Dr Zeus Does Demo

Nav $1804
Bal $1919

Performance
Since Jul 22, $1242 starting, 45% return. Roughly 10% per month - better than 3x per year.

Projections
Nov 2011 $5,700
Nov 2012 $15,000
Nov 2013 $45,000
Nov 2014 $135,000
Nov 2015 $405,000

OK, now it's just silly. Someone once asked if I'd really be able to trade the same way at those high account values. I don't know. Seems like it would be doable since every order is only equal to the account size. How emotionally involved is that? Oanda has a $5MM order size limit, so that's the upper end that I could hit with this system without making multiple orders per trade entry.

Only open trades are the USDTRY shorts which are earning 17.7% interest per year. I managed to get out of EU and EJ today at fairly good rates, all things considered. I'm now reloading my grid and debating entering at higher risk levels to recapture my closed positions.

Bal: $22xx
Nav: $17xx

Picked up some drawdown on EURUSD over the past few weeks due to traveling for work and not keeping tabs on my account. Oops. So I missed a huge EJ up swing and got caught with a EU short grid underwater.

Good news is that another trader playing with this system made 15% over the past two weeks on the EJ trades! Good for him. That would have put me at around $2500.

I'm testing another system like this, inspired by Xaron's post at the Oanda forums. In this one, I'm still trading the three way hedge, but the grid size is 20 pips with a 25 pip TP. With 1:1 entries, drawdown has been a low 5%. Profit after a month or so is only 2%, max margin used about 16%. I haven't been working the system though - the recent EJ move shot through my whole grid so I missed some profit there, and I haven't been placing entries like I should after strong moves.

I bet my profit should be 3%-4% if I had been paying closer attention. I'll do that from now on and see what happens. Entries could be 2x, 3x, 4x easily, so that's worth looking into later in the year if it pans out.

Bal: 2231
Nav: 2242

80.5% in six months. 10.34% per month, staying on target.

Numbers are exclusive of my stupid stupid stupid usdtry short. Lesson: keep different systems in their own subaccounts. I may have to take a loss on that trade even though I think it will eventually turn out OK. It's eating up margin! I don't want that to count against me so I'll exclude it for now.

Typical for me... go to bed with a decent profit and expecting (hoping?) for follow-through.... wake up with a reversal and drawdown.

My average position on EU is 1.3615. Do I expect it to never visit this level again? No, of course not. At the same time, I don't know how long it will take before it drops that low and need to preserve my margin.

Good news is that I caught a bit of EJ on the way up and closed that at a small profit. I think it will probably go back to 110 or so before continuing higher but I could be wrong. If that happens then it will be reflected in my EU and UJ shorts. If I'm wrong then my EJ long orders will work for me.

I'm still trying to figure out what to do with with Lira trades. Should I close them at a loss? Add to them? I'm really frustrated with myself for stepping outside my system.

The Xaron hedge has used about 22% of margin. It had a brief dip below profitability but now has a 2.2% profit. I want to setup another demo account of this system but plug in a SL as well and see how it does. It also is very obvious that I need to eat losses - Balance is $1180 but Nav is $1022, so those trades that are way out of the money are using up margin and just need to be killed.

bal 2333
nav 2020

Significant adverse position on EU shows up in my performance. Profit taken on uj and ej positions, but I'm looking for re-entry there since I expect EU to continue to climb.

nav is net of a small turkish lira position that I am still holding.

Lucky me, my UJ and EJ re-entries never occurred. I just didn't see a retrace strong enough for me to want to get back in, so my EU trades are now in profit without any offsetting losses in the other two pairs. Yay.

$2383, $2446 net of usdtry. I may close this $61 loss and just eat it. I'm 1000 pips out of the money and only make $0.12 per day in interest.

I think we look for about 3590 as a support, and I might take profit there to look for a bounce. Beyond that is 1.35 - round number and 38.2% Fib retrace from the January low. We also had a spike to that level on Dec 13.

Depending on how this stalls out this afternoon though, I might just close it at about this level in a bit and see what Tokyo does.

$2380

Started the year with $1950 or so, so I'm up 20% for the year.

I profited from the drop yesterday on EU and put a protective SL in place, and that SL got hit at NFP. I'd rather that happen than not use a SL and end up 200 pips in drawdown (voice of experience - recent experience!)


This is still net of about $-70 on usdtry which I'm still holding. I think after Egypt calms down this pair will drop down. It will take about 20 months for interest to pay the $70 - if they don't change the interest rate!

I guess I'm still used to thinking of TRY with a 15% interest. The lower interest really hurts the exotic carry, and the exotic spreads make it not worth it anymore.

My returns are now running about 14% per month by the way. Curious if I can keep that up. It would certainly make a huge difference in a couple of years.

My Xaron inspired demo account:
bal $1058
nav $1029

This is one that could use some additional leverage. Margin used is only $82. It got up to $200 or so the other day so I closed a bunch of open trades. An EA would be nice for this too.

I don't see a good place to re-enter my EU shorts on my live account, so I'm starting my weekend now. I expect a good re-trace, and then I may re-enter my trades. I really see this dropping over the next several weeks and want to be fully levered into it.

I've reset the Xaron inspired hedge account so I can test it against a version that uses a SL. Maybe I should make a third version with a different SL too. It's had a couple of good months despite neglect so I'm curious to see how it performs this year.

I sinned yesterday and tried to scalp EU, then got busy at work and didn't set a proper SL. I've got another oversized trade active now and in profit, but my SL is at BE at 1.3681 and will stay there. Hopefully this break lower signals a resumption of the downtrend - or at least my SL keeps me in the trade until the pair head lower.

I guess I need a second live account to play "blow up the account" games with. I didn't lose so much that I can't recover in a few weeks but I still feel stupid. Maybe I need a new rule: don't try to re-enter a grid with the full grid size.

That should have been pretty obvious, right?

$2160 net value with drawdown, not including stuck lira trade.

I feel so stupid losing almost 10% of my account to high leverage trading. I think I'll open another live account, put $10 in it, and let myself go wild. If I'm such a smart trader, I should be able to retire in no time, right?

It's like some crack addiction.


Oh, and I screwed up the Xaron inspired accounts, so I'll have to reset those. I'll do that this weekend. I've got another idea I want to test too... anyone have an opinion on trailing stops?

Results: Even though Oanda still has it's weekend spreads in effect, I've got a full plate for the next two days and want to go ahead put this out there.

Hedge 25p TP 50p SL $989.71
Hedge 25p TP 25p SL $992.93
Hedge 25p TP no SL $995.29
Hedge manual TP 50p SL $984.04

The 25p TP account made about 2% per month for a couple of months but drawdown was a drag, so I'm curious to see if the SL will help. It's only been a week so we can't tell anything yet. My live system doesn't have a TP but I want to see the effect of having one, which so far is negative.

Live: $1913 net with drawdown

I'm pretty far out of the money on EU, but EJ and EU have both been climbing for a while and so have a good chance of reversing. I'll look for an exit for my profitable EJ longs depending on what the price action is, but will keep an eye on it for a re-entry order in case EUR continues to rise.

Some Ideas

Drawdown is the one thing I really hate about this method, since it's pretty much a constant. If running 20%+ drawdown on open trades is not comfortable for you, then this system probably isn't going to work for you. I admit that I don't like it, but it's always turned around. Here's how I deal with it.

1. Close the trades at a loss. I don't do this much since I have orders going the opposite direction to cover that loss, and usually the time with an unrealized loss starts to really hurt is about the time that price goes back the other way.

2. Open offsetting orders of equal size in the other pairs. If I've got $12,000 of exposure to EURUSD that's in the red and it looks like it will continue, then add orders to the other pairs (or just take a market order) to balance it out. This is risky since you could be adding the orders right at the point where the trend reverse (oops).

3. Just wait. I'm using less than 1/3 of my available margin right now, so I'm in a holding pattern while all three legs are in the red. If EU continues up to 1.4, then EJ will climb to 116 (assuming UJ stays the same, which it won't). My EJ trades will grow in profit - not enough to totally recover the EU loss, but enough to minimize it. I can then close all of my open trades for a small loss or leave the EU open to let it drop and recover.

A combination of all three is probably best. Close a few EU orders when it drops a bit to open up some margin, add some EJ orders to balance the hedge, and then wait.

Ideally Though...

I should close all open orders when the account is at a reasonable profit and then re-set the grids. This would keep drawdown to a minimum, and there are enough chances to catch a 3%-5% profit to do that quite a bit.

If only the profitable side is closed, then orders should be set to balance the hedge if price continues to move in that direction. These are a couple of things that I don't do consistently and would probably help.

Thanks Dr. Z, I'm following along and beginning to trade this method myself now. Thanks for letting us know your thoughts on things and I look forward to hearing more as able.

Thanks for following Dreamliner.

The weakness in what I do is the range and spikes. I got caught in the recent EUR spike and so my EURJPY longs were heavily underwater. Fortunately I was able to get out of that grid for a small loss and am now rebuilding that grid.

With luck my UJ and EU grids will be profitable or at least break even. They aren't far from that. I'm working on an accelerated re-entry for my EJ longs instead of spacing them every 25 pips since I already have such large positions going the other way. I don't want to get dragged into large drawdown!

The rest of this post is a bit boring but explains my reasons/philosophy behind this method.

I've got a couple of ideas that drive this system. 1. Forex markets are mostly random. 2. Price will eventually move away from where it is now to somewhere else.

I think the random market idea is probably controversial, but I don't think the market is 100% random. There is a fundamental bias based on carry interest and risk aversion, two market drivers that usually work in opposition. The problem is, it is hard to know which of the two is in control or if the current market "trend" is truly driven by these factors or just a random move.

I've attached an OHLC chart from an Excel spreadsheet that simulates a random market, moving price up or down by 1 pip per tic (50/50 chance) with 10 tics per second. Now that's way more than the market usually has so the moves are much larger, but I'm not trying to make a perfect model! The point is that support, resistance, trendlines, MA cross, etc all appear on a random market just as they do a real market, and this could be because the technical indicators are measuring the same things - the momentum of randomness. I don't know, I could be wrong. But it could explain why there are so many dead forex trading systems and why the market seems so irrational.

The second point is probably less controversial. Given enough time, the market will stop ranging and go somewhere else. So assuming we have no idea which way the market will go, we just know that it will, what do we do?

Well, I just trade both ways until I'm in profit.

It certainly isn't easy, I get into draw down a lot. Expanding triangles are my bane. Spikes are just as bad if they happen when I'm not paying attention. And I don't trade long and short on the same instrument, I create a synthetic pair to trade one side.

Maybe I've had a lucky streak. I certainly feel pretty crummy right now since I've taken some losses (tried to scalp. It hurts.) and I've got some draw down to work out of. I can also get into a bit of a jam if I use too much margin, so I really hate 50:1 leverage. If one side doesn't earn enough profit to pay off my losing trades I may have to take a loss and start the grid again. But so far... so good.

Still stuck in EU shorts. Looks like the pair is trying to test the 1.3860 high, and might do that at the 10am EST news. I expected a good drop with this morning's news like we had the last time. Eh.

I've got margin enough to handle any move, but that doesn't mean I like it! I've made quite a few mistakes the past few weeks that I'll need to reflect on - tried to scalp, forgot to set SLs. I took profit on one leg while the other two were in drawdown but didn't set my re-entry orders. I have to do that unless I'm closing out everything.

It's a temptation at this point to take my lumps and start over, but I'm going to wait until after the news before I make a decision.

Final thought: I could still be over-leveraged for my preferred timeframe. I don't want to babysit my trades but at the same time I want outsized returns. This may call for yet another demo with smaller lotsizes!

Your trades are in better shape than mine, lol. This is the part that gets tricky, where you have one leg that is in good profit and the others are in drawdown. What I've been doing is taking profit on that leg and then letting the others rebound for a close. The past few weeks that action has caused me some trouble since the leg I closed continues to move, so here's my suggestion.

Be prepared to close the winning UJ leg, but place re-orders to get you back in the trade in case it breaks lower. Once you close that leg you are essentially long UJ and you'll create a lot of drawdown if you get back in it. After closing UJ short grid, you can look at your Exposure tab to see how much you are long UJ and use that to get your hedge balanced. I think that would mean short 89 UJ units. This would leave you 1412 yen long but usd would be hedged and eur nearly so.

I would arranged those 89 units in a grid so that hopefully not all of them are taken out, in case UJ dips down and then accelerates up.

Now you wait for the combination of EU and EJ loss to be less than the profit you took on UJ. This will probably be sometime next week.

The critical thing is to avoid the mistakes I've made - not placing my re-entry orders to balance the grid, or taking profit too early. One other trader I've talked to about this just lets the whole thing ride until total account is in profit, and then closes all three legs. I'm not sure if that will work long term because you end up with all three legs at a loss quite a bit and might run out of available margin if you don't take profit now and then.

I saw this link posted on the EURUSD thread. Relevant to my philosophy, although it's still surprising how much confirmation bias shows up in trading charts.

http://www.yourtradingcoach.com/Arti...-Illusion.html


I disagree with his idea of supply and demand levels though, I think that's an illusion too. There are no supply and demand levels, that's just silly. Every time a new tic is printed it's because there was a seller and a buyer who agreed on that price. So there are sellers and buyers at every level in equal amounts! Does anyone really think they can sell EURUSD at 1.3840 and have no buyer?

Some demo results:

Hedge 25p TP 50p SL $984.50
Hedge 25p TP 25p SL $987.70
Hedge 25p TP no SL $973.52
Hedge manual TP 50p SL $1004.30

Really these need more attention than I can give them. I don't know if that would help or hurt though! At any rate, the past couple of weeks have been very bouncy so they've shot through some levels and then reversed back the other way and there weren't orders there waiting on them. I'll reset the grids today and take profit on the UJ shorts for the manual grid.

Live account is about 27% below its high, counting all open trades (USDTRY included). I am a little bit concerned since I've used quite a bit of my margin and we have some important news coming up. EU could make a run for 1.4 or higher so I need to be prepared. Some actions I'm considering:

1. Closing everything and starting over. Based on my average performance, it would take me about 3 months to recover the high. Maybe less since the next EU downleg will probably be very strong.

2. Close a bunch of EU short trades on the next dip. I don't think this is likely to happen before the news though.

3. Place catch-up orders on UJ and EJ to get me net long EU.

Action 1 is tempting since it would stop the bleeding and let me get going again. However, I'm not really far out of the money pip wise. EUR interest rate will probably stay at 1% and Bernanke's positive comments will help USD too.

Action 2 is unappealing since I hate to take a loss. However, it may be necessary so I can get net long EU while staying with margin requirements.