risk to negative $7,852.60.
One has to use common sense to preserve capital. Of course, there is a trade-off. You can either fund the account to fully deal with a deep pullback on price, in which case you are tying up more capital and your percentage return as it relates to underlying capital is reduced, or you can lower trading size and increase spacing, in which case your opportunities are fewer and/or less profitable, which lowers return, or you can set your preservation target higher, as I have done, by assuming that gold will not drop below $985 any time soon. This increases reward, but it comes at a much higher risk (though one could argue that I’m setting aside other capital as a buffer, which is not much different than if I’d just have it in my account).
Realizing that I’m being aggressive at the moment, my plan is to slowly back off a bit on the lot sizes, and perhaps even increase spacing a bit, and hopefully bank enough profits to increase overall capital, so that I see that target move down a few dollars each week/month. Technically, my threshold price right now is $985.15. By February month-end, I will plan on getting that to $975 and go from there. With some good fortune, we won’t see an extended bear for a while so I can move that down $5-$10 per month.