Friday, August 12, 2011

Day 10 End. Loss £521

Today I was the architect of my own misfortune.
I am travelling today, consequently placing the systems trades rather hastily last night.
The system generating the signals is best described as a weighted Forex correlation system. The core markets of the system being 6 forex pairs with a further 5 additional markets; Silver, 10 yr T Note, plus 3 stock indices; Dow, FTSE 100 and Russell 2k,- providing a spectrum of positively and negatively correlated markets.
The system rules are virtually automatic. However ,there is one rule I am required to police manually;
The 3 stock indices are the most closely correlated . Trading all three in the same direction alters the weighting of the strategy, as it effectively doubles or triples up on the same bet. This skews the method, increasing drawdown and losing sequence risk. The system rules say that I can trade 1, 2 or all 3 indices, provided that either their opening levels oppose (as was the case with yesterdays Dow and Russell 2k orders) or their directions oppose (if one is long and the other is short).
I made the mistake of placing all three index opening orders last night without checking the opposing rule, and as a result, both Russell 2k and Dow positions were filled virtually simultaneously in the same direction., resulting in a doubling up of the same bet.
I recognised this around 2.30 this afternoon when opening my online account. In response, I immediately closed one position (Dow) by which time it was already in negative territory by just under £300. I have found through experience, it is better to except an error of judgment and bite the bullet immediately, rather than hang on and hope it will turn around- I have found that hope has a negative expectancy in the long run, ask Nick Leeson.
Had the situation been reversed- that I inadvertently added to a winning position- I would still have closed out one of the rogue positions earlier in the day and taken a windfall profit ...but for some reason, trading mistakes always seem to land buttered side down.

I can't upload the screenshot from my current location, but will do when I can, but here are the closing postions;

Dow -291
Russ 2k -184
EUR/CHF - 156.40
EUR/USD  + 110.60

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