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Trade Anatomy - ramblings of an old-timer 147 replies

Need forex writers to write UNIQUE Daily forex technical analysis and forex news 2 replies

Ramblings of a Forex Junkie

Quoting Seneca pilot
Ok I take it all back levels don't work and you should forget I ever said a word about it.
2.) Secondly, looking at the trade you took. You took a trade from the level you've drawn. I think that was the weekly close. (Purple line) Was that your first attempt? I would've sold at first touch of the level, but would've probably been stopped out. Your entry was much later though. Price was trading around the level, followed by a small rejection and then you entered with the next touch.

I know you don't want to go into detail about how you make your entries and I respect that since it's not the purpose of the thread. However it is an area I have difficulty in. I also use levels, (or attempt to ) like weekly open, previous day high/low/close and the current day's high/low, since I've seen enough evidence that they work, but I struggle with the execution. So any advise on what else you look at, at these levels will be highly appreciated!

Cool Runnings...
"The wisest men follow their own direction" Euripides
Hi pip nice to have you around.

I use GMT-5 to determine my levels. My brokers have always been on Eastern time zone. I am sure that using GMT with a little time you could locate the important areas you would want to use. Some of my levels do rely on my time zone but most are using times that would be universal. Highs and lows are determined by the time zone you trade so you have to experiment and find the ones that work for you. For the most part the time zone will change the trades but not change the results of the strategy. Today on EJ for example the lows traded better in your time zone than mine, some days my time zone will work better than yours probably all even out over time.
Quoting PiptheRipper
2.) Secondly, looking at the trade you took. You took a trade from the level you've drawn. I think that was the weekly close. (Purple line) Was that your first attempt? I would've sold at first touch of the level, but would've probably been stopped out. Your entry was much later though. Price was trading around the level, followed by a small rejection and then you entered with the next touch.

I know you don't want to go into detail about how you make your entries and I respect that since it's not the purpose of the thread. However it is an area...
I got stopped on the first attempt from the bottom. It was the only stop out I have had this week (more on that in a few).The big spike up to the daily open was a wash and rinse. I wasn't watching the trade at the time or I would have reshorted there (is that a word?). When it fell back below though it was an obvious short again.
Game theory is clear, as long as you have an edge you should continue to bet. The success of almost successful trading method requires that you take all the trades. Skipping even a small amount of trades can have a large effect on the profitability of the method over the long run. This leads me to a problem I am contemplating today.

This week has been extraordinarily kind to my trading method. I have taken seven trades. I only risk a small amount on each trade but the moves have been fast and strong for some of the trades. I have only had one stop out, the other six have gone to hit profit targets. So what's the problem, you ask? I am up twenty one percent this week.

I know that game theory suggests that I continue trading. I also know that the law of averages dictates that I do not make that type of return in a week and it is highly possible that I will have some losing trades if I continue this week. I also know from hard won experience that I tend to get a little loose when I am up large because I don't really respect money enough for my own good. I tend to take trades that may be questionable by my rules because "its only house money". I am not perfect and don't have the discipline that I would like just like anyone else.

So the question for me is: Do I take off the rest of the week or trade? Hmmm, think I will take the rest off.

The truth:

It's important to follow the rules but its more important to know when to quit.

Hope it helps.
Quoting Seneca pilot
Game theory is clear, as long as you have an edge you should continue to bet. The success of almost successful trading method requires that you take all the trades. Skipping even a small amount of trades can have a large effect on the profitability of the method over the long run. This leads me to a problem I am contemplating today.

This week has been extraordinarily kind to my trading method. I have taken seven trades. I only risk a small amount on each trade but the moves have been fast and strong for some of the trades. I have only had one...
it becomes less about the trades, and the probabilities, etc, and more about the psychology and going on tilt. quitting for the week won't affect the expectancy one way or another, but being on tilt for whatever reason can ruin your decade.
Quoting nubcake
it becomes less about the trades, and the probabilities, etc, and more about the psychology and going on tilt. quitting for the week won't affect the expectancy one way or another, but being on tilt for whatever reason can ruin your decade.
Been there and done that.
Quoting Seneca pilot

So the question for me is: Do I take off the rest of the week or trade? Hmmm, think I will take the rest off.

The truth:

It's important to follow the rules but its more important to know when to quit.

Hope it helps.
You know your sys and style better than me but personally I would ask 'why have I had a good week?'. If it's because of optimum mental focus, good attention and decision making then yes if that's in danger of being diluted after big wins then a break would be in order. However if it's been a good week because of something the market has been doing then it would not make sense to stop - if the market is still in that state then make hay while the sun shines. That could be academic though because as you say it's easy to fluff up and get complacent and over trade if over confident so even if the market is acting optimally you can't trade well if you aren't all there.
Quoting Seneca pilot
Hi pip nice to have you around.

I use GMT-5 to determine my levels. My brokers have always been on Eastern time zone. I am sure that using GMT with a little time you could locate the important areas you would want to use. Some of my levels do rely on my time zone but most are using times that would be universal. Highs and lows are determined by the time zone you trade so you have to experiment and find the ones that work for you. For the most part the time zone will change the trades but not change the results of the strategy. Today on EJ for...
Thank you Seneca Pilot. That makes sense. I"ll stick to my levels and continue my testing until I find my edge.

Regarding your question whether to trade or not. You did very well this week and you should reward yourself for it. Whether it is taking it easy and resting or spending some of that hard earned cash on whatever you please. There is much more to life than working and making money.

Have a good one!
"The wisest men follow their own direction" Euripides
I have already discussed the fact that I maintain a tiny test account. Now I want to discuss testing.

Backtesting is very popular in trading. Many people test by going back through charts and manually testing their theories. The problem with this is that due to the workings of the human mind we tent to dismiss or discount problems that may be part of any given method. We tend when doing this type of testing to tell ourselves; I would never have taken that trade its obvious that wouldn't work. Of course its obvious you can see the result that occurred. We also tend when testing this way to alter the rules that we use to add more winners and lessen the losers. This is curve fitting. The problem; The past will never be repeated and any trade method curve fitted to a specific set of data will not work on any other.

Others use a more rigorous method. This method of backtesting requires that the method be reduced to rules that can be coded into an EA. The trader then applies this EA to a historical data set to test the validity of his or her method. The problems here are obvious. It is fairly well known that Fully automated trading methods are typically not profitable over the long term. It is very difficult to reduce into computer code the methods that are typically most profitable and robust. Methods and traders that are most successful typically have some level of trader discression not easily coded.

It is for these reasons that I generally do not backtest. I will use historical charts to determine the proper size stops and targets for a method. I will use historical charts to develop ideas and initially do some simple checking to rule a method in or out for further testing. I will not use historical charts though for testing a method.

The truth:

Backtesting is pretty useless, Forward testing, though with real money (even a tiny account) will tell you if your method will stand up to the heat of trading real money live. Forward testing will show you if your method can be traded in real time with real money for profit.

Hope it helps.
Quoting Seneca pilot
I have already discussed the fact that I maintain a tiny test account. Now I want to discuss testing.

Backtesting is very popular in trading. Many people test by going back through charts and manually testing their theories. The problem with this is that due to the workings of the human mind we tent to dismiss or discount problems that may be part of any given method. We tend when doing this type of testing to tell ourselves; I would never have taken that trade its obvious that wouldn't work. Of course its obvious you can see the result that occurred....
There is one point I have to disagree with you regarding backtesting. I don't think it's useless if you use software that allow to re-trade the past. Especially in the shorter term trading, there is no way you could remember what happened on a specific day, so it's like trading it for the first time. I know there is a lot of factors that doesn't make it close to the real thing, like the psychological aspect, no real money and being able to fast forward time, but for me it's excellent to quickly test new ideas.

I fully agree that testing with a small live account is the best option, but a lot of time can be saved by first testing with software.
"The wisest men follow their own direction" Euripides
Quoting PiptheRipper
There is one point I have to disagree with you regarding backtesting. I don't think it's useless if you use software that allow to re-trade the past. Especially in the shorter term trading, there is no way you could remember what happened on a specific day, so it's like trading it for the first time. I know there is a lot of factors that doesn't make it close to the real thing, like the psychological aspect, no real money and being able to fast forward time, but for me it's excellent to quickly test new ideas.

I fully agree that testing with...
I don't disagree that using a simulator can be very beneficial. Simulators though are for practice. They help us to work on our execution. They help us to learn to act without thinking. They help us to familiarize ourselves with the movements of our chosen trading pairs. They are not however for testing the validity of the method. We can only do that through forward testing. The point of the posting though is before you place trades with your hard earned money use a tiny account for a time to verify your method is robust and not curve fitted to a prior data set.

Hope it helps.
Quoting Seneca pilot
I don't disagree that using a simulator can be very beneficial. Simulators though are for practice. They help us to work on our execution. They help us to learn to act without thinking. They help us to familiarize ourselves with the movements of our chosen trading pairs. They are not however for testing the validity of the method. We can only do that through forward testing. The point of the posting though is before you place trades with your hard earned money use a tiny account for a time to verify your method is robust and not curve fitted to...
Agreed.
"The wisest men follow their own direction" Euripides
Hello all, and thank you to Seneca for sharing this information with us. I've been lurking on the thread ever since it started, but I normally don't post responses because I'm too busy with my job during the day. However, the lack of participation here is astounding. I applaud all of you that have made a contribution to this thread so far.

All of you newbies, people who are looking for help, people who are looking for trading ideas and information, or people who are just looking to better themselves in trading, everything in this thread is gold! I myself am not yet a profitable trader, just a break even here and there trader. I have been looking for something to give me that edge to get going. Seneca's method is very similar to how I trade, but there are a few different things I didn't know about. But what Seneca is saying here should definitely be paid attention to. I know that.

Just my two cents...

-Atreides
Quoting Atreides
I've been lurking...
...but I normally don't post...
Member since 2008.

3 posts total.

You're not kidding about the lurking bit. :P
Quoting Jack_Larkin
Member since 2008.

3 posts total.

You're not kidding about the lurking bit. :P
Hell I lurked here four years before I even joined. I am conservative and slow to make decisions.
Traders are typically taught to risk one or two percent per trade in order to preserve their capital. While this is good advice we are left with a problem. How do we begin to increase our gains and become more efficient if we cannot increase our risk. If we want to aggressively compound our risk capital but cannot increase our bet size how do we ever get larger gains.

The answer is twofold and partially lies in the question. As your capital increases the size of your bets naturally increases. therefore you can do nothing but have a winning strategy and constantly increase your bet size to maintain the original risk percentage. The power of compounding is widdely known but many people don't actually do the numbers and see the real power. If you risk two percent and make four times risk per month your account will double in approximately nine months. So what does that mean? In short if you begin with ten thousand dollars and make a mild return of 4R per month in ten years you will have over 100 million dollars. Now is that possible? Well yes and no. It is certainly possible to earn that type of return while your acount is relatively small. As your account gets larger, however it becomes more difficult to get good executions due to trade size. Also as your account gets large banks and brokers are less likely to give a trader leverage due to counterparty risks. So don't include in your long term trade plan the assumption that you can double five million in nine months.

But I said there are two answers. The second answer is so simple I am almost ashamed to post it. It seems so obvious I am sure that I will take some ridicule for even bringing it up. The second answer is to increase your profit targets. If you currently take profit at 1/1 R:R try extending that to 1.5/1 or 2/1 or 3/1. Generally speaking increasing your profit targets will reduce the winning percentage of your method but up to a point increasing your targets will also generally increase the profits even with the lower win rate. It is very important though that the trader understands that this trade off only works to a point. At some point the two curves will intersect and an optimum profit target is reached. If you are a trend trader who trades breakouts but use a small profit target it may be the reason you are not profitable. If you are a countertrend trader and you try for profit targets that are rather large it may be the reason you are not profitable. The only way to obtain the proper targets for your method is test, test, test.

The truth:

If you are trading a profitable method but are unhappy with the growth of your account balance don't increase the risk per trade, try instead to extend the reward.

Hope it helps.
Quoting Jack_Larkin
Member since 2008.

3 posts total.

You're not kidding about the lurking bit. :P

I'm not a psycho, promise! :-)

This is just the first thread that I've read through where I actually believe the person really really knows what they are talking about, and at the same time it clicks with me. I just felt obliged to respond once I saw what Seneca had to say, and I think it's something that we should all definitely listen to.

-Atreides
Quoting Atreides
I'm not a psycho, promise! :-)

This is just the first thread that I've read through where I actually believe the person really really knows what they are talking about, and at the same time it clicks with me. I just felt obliged to respond once I saw what Seneca had to say, and I think it's something that we should all definitely listen to.

-Atreides
Thank you.

I don't get anything from this but to consolidate these thoughts in my head so your kind thoughts are appreciated
Quoting Atreides
I'm not a psycho, promise! :-)

This is just the first thread that I've read through where I actually believe the person really really knows what they are talking about, and at the same time it clicks with me. I just felt obliged to respond once I saw what Seneca had to say, and I think it's something that we should all definitely listen to.

-Atreides
Some other posters I believe know their stuff (its a short list)

The real thing
Peter Crowns
FTI
Jack Larkin
Billy Ray Valentine
MBQB11
Cloggie
Pay the Limit

Appologies to anyone I may have left out. I purposely left out the commercial posters. There a few there but I am nobody's advertiser.
Seneca, I completely agree with your assessment of those other posters, especially 3-4 of them that I have also read every post of. However, most of them merely talked about their experience/lessons in the industry, never really giving concrete example of how they trade. I also was never able to completely integrate their ideas into my own because they clashed somehow.

You, however, actually show some charts and give some examples to back up your thoughts, and it does seem to click with what I think. Seeing your charts and posts is the first "Aha" moment I've had on here... just so you know :-)

Thanks again!

-Atreides
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