Diversified Trend Trading Approach

Sorry, I meant quant systems within the retail space available... not institutional. HFT algos are legit and I am sortof into that as my strategy is 'dependent' on time frequency.. not high speed or latency but having free margin to take the next trade at the contineious brute-force manner is key to equity explosions. Explosions is what i have found to be my holy grail in meeting my Max drawdown objectives (if it is not evident from my equity charts). So, to me, making decisions towards diversifications based on equity curve will always result in have unintended consequence in some place else with the strategy. Hence the reason of my ask whether this is done in real time or offline. Offline will be very inefficient imo.

I am also of the mindset to take profits as they come to me.... high frequency profits, low frequency loss and then net it out on Fridays.... this way I am in control over my destiny and not leaving positions open and exposed to market gyrations. Performance Outcome has to be controlled and predictable within the proft taking or loss-making episode at all times.... just my mindset bro.

Thanks for clarification. Since you were into Kama and EA development recently and then talking in parallel about FM performance, I got a bit muddied up with my understanding. Glad it is still on training wheels. I will let you follow your journey without influencing it. To me, that is a failed approach to diversification. Equity curves across the various strategies will always either diverge away or converge towards in a unpredictable (or I should say in a uncontrollable) manner leading towards a variable outcome. I think you know what I mean :-)

Speaking of wealth creation, I look at my 401K every weekend and the autocorrelation stuff you are referring to could be tackled as simple as doing a dollar cost averaging and automatic rebalancing (which you have discussed also) without any analysis and hassle. It works like a charm across the various asset classes. I have been doing this for over 25 yrs in my retirement account with less than few hours of my time in a year but the double edge sword is the market corrections. You have to muster them and stay thru on the path. If you withdraw, you are screwed resulting in a lost decade so this approach is good only for wealth creation in the long run and for retirement accounts with funds you hopefully would never touch and pass it over to your kids as inheritance :-
My goal is to live off FX in retirement and leave retirement intact for my kids and grand kids future. Let's hope I succeed with my automation. I will engage my kids after 2 yrs of proven success for them to take it over from me so I can move on to tackling real world problems. I plan a decade in advance lol

No need to ask if you don't know how to code.... this is very advanced stuff. I suggest you focus on a trading strategy and find success in it before dipping into automation. Anyone who dives into automated trading without 3-5 yrs of discretionary trading will simply fail or have A VERY HARD AND FRUSTRATING JOURNEY. You should never take this route first or rely on someone else's automated system or take signals. It's like leaving your future at the hands of strangers :-

Thanks VEE for the insights...

Hello everyone! New guy on the ship!

Is anyone trading purely DTT without the other variants?

I think a note on correlations is required before I depart. Currency is the most correlated market in the world. It is like none other. The external influences it has is tremendous and no one can calculate or measure or limit or control the effects one pair can have over another. It is IMPOSSIBLE. We would need a super computer with a very advanced forecasting model similar to the ones used to forecast weather. Doable but not available to us tiny retail traders !

So how do we trade a multi pair portfolio and come out ahead in the game of such tremendous variabilities that presents in the market? I know some would say, trade only one pair. It is not that simple. It's a trick that one must avoid (unless you have dedicated your life to one pair, one session and found your edge like our friend CP here). As I said earlier, If CP is trading GU in a AUD denominated account, there are already competing forces working behind the scenes that is not visible on a chart. Influences from China, commodities is automatically (or intrinsically) factored into the price of GU trade as there is an underlying GU or AU trade done by his broker that is handled by his platform... all behind the scenes hidden to a retail trader. This is why I feel strongly that analysis on entries changes the second you enter a trade. That is why I think CP has a completely different exit strategy from entry. Same setup for both entries and exists will never survive the test of time (again, all this is back by my research!)

My solution to correlations?.... is to complete ignore them. I do not measure correlations. I do not measure anything for that matter. Anything that you measure on a series of variables will always result in a variable. With this, the measurement also will have to be measured in a continuous manner. Simply and sensible logic as 1+1=2. I have said before, I have traded currency strength during news events manually for over 5 years until 2015. I am an expect in understanding the fundamental influences that drives currency strength (and it is only legit way to determine currency movements!) having a tremendous effect on correlated economies. That is why verbal interventions are an important and effective tool available and used by central banks and country leaders. because it works! It is a necessary part of markets to function. It's not manipulation at that level. It is a matter of livelihood for millions of citizens affected by overheated economies which have tremendous impact to capital inflows, outflows, currency reserves, trade deficits and the rest of the fundamental economic indicators.

So back to currency strength. I could measure the strength of moves with my eyes and guy feeling and trade accordingly. I could never (as I was a discretionary trader) measure momentum or speed or force of move in a quantified manner. Even now, I think it cannot be measured (sorry CP) and that is why I have kept my distance with including any kind of measurement or formula or calculation or indicator as part of my core entry or exit strategy. Just my looking at the state of my positions, I can tell easily which currency is trending in strength and in what direction.

By this, what I am trying to convey is the following

- Once you focus solely on the outcome and then take the necessary steps(curve-fit) towards reaching that desired outcome, you have already failed as you are trying to force your will on the market!
- Better approach is the take the necessary sensible and logical steps that will result in the desired outcome. Do you see the difference in the approach?

Perhaps an example would help. GBP is the first currency in every GBP pair (GOOD). In contrast, USD is NOT the first currency in every USD pair (UGLY). JPY is always the second currency in all JPY pairs (GOOD). AUD and NZD >> UGLY, EUR (GOOD), CAD (UGLY)... with me so far? This architecture of currency pair design has profound implications that is not visible to the naked eye. It is fabulously designed with the intention to enforce the

VeeFX law of Price Movements: Every action has a every and opposite Binary Reaction.

And for this reason, I feel Price is the biggest joker or trickster in any strategy. Ignore Price or limit the impact of price movements in your strategy and you have a decent chance of fighting this game.

And for this reason, I say trading just one pair, one timeframe (outside of tick charts) on one chart successfully purely based on price movements or "Price Action" is just not possible in the long run. You have to incorporate one external influence in your analysis for long term viability.

CP will also fail if he removes tick charts or removes his MTF moving average calculations (MACD or whatever he used) from his strategy. I can 100% vouch for it. (ofcource keeping his vast experience in mind, he will still win at the end but you get my point)

EDIT: Does anyone know if CP uses AUD denominated account or his account is in GBP or USD? Has he shared with us? CP / if you are still around, let's have another bout of Q&A :-)

I think this is inline with what you said in one of your posts. something along the lines of, to find an edge, one should involve multi-pair or/and multi time frame analysis...

V;

why do you think broker account currency matter at all?

it does not matter at all

So much to share.. so let's continue while Mr. C is sleeping as i have not fully addressed his post on "using fixed amounts" either in portfolio analytics or position sizing. What i wrote above is connected with my philosophy on "Risk Diversification Approach to Position Sizing". Here's some more inner workings of how currency pairs are designed and not easily available to the naked eye.

Required Margin: The amount you put down to buy a currency (not a currency pair). You are only buying not selling. Please look into the exposure tab in mt4 and it will reveal the "fabulosity" (if that is even a word in the dictionary!) of currency inter-dependency and many don't care to investigate.

- Every pair comes with a required margin element as part of the trading condition towards MIN-LOT... i.e. the lowest amount you can purchase from my margin deposit.
- Every pair pip value 'calculation' is also dependent on external influences not contained with the pair being traded (I hope everyone knows this sh*t.... i feel like I am writing a story book on FX LOL)
- So in mathematical terms, required margin and pip value could (or is?) changing on every tick. We just don't know it because it is extremely minuscule amount but it is changing for sure.... something like 0.000000000000000000000000000000001 cent
- when account is not denominated in the base or quote currency, effects of pip value changing doubles but still very minuscule but it is changing for sure.
- Available Margin: This sucker is also changing in real time every tick
- Used Margin: This sucker is also changing in real time every tick
- Brokers don't publish "pips to margin call"... boom, there is a reason behind it and now you know why?
- Brokers can increase margin level requirements going into weekends or during volatile markets and boom, you get f*cked but enough on brokers

So what does this have to do with a "risk diversified position sizing"? It has EVERYTHING to do. but first, let's continue thrashing on pairs and why I feel ATR/ADR/pips/Dollar introduces in-consistency in any strategy. Stay with me please. this shit is complex as well

Back to Required Margin per pair. It is not a fixed % of our margin account. It varies by pair and by pip value.
Let's bring some examples to our rescue for simplification to our overall understanding because there is a strong interdependency between pip value and required margin and consistency and portfolio volatility. It is ALL connected and that is why so many fail via "deer in the headlight moment" dazed at what to do when you are approaching margin call. It happens so quickly and we get the impression my broker just f*cked me over. Actually, it is the mathematically correlatioins designed into each currency pair that f*cks up our account. And because we traders are clueless how to quickly react to avoid liquidation scenario because we are not equipped with the right toolsets that brokers have to manage their exposure. Again, think like what a market maker would do to manage their exposure... but enough of that... let's continue so back to required margin and pip value with an example

This is a little dated from my notes but here it goes

//Pip Value ranging from $0.9 - $1.20 to maintain consistency
//string symlist[19] = { "EURUSD", "GBPUSD", "AUDUSD", "NZDUSD", "USDCHF", "USDJPY", "CADJPY", "CHFJPY", "GBPJPY", "EURJPY", "AUDJPY", "NZDJPY", "CADCHF", "EURCHF", "GBPCHF", "AUDCHF", "NZDCHF","AUDCAD"};
//Pip Value ranging from $0.9 - $1.20 with Required Margin under $2/microlot asof 11/30/17
// "NZDUSD", $1.71, "NZDJPY", $1.71, "NZDCHF", $1.71, "AUDUSD", $1.9, "AUDJPY", $1.9, "AUDCHF", $1.9, "AUDCAD", $1.9 , "CADJPY", $1.94, "CADCHF", $1.94
//string symlist[10] = { "NZDUSD", "NZDJPY", "NZDCHF", "AUDUSD", "AUDJPY", "AUDCHF", "AUDCAD", "CADJPY", "CADCHF"};
// Pairs under $2.5 required margin per minilot
//string symlist[13] = { "NZDUSD", "NZDJPY", "NZDCHF", "AUDUSD", "AUDJPY", "AUDCHF", "AUDCAD", "CADJPY", "CADCHF", "USDCHF", "USDJPY", "CHFJPY"};

now let's add another 3rd component - Ranges
Each of these pairs have a daily range. So pip value can change, required margin can change, daily range can change

now let's add another 4th component - volatility
Each pair can spike up and down 100s of pips in matter of seconds... intrinsically impacting pip value, required margin... boom instant margin call !

So, knowing all of the above, how do we protect ourselves from account liquidation? but let's take a pause here and highlight another retail industry "feature". Stop Out Levels and Margin Call liquidations. Why 2? In other markets, there is margin warning and margin call and that's the end of it. What the hell is stop out level and why is it there?

Margin Warning% - hey, let's help this poor miserable trader out by allowing him/her to deposit more funds... HA sucker!
Margin Call% - You fool. You just do not understand how required margin works and you do not deserve to own a leverage retail account. Give me all your money. Liquidate ALL open positions and suck your account dry. Well/ this is scam. They should only close one position at a time to free up margin and give retail traders a fighting chance!
Stop Out Level: Another unique way to drain your account BELOW the used margin. Example: $100 account deposit, $50 in used margin across open positions. Positions go against you and broker will wait and wait till your account equity drops before $50. He will wait till the percentage of stop out level typically 40% so 40% of $50 = $20... so he get more of $50+$30=$80 to suck your account and leave you with $20 further incapacitating your ability to recover. Remember, if you don't understand how much does it take to recover from drawdown, you will NEVER EVER make it in leveraged trading. You HAVE to understand the math. Math is everything. Now try recovering your $100 from an account which has $20 left. It is impossible without additional funds... and THAT IS WHAT BROKERS WANT. He want to suck you dry with each "small" deposit. Like a motherf*cking idiot, I have deposit 100s of $50 small deposits to "reduce my risk exposure". I was an IDIOT and a complete NOOB. Do not listen to anyone! Small deposit is only good to test your strategy in live without risking much but you will never ever win with such amount trading capital. it is better to spend it on your kids before you go broke !

Now back to my question on how do we protect ourselves from account liquidation? How can we diversify risk and plan our position size to minimize the impact on our overall account trading multiple pairs. Remember, 28 pairs is a very important element of risk diversification. Trying one pair or one currency defeats the rule of portfolio and risk diversification. It HAS to be ALL pairs for a specific currency to strike a good risk-adjusted balance and minimize exterior factors to our open positions. This is important (atleast to my strategy)

VeeFX Approach to Risk Diversification:

1. Trade small and trade often spreading the risk across pairs, timeframes, times of day, day of week etc. I have said this many times. old story!
2. Manage your Free Margin efficiently and in a smart optimized manner but how? With so many variabilities that exist in price that effect pip value, required margin etc as described above, how can we effectively manage FREE margin (Free Margin = Account Equity - Used Margin for those we are lost my now). I bet Davit and his idiots@PivotFactory want to believe this this (Free Margin = Account Balance - Used Margin) lol

What the hell VeeFX? Where is the damn solution? I need A+B=C to understand this sh*t.

VeeFX Solution to Risk Diversification:

1. Simple and Elegant: Based your position sizing on Free Margin ! Let's use Example to explain this complexity

Example:
Risk Per Trade = 1.5% (this is what I use and there is a very specific reason why it is 1.5% and it is tied to my financial goals of weekly growth and income)
Account Size = $100
Current State: Zero positions
First trade: Risk capital=1.5% of $100 = $1.50.... calculate position size of whatever pair you open based on $1.5 risk capital. If you don't know how to calculate position size based on risk capital, Stop Trading!
Free Margin: How much? Account Equity - Used Margin..... at this stage it is Account Starting Balance +/- Floating PnL - Used Margin of $1.5. Let's say it is $85
Second Position: Risk capital of 1.5% of $85..... what we are doing? We are reducing RISK upon every new position we are adding to the portfolio? I call this method "Margin-Adjusted Risk Based Position Sizing". All other conventional position sizing techniques is based out of Account Equity or Account Balance which is WRONG and not applicable to a multi-pair portfolio !

VeeFx... all this is good but where is the "margin optimization" coming from? Good question. Visualize this. If you follow this method, you can notch up your used margin to a VERY high level about close to 10% away from getting margin call (for automated systems only). Because position sizing is broken down to smaller and smaller pieces, it allows you to fit in MORE and more positions across different pairs with varying pip value and varying required margin requirements with less(er) risk and increased diversification.. All this equates to tada! MARGIN-ADJUSTED RISK DIVERSIFICATION!!!

Sorry C. Long story to explain why I feel your method of portfolio modelling and What-if scenarios based on a Fixed dollar capital allocation will not work in the long run with conventional position sizing techniques. It only works on non-leveraged instruments and other markets.

Hope this ties up all the loose ends of my contribution in this thread. With your blessing, I would like to retire into my cave of nothingness and return back with strong performance stats to prove the quality of my research (or not!)

My new post should explain in detail why it matters :-

Morning V

Man it is hard keeping up with you.....but I am loving it :-)

I do however need to pull my finger out of my day-dreaming this week as duty calls....but I don't want to end our conversation......but keep it going for as long as your patience allows. Perhaps at a less furious and frenetic pace which will give you and I a bit of free time to devote to applying our philosophies of life......so as my wife says.....'Have you earned any money yet?.....and I must observe 'she who must be obeyed.../tic

So I will try to keep this brief....forgive any typos as I like to clean my s*****t up along the way to provide a more coherent statement....but sometimes time isn't on your side for this luxury.

Yes mate....I hear you....but I also recognise there are no right or wrongs in this and any other game of life. Just different interpretations. We have your interpretation, Ramadas's interpretation, Thomas's interpretation, Pips interpretation, CP's interpretation, my interpretation etc. etc. etc as we go through all the buddies in this thread. I particularly find this in the physical sciences.....but within these different interpretations there is right and wrong. A right is when self-consistent logic to the interpretational MODEL is applied.....a wrong is when the logic breaks down within the interpretation. It is exactly the same principle in mathematics which you use to prove model consistency. There are right mathematical tools to use and wrong tools to use. The maths is not wrong....but the application of the tool can be. Given my scientific bent...my models are correct theories as I test their validity by empiricism.....not hypothesis based on a simple mind fart that has not been tested in the crucible of reality.....sooooo I am confident that my interpretation is correct until it fails by objective disproof.

If you do the same.....then your model is a correctly applied interpretation of the reality.

Then the question comes down to who has the better model?......and this is where one edge can defeat another and stand the test of time with robustness principles applied.


Not sure whether it is a failed approach yet...so training wheels still on....cause the principle of autocorrelation fits tidily into a bigger picture for me on my interpretation of how markets work. I would like it to be right....and the testing is giving some exciting results......but like any satellite launch....it has to go through the reality to give you the fat cigar :-)


Yes mate...it is all about getting an edge from any sound method you can. That is the way we beat this thing.

There are a few spoilers coming that might give you an inkling of where I am coming from in this statement. In this very tough game of trading in the retail context you need every edge you can get. The reason I devote my time to it....is because the harder it gets....the more I thrive. It is a passion of mine and has been for a very long time to embrace the difficult and never give up. That is why my ramblings are about the hardest things. It came from a mind flip in my early 20's from a mind altering event where I had a glimpse of the power of the brain. To do it justice and get the most out of life....you really have to stretch it. It can be your best friend but used unwisely....your worst enemy.

Now along this path of hardness (to the power of eleventy billion)....the easy stuff that comes along the way is just accepted once tested to add to that rolling stone of simplicity that builds on your hard journey. This is where you find through this inversion trick that the hardness and simplicity of complex systems are Yin and Yang. The simplicity and the hardness are related.

Now the spoiler alert comes from the fact that I am also a mimic of everything successfully applied that I see. This is how a human survives in this Neo-Darwinian landscape. Nature selects from the best mimics. This edge can be obtained the hard way through your own personal wheel making....or the easy way by threshold development whereby like innovation you progress then leap frog by acceptance of new ideas.

I said that I mimic the FM's. Well I do....even to the extent of my collaborations. You see I am also a bit of a front man for a small group of very talented people that operate on the principle of sharing finite valuable human resources to get a 'bigger' than the sum of it's parts principle going. We have sought each other out due to 'knowing ourselves' as you eloquently put it. I have massive weaknesses as do my collaborators..but just like those equity curves we plug those weaknesses with our skill sets. As we see another weakness in our skill sets...then I set about picking the brains of an unsuspecting public and hopefully lure them into this collaboration.

There is no commercial gain from this alliance....but there is a massive sharing of ideas going on that gives each of us a leg up on 'an edge' to predate on the single fish in very deep water.........unfortunately it may be the loner who chooses the harder and perhaps more honorable path ....but happily it also includes the gambler who doesn't give a stuff about transferring their wealth to us.

This alliance when it all boils down is 'mimicking' the FM modus operandi.

I am not the leader of this group. Just the front man....as we are all equals. A decision for a new entrant must be a mutual one with the alliance and we do not bring on board to this alliance any dead weights who may drag the chain...but only those with skill sets who add to the greater glory of the Alliance which aid our joint cause for an 'edge'. We have a dedicated singular focus of commitment. We are a symbiotic community of parasites choosing in our own way in how to F**** the system.....and candidates don't find us.....we find them. Note that there is an asymmetry going on here.....as we might know a lot about them or think we know it....but they don't know a lot about us....so if we want to get them on board...a massive unfair 'trust gap' needs to be crossed by participants into our Alliance. To breach this trust gap they need to embrace our combined philosophy and interpretation. This deliberate unfair symmetry just ensures we are all aligned with a single vision....but unfortunately leaves many others to their own agenda when their interpretation doesn't fit ours.

It is essential that the alliance share the same vision as we rely on the fruits of our collaboration for failure or success....but here we have an edge over the more formal Fund structure as we are not shaped by HR employment regulations such as equal opportunity etc....hence we can afford to really be selective on skill sets alone and how they meet the Alliance vision. Debates are fierce in the group but empiricism prevails. Some threads have gurus and a team of loyal followers...but the guru's are tied down with 'noise' that offer no net benefit to both styles of participant. There are more efficient ways to fast track to your goals in life....but you need to be selective in once again...picking the 'signals from the noise'. There is that consistent narrative popping up time and time again in all your pursuits in life.

I don't follow the tactics of the charlatans however and am fully transparent with what I write in the public domain....openly...... as it is the bait that traps the powerful minds as they can quickly see through the s**t.....but when it all boils down to it...there is method in this thread's madness. To be a successful mimic in this Darwinian landscape you need to be the best of breed....and to do that you need to jump on the shoulders of others for true leverage. Complexity demands power to see through it...otherwise you will be spinning your wheels for a lifetime following false leads. This power to address non-linearity can only get so far with computer technology and needs a smart heuristic team approach of minds...otherwise it is a very long and lonely road ahead where your PC's will need to replaced again and again to meet your increasing demands in a world of noise.

'No thy self' you say.....well I am a crap coder....I am a very good analyst.....I am a very good finance whiz.........I am a crap mathematician..... I am a good thinker and strategizer.....I am a generalist with very wide knowledge....I am a crap husband and father but a funny one and a kind one....I am a very focused individual....too much so which is a big barrier for me in addressing the day to day machinations of life...I am ethical and honest a most important quality for the entire alliance as trust in the alliance is a necessary ingredient.......etc.etc.etc. All these weaknesses need to be plugged by the *small but powerful* alliance and the alliance gets the benefits of my strengths ......and then we get onto the others. We are Borg quite literally....but I am Copernicus by nature.

You might say I am unethical in not declaring this alliance earlier....but we each operate in our own commercial domains seperately..and their is no fee arrangement...just a voluntary sharing of minds and labour. People on this thread are not being 'used' as my correspondence in it is ethical and gives away a shit load for free...but it does not mean that we are not scanning the minds that participate in it.... This is quite literally an alliance of skill sets that simply recognise that to beat the algo's you need to team up like in Terminator and squash those little pricks...but we use those little pricks 'eg. algo's' to do the squashing.

This is how you make it in this dog eat dog world. You cheat using age old survival tactics and you mimic them. Don't spend all your time reinventing the wheel as you also need to create a cart, train a horse...find a driver etc.


This is where trust comes in mate. Sometimes you have to trust other peoples efforts to make it. Yes...it leaves you exposed...but there is no risk certainty in life. I am not a coder so I trust the best one I can find....and over time we have absorbed each other....and dare I say it....even like each other. While it works it works....when it doesn't it doesn't and it is time to plug another weakness etc etc etc.

Cheers

C

PS Have a read about John Brockman and the Edge Foundation and the website and pay special attention to the contributors. It started as the 'reality club' at Brockman's famous dinner parties and then got to be something big and sublime. It comprised all the most acute thinkers of the day across multi-disciplines. It is no coincidence that it is called the Edge. That is the principle on how our small but building Alliance works. As a multi-disciplinary approach....you need to know your subject matter backwards of your key strengths and because of this intimate knowledge put it into simple terms that other members can understand and work with. The team then levers up these simplified inputs through brainstorming to produce some mind blowing non-linear outputs that tie the loose ends together into a consistent narrative..or model of this universe that has '*drum roll please*....an Edge

Crumbs....I have bitten off more than I can chew. I need to take a rain check on this and pull it apart a bit later. Needless to say that correlations do not necessarily mean causation....but some do....and to find them you need some tricks up your sleeve. Searching for relationships between things is my entire principle of why complex systems are non-linear. Your failure to observe this feature of the force is very disappointing Luke.....*snigger*.....will come back at you later on this mate :-)

*whistles and skips to work as he waves to Mrs C*....... "It's off to work we go....off to work we go...he's got the keys to the door...never been twenty one before"

C

Hi 3...Missed this mate but a very hearty welcome aboard :-)

I will let other's answer but I suspect hardly anyone is trading it mate based on the history of participation in this thread. The few comrades in arms tend to trade more recent adaptations of it referred to as EDTT which steps down to lower timeframes to reduce holding costs.

Beware the Pygmalion Effect...there is both good and bad in it :-)

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Hard to keep my head above the water without a decent grade 8 education, nonetheless, thank for the kama and ema 19 idea. After watching the E8 all I can see is a dot (shadow) of USD at 81.XXX soon. Not good for a janitor to carry a mobile watching Age of Uncertainty and pretend to understand QM. Well, it is the increase of entropy that I got to keep my job.

Hehehehe. Nice F.

Mate if it is any solace the education of today is where you just go to school and university and get a big data lead applied to your brain where stuff just gets downloaded. You leave these institutions as clueless as you arrived at them. I had a total mind wipe in my early 20's where because I didn't have a backup for my brain...thought I had lost all of that supposed knowledge.

It wasn't knowledge at all. It was just absorbed data.

After my mind wipe I started from total scratch and started piecing the puzzle together on my own terms with focus and that's when true knowledge occurred. This was at the same time I was serving pricks beers and cleaning up their vomit.

Methinks you know a bit more than you are letting on with your entropy statement....Mr Matt Damon.

Forget the Fields Medal for the moment as that is for maths pussies and work out this physics problem with your mop.

In Quantum Mechanics very precise rules are applied in an abstract space called Hilbert space that allow for a deterministic equation called the Schrodinger equation to map very precisely but in probabilistic terms a classical outcome of the quantum state. So how can a deterministic rule set in an abstract geometry lead to a non deterministic outcome in a classical 3D and 1T landscape? You have 3 days to work this out and submit down the hall to Professor Schrodinger for a nobel prize. A maximum of 1000 pages if you work in a 3D and 1T solution and a maximum of 10 page limit per dimension if you insist on the boring path of working in hyper dimensions......Your time starts......*tick,tick,tick*...........NOW!!!

Yeah.....I luv the E8 and had a dose of it today. Here I was putting the bins back from the footpath and a projection of my cute next door neighbour fell on the driveway in front of me....warts and all *sniggers*. Thank you hyperdimensional reality I said to myself :-)

E8 in action

Hard Stops or Performance Exits.....or Both?

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Let us say you have developed a divergent strategy such as a moving average crossover. Without any additional variables it has a characteristic signature left behind from the market conditions it navigates through.

When markets diverge, its raw performance output is profitable as it takes advantage of those market conditions.....whereas when market conditions are convergent or are noisy, it's result is unprofitable.

The derivative nature of an equity curve displays when market conditions are favorable or are unfavorable given by the sequences of profits or losses derived from your crossover system.

Now under a variable free scenario this provides a signature that is characteristic of the market and a good piece of critical info for the developer.

Now let's apply a constraint to that natural almost harmonic motion by using say a hard initial stop.

The stop is a variable or a system constraint that can destroy this rhythm and produce a resulting derivative equity curve that is more a signature of your system weakness than the market itself. This is what curve fitting is all about.....and our greatest nemesis.

We are all trying to produce solutions to trade this market and the solution should reflect your systems response to the market as opposed to your systems response to the constraints you have elected to use.

An unconstrained system provides a base case benchmark on which you should be testing the impact of variables you supply to manage risk.

This is what the use of performance exits is all about. A performance exit is a method where you let the market decide how your system exits as opposed to the arbitrary constraints you have applied to your system.

Now C......this is all good and dandy provided the market behaves....but what if the market decides not to behave. Aren't you awfully exposed?

This is where you need to also consider a stop of last resort.....but the critical part of where to place this is dictated by the outliers and not the natural rhythms of the market. To find this sweet spot that therefore does not disturb the natural rhythm which allows your strategy to shine..... you need data to determine what an outlier is versus what an outlier isn't.

A standard assumption of the application of say an arbitrary placement of a 0.5% risk stop is only going to end in tears and result in a failed strategy....not by market condition....but by arbitrary design. Hard stops should only ever be used as a stop of last resort when conditions are extremely negative to your strategy. 9 times out of 10 you will be better off with a performance exit and an extreme stop for the outliers...than a conventional one stop fits all policy.

Data analysis (eg. such as below) provides the method in which you determine where to apply these stops of last resort....or not....... and it is based on market data as opposed to a whim or a mere slogan or mantra.

If you place them incorrectly....watch your results unfavorably skew from these artificial constraints that bear no reflection to the underlying market...but rather weak design principles. Don't fall into the trap of thinking that stop losses is about risk management....it can be if applied correctly or can't be if not. There is a subtle nuance going on here that relates to risk management versus poor system design.

Thank you...but what exactly this histogram show? And where are blue and grey?

Morning R. Let me know if the following visuals make sense mate. It is pretty self explanatory if you visualize it this way.....which most of us don't.

Mostly we deal with looking at equity curves but histograms also tell a story. All these chart visualizations are second order derivatives of the market polluted by the nature of the system that is embedded in it. This game is like that of a paleontologist trying to interpret palaeoenvironments using the fossil record....or the imprints of systems that exist within that context. Sometimes it is more about the system than it's environment...but what we want is info about the environment as the existence of the fossil (or the system we create) is known already to us. :-)





Bad system design from acceptance of mantras without testing them produce bad results. Constraining variables are unique to each strategy and each constraint needs to be tested to see if it is a strength relating to market condition or a weakness relating to bad design.

Key Point: Hard stops inevitably introduce drawdowns into an otherwise potentially profitable system and destroy the market signature of small wins by disruption. Your trade frequency will go up simply due to bad design and this additional increase in trade frequency is usually always NEGATIVE. A hard stop by it's definition means that it will always be triggered on weakness. A performance exit ensures that adverse excursions are exited on market strength. A profitable system always has losses....that is the nature of things when market conditions change but arbitrary positioning of hard stops inevitably lead to enhanced adverse risk exposure by system weakness. You may need the stop of last resort....but make sure you place it wisely to retain the integrity of your system and what it is trying to achieve.

Let the data inform your design.....not your biases.

Curve fitting turns potentially very profitable systems into your worst nightmare as you tend to include design futures to meet your expectations as opposed to what the market in reality delivers.

We deliver expectations at the portfolio level....not at the level of each system deployed. We want simple systems to deliver large expectations through portfolio management. Retail traders tend to have it ass end about... which makes their game almost impossible.

MT4 strategy tester showcases optimisation......and there is a good reason why?......It does more harm than good...... QED

I am only sharing what I know and what I have ruled out as part of my journey. We are who we are based on our past experiences. Who we become from now on is only based on what life has taught you in the past. Past matters in our own personal growth and will always recede (hopefully not) override whatever to read and learn from others in the future. The whole idea behind sharing my journey on this thread is to highlight a research process based from the ground up, will building descrete building blocks one on top of the other. If the other on top does not align with the one in the bottom, the entire fortress of knowledge will crumble eventually bringing you back to day one. I think that is what CrucialPoint was also suggesting with his Elliot post. It has to be based on sound principles and one of the underlying fact of all financial tradeable instruments is the fact that EVERY asset class in the entire developed, developing and underdeveloped world is dependent on The US Dollar. At the end of the day, you are either long dollar or short dollar 100% of the time! The only exception to this rule is the role that JPY plays in funding risky assets. Even in Risk on/off, USD is KING.

This is for Alphadude... if you are shorting USDJPY, professional platforms will display your floating PnL in JPY currency and not in Dollars. Why is that? Because you have sold USD and bought JPY. You own JPY so your retail platform is tricking you into thinking you are making or losing money in USD..... you dont even own the damn USD because you have USD to buy JPY ! What happens when you close the short USDJPY position? In professional platforms, you will continue to OWN JPY as a static amount. Your retail broker hides this fact also by converting JPY into USD using the current exchange rate (or whatever your denominated currency and earning AGAIN on spread behind the scenes that you don't even know about !) You are not just paying the two round trips of spreads. All this is just made 'easy' for the noob retail trader to press button and trade like a money without having a clear understanding of how currency exchanges truly work ! Your retail broker is also generating positive yield curve on his line of credit using the vehicle of negative swaps. It's a WIN-WIN model. Brokers will ALWAYS win. Market Makers will ALWAYS win. It's the function of the market and financial markets are designed around this underlying CORE principle.

Sorry C. My passion and tone of messaging usually gets too much for folks to handle and it drives people nuts. You are not alone :-
That is just who I am. A black and white Straight Shooter who only thinks in If-then-Else and leaves no room for Maybe's when it comes to scientific approach to a problem at hand (leaving human emotions aside, trading currency market is a scientific endeavor). I will stop here as I realize I am impacting and/or slowing you down in your journey and others participating in your thread (I know Mr. R is fed up hearing me out lol). I have shared what I know. How people use it is really up to them. With a high level of assurance, I can say, no one will understand and/or give a F what I have shared as I have not shared a good looking chart with a colorful indicator. It's just words that is going to be lost in the maze we call the internet.

All good V.

PS. I give a f**k about your point of view. I think many here do mate.

Thanks. I have scraped my diversification of trading both bi-directional breakouts and bounces into a same account. I know the reasons why it will never work (because of the way I manage my drawdowns management and profit/loss exits framework... it will require me to redesign my exits to smoothen the equity curve)

So, this week, I will trying (in demo) the two of my best performing strategies in a single account. It's aggressive, high frequency on steroids and going ballistic with 25% gain in the first 3 hours of london open. Actually, I don't trade on bank holidays but today, volatility is solid in london session. Two episodes of 10% profit taking targets reached in no time which is very surprising. All my live accounts are shut down today sob sob :-

In all seriousness, great things happen when like minded people converse and collaborate. The key is "like-minded" and no two traders are alike in their thinking :-)

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