Today we are going to review the trading statistics and trades of Cheng Tao Lu.
Cheng has managed to generate 132.22% of gains in October, during Stage 5 of the Trading Cup contest.
Here is a view of the Trading Cup leaderboard today. Great to see Hardy Feller performing well again in October.
Cheng Tao Lu prefers to trade six different trading instruments, as shown in the graph below.
There seems to be a definite preference for Forex trades across the majors, either being long or short the US dollar.
His most dominant trade is on the British Pound, with 35.6% of all his trades being made here.
In running though Cheng’s equity curve and wins and losses, it seems as if he is running a martingale style trading strategy. We have talked about previous traders using a martingale approach here.
What seems to be common with a martingale style equity curve is trading instruments in a sideways trending market, a high percentage of winning trades, and most telling, is the biggest wins seem to follow the biggest losses, providing the market remains range-bound.
If, however, the market starts trending against the original view, this is when the most trouble and the biggest losses occur. For many, when your martingale strategy is out of favour with the market, you run the chance of blowing up your trading account.
Let’s take a look at Cheng’s trading statistics.
Here we can see a high winning percentage combined with a consistent average win and average loss.
You also feel that discretion is not something Cheng uses, instead of relying on purely mechanical trading signals.
The reason for this belief is that his worst trade is similar in size to his best trade.
Often, emotionally driven discretionary traders get married to a losing position and have losses that far exceed the size of the other losing trades.
They then may apply revenge trading, and if luck shines on them, they could see a huge win that is also out of characteristic relative to their averages.
But Cheng’s account appears to have good control, consistent entry, and exits and relatively sensible position sizing rules.
On the 2nd of October, as trading for the month got underway, the GBPUSD pair rallied to break the previous high set 13 periods prior.
In hindsight, this was not a trade Cheng would have wanted to take, but if it meets the entry requirements of your system, then you have to take the trade.
In this case, it would seem that he has a breakout-style trading system that looks to enter on a fast break of a previous high.
This is one of the most common strategies for short-term traders who look to ride the momentum of any FX pair for as long as the breakout occurs.
But you will notice his ability to cut the position within a short space of time, as he identified the position was working for him.
As you will see from his best trade in October, he followed this up with an excellent long trade.
Many of the best traders can remove the emotion from the trade, and not get angry with any losses that occur, then get back on the ‘horse’ and take the next entry.
Below you will see Cheng’s best trade of $86.59 on the British Pound.
It appears Cheng has an intraday swing trading methodology, buying the dips in an uptrend.
I would hazard a guess that Cheng has both a breakout-style entry criteria and a swing trading style entry.
As you can see in the chart, the Pound had pulled back from an earlier high and started to find support around the 50 period moving average.
He then opened the position and would have been closely monitoring the stop level as the price nearly pulled back below the previous low a dozen bars back.
Then as the GBP/USD pair approached resistance, he sold, locking in his best trade for October.
In conclusion, it is impressive to see Cheng’s strategy winning 80% of his trades, and his control with his position sizing and overall trading statistics.
We’ll watch this space closely to see if he can claim victory in the October Stage 5 trading contest.
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Ashley Jessen is the author of CFDs Made Simple and Chief Operating Officer at ACY Securities. He has been in the financial services industry since the year 2000 and worked for some of the leading companies in the CFD, Forex and Online Trading space.