Week 1: September 24th, 2011 - A bad start

Well my first week trading was a complete disaster and by the end of the week I was down £168 (1100 pips). All of the signal providers I had selected were making bad trades and to make it worse I was making manual trades to make up some ground and these were also turning bad. The Euro was tanking, the GBP was tanking and by the middle of the week I had 15 trades in the red.  It was very clear that without a plan and by blindly following a selection of signal providers my account was going to blow up very quickly. If nothing else it was a valuable learning experience. The key points taken from this week were as follows:

1) Signal provider selection is of critical importance. It is not enough to select the 5 most profitable SP's at any given time and expect this to transform into winning trades. I will discuss this in more detail, however it is very important before selecting a SP to carefully analyse their trading history very carefully. This is covered in more detail in Signal Provider Selection.

2) The use of stop losses. A stop loss can protect your capital against large swings in the market that can blow up your account. The mistake I made was trusting the signal providers I chose to close bad trades before these became unmanageable, and instead of stopping out at say 80 pips had trades that were down 250 pips and going against the trend. It became very obvious that a successful trading strategy must utilise stop losses in order to set risk exposure for each signal provider and the account as a whole.

3) Understand the market conditions on a weekly and daily basis, look for key dates and announcements. In the future I will be suspending trades prior to fed announcements, the volatility around this time is too hard to trade around.

4) Avoid the temptation to close out winning trades manually. This might seem a good idea at the time but more often that not it will limit the upside to winning trades.

There are a couple of other mistakes made, but these 4 are the most important.

In the next blog entry I will write about the system I have devised for evaluating signal providers and setting stop losses.