Trading Blog

Simplifying My Trading Strategy

LIM WEI XIANG

Dec 11, 2023 — 3 min read

Removing mean-reversion trades entirely

As mentioned in the previous blog post, I’ve decided to allocate more time to new ventures such as launching a YouTube channel and setting up an Options trading account. It’s important to note that this shift in focus doesn’t imply any losses in my forex trading. On the contrary, I’m still generating profits from my forex trading activities.

How My Strategy Works

My main trading strategy contains 2 parts, a retracement system as the main setup while a mean reversion system as secondary setup. I uses Fibonnaci retracement tool, 21 EMA, the first hour candle on the 1 hour timeframe to determine my trade parameter and I only trade Gold (XAUUSD). Please read the full strategy guide over here (Link)

Main retracement system simply means I would place a limit order on the predetermine level at 38.20%, stop loss at 0% and take profit at 127.20%. I would then let the price determine the result.

The secondary mean reversion system mean trading against the overall trend, hoping that price would bounce back after significant trend. I would usually setup my entry at 127.20%, stop loss at 161.80% and take profit at 61.80%.

Why and What’s the problem?

As the popular saying advises, it’s important to trade in line with the trend. In this scenario, it became evident that my mean reversion trade was destined to fail. Indeed, it often resulted in either an immediate stop loss or breakeven after hitting my initial profit target. To exacerbate matters, my take profit at the first level wasn’t even at a 1R (Risk-Reward ratio), reaching at most 0.8R. Take the example below, the price blew past my mean reversion entry and hit stop loss immediately, all within a single volatile candles.

One of the many losing mean reversion trade.

Meanwhile, my retracement trades continue to meet my expectations. While it may not be the most superior strategy available, it aligns perfectly with my lifestyle. I maintain a win rate between 50% to 60%, achieving profits between 1.5R to 2R. What’s most crucial is that from my backtest data consistently shows a monthly profit ranging from 2% to 8%, subject to market conditions. I’m extremely content with these results despite all the low win rate.

Quick Update of my Prop Firm Challenge.

I join the5ers instant $5k Prop Firm Challenge in May 2023 and to date, my account has shown an increase of around 6%. Throughout this challenge, I relied solely on my mechanical strategy without introducing any other approaches. I came close to successfully completing the challenge. However, when I shifted back to mean reversion trades, the resulting losses significantly impacted my progress, leading to a drop to 4% in my account balance. Nevertheless, I’ve shifted my focus entirely to my retracement system. I’m gradually recovering the lost funds and making profits along the way. More details will be shared in an upcoming blog post.

Moving Forward

To be honest, my strategy approach will still remain the same as before. Just that I will be removing the mean reversion system entirely and solely trade with my retracement system. Although the trade frequent will drop significantly, but I hope this approach will increase my winrate and profit in the long run.

Endnote

Thank you immensely for your ongoing support. I’m committed to documenting my financial journey, and I hope that together we can learn and profit along the way. Your participation means a lot in this evolving adventure!