(binned per thread starter’s request) CookieMonsta's Journey Into

ah crap, i guess i still don't know enough about butterflies and calendars to trade them well.

guess i should stick to long straddles or strangles for now, since i know those better.

alright im out of that trade, seems like it really doesn't make sense for me to be in that trade, took a $37 loss.

i should probably stick to my main goal for this options account, determine the viability of using long strangles for tail risk hedging.

After 3 week's of testing with pepperstone.

My conclusion is, pepperstone is more viable as a broker.

Also, while I was trading that, it occurred to me that, remember when we said at 38% we enter death battle mode, and suppose we can oscillate between before 38% and 38% consistently, we could trade around it consistently.

Why, is this important, the reason is because once you hit 38% you will not be able to rescue effectively. Not just from exposure, but from margin usage, as price moves against you, your margin depletes from both drawdown as well as more troops deployed.

Then we move on to say if we can solve it using options that would be great.

Then also we moved on to employ the 3 legged animal, but that shrinks our margin down to 4x or less.

So what if we have a more efficient way of flattening our exposure, flipping or even bringing out troops?

So I went to study phil13's trade once again, and well I already noticed early on how he had been using opposite entries on same pairs to manage risk flattening position.

But then again, I thought what if I used that and danced like how I dance the 3 legged animal?

The answer is, on a $200 small live account, across 3 week's, I manage to get 60% returns, the key is, being able to play defensively when required, and the crux is the flattening function. And when you can flatten exposure when the situation is not as good, you are keeping exposure small till rescue can be reimbursed stated.

just to illustrate the point above.

i was long into USDCAD just now and was exposed 0.08lots, using 1 1 3 3, and also powell was going to have a speech.

and i saw volatility and momentum getting stronger upon the speech release against my position, so i short 0.08lots USDCAD to flatten my position, then as momentum ensued, i short another 0.08lot USDCAD becoming net 0.08lots short, and managed to rescue my position and then profiting from the momentum further.

the exact trade sequence is in the chart and blotter below.

notice that when you short the first 0.08lot, your margin flattens as you are effectively squared, no exposure at all, your in a lock. then when you go net short then you have margin exposure.

in this case no rescue was employed for the long positions since the momentum is very strong to the downside and my position was already net up so i decided to take all out.

also if i am fairly ok with the volatility currently but do not want to get caught out of position, do you see the resting stop orders? its for this purpose in case something sudden hits my suddenly and i do not have time to react, the resting stops can help me engage and buy me time by locking in my losses till can can rectify my position.

so next, on the investigation list is around the death battle size of 38%, and trying to oscillate around it, this i have not done yet but will be investigating into it, as currently across the 3weeks i have not actually gone into any death battle at all.

so total it beings us up to 65% for this account.

but of course 0.08lot is alot for a $200 account, however this was meant as a test for myself to see my limits operating with very small capital and to attempt to reach the death battle scenario earlier so as to investigate into the issue and see what i can achieve, if trading larger sizes, its prudent to trade with smaller sizes with respect to the account size.

there is a key difference between using stoploss order and using this to lock in losses, mainly that it gives you more discretion and control and your not out of the game till you pull everything out, whereas for stoploss, you are automatically out when your hit. that ability to control what goes on is crux to staying alive in the markets well.

also the catch is that, after locking in exposure, you can also rotate and switch directions and rescue with momentum and slowly tune the position.

Hi CookieMonsta

Well done my friend it seems you understand what I was trying to show the ‘by any means’ to create a profit, you can also use another pair once another is locked to create the profit and as you say it is a good way to enable re-positioning of the troops also, no rules, anything goes, its war….. AOW.

The books bottom is all that matters (the state).

One major thing to always be on guard for is the conflict of the cognitive dissonance it can cause.

Regards

Phil.

Hi phil,

Thanks my friend, your strategy there is really useful in that with this, its possible to adapt even in very harsh conditions, especially for news events and sudden spikes. Then in this case, adding this flattening function into the mix implies being able to decorrelate the book from markets volatility, while still being very capital efficient with troops deployment.

Indeed, and by being able to rotate back inline with momentum, it can allow for shorter rescues and by being able to flatten it, the positions can be carried overnight.

Hi my friend nice post... thought I would take a look.

So I believe in that pullback you scouted long - it went against you so you locked 2 buys with 2 sells (no margin issue any more either) then you flipped at next level ie 3 with 5 buys in play + closed the 2 sells. I have done this too but the mind can play some tricks - you could have left the 2 sells in play as the trend was down anyway but you stuck with 1 direction at a time (not a pig)... great example thanks. The pullback long went nicely to hunt for that breakout zone break even orders while suckering in longs.


Alex

Hi alex,

Yes you are correct. However, i believe i was abit slower on the trade, hence what you suggested is more optimal than mine.

Alright position update for experiment, the book is up 80%.

Target goal is 100%

Starting date 6/8/2018

Maximum loss was 11dollars approximately.

Maximum gain was 30dollars

Average gain was 5 to 15 dollars.

Number of days in loss: 1 day
Number of days in profit: 18 days

Account size is 200 dollars.
Hedging has to be enabled otherwise the strategy for flattening will not work and these returns will not be risk adjusted as we have above and the book most certainly will be overly exposed on risk.


Actual blotter of the entire sequence of trades will be posted later.

Alright. So since the strategy above has a pretty viable strategy that can handle even sudden spikes.

2nd stage of my portfolio plan can begin.

Initially, I thought of using butterflies as my default income strategy, however, the amount of management effort even though it may be on a swing trade level, implies it is not passive but will be an active strategy.

So perhaps this is a no go.

So 1 way to mitigate this is to copy from hedge funds which employ the funds of funds portfolio strategy mix.

So the new revised portfolio strategy for my own book will be a mix of 3 main categories.
1) my core book, the above trading strategy.
2) using income index funds like the Charles Schwab or vantage index funds products ( passive income component which pays periodically, like maybe annually)
3) using other strategies which is targeted at growth ( possible ones are index funds, roboadvisors like stashaway's which are regulated by a monetary authority and others perhaps like hedge funds or the like).

So the core book will be feeding it's profits into subcomponent 2 and subcomponent 3 as a growth and income factor in the overall portfolio overlay.

Subcomponent 1 will be where my own personal skill will mitigate issued which may arise from subcomponent 2 and 3.

crap, now im in a death battle scenario, hopefully i can trade out of it well.

hmm, i guess i still have some issues i have to work out when handling markets which reverse very slowly and have little to no rebounce for a proper rescue.

hmm, also another issue is, the way i pulse markets which turn at a very slow yet persistent pace with no rebounce seems to still be an issue. seems like whenever i hit this kind of terrain, i always get into problems with rescue, and this can only be fixed by enhancing how i pulse the markets.

Hmm, i may end up taking a severe hit from this battle, but its good excercise for me to figure out how to handle such scenarios so i dont lose larger sums on larger accounts.

Also, i will have to put in extra thoughts on how to handle this as originally the intention was using options to do it.

But with the flattening function, it would require me to figure out hiw to employ it in such scenario.

However, my gut feel is, its not the strategy which is the issue but how i apply it, as i made afew mistakes today. And also my pulsing if price action is not handlong this well enough.

Ok, so, taken the lost.

Will have to revise how i handle such situations.

For now, I guess I will implement an additional max loss instituted on top of the current strategy, meant to prevent positions from getting out of hand.

So the max loss I will be tagging it to max 2x daily p&l for now and work on from there.

Looking back, I think I may have gotten biased and mismanaged the position.

Hi cookieMonsta

my friend, sorry but i can not type much ATM. just had an operation on my right shoulder and only on a laptop that rarely use too using. i feel your answer (or at least part of it) lay in this video i have posted before. maybe worth a watch to refresh your thoughts, it looks very easy to trade against yourself but in reality it is very hard due to the cognitive dissonance it causes, it takes a lot of practice to start to overcome the chemical process and constanstant awareness of it re-appearing at any time. also the account size is a big factor in using this strategical way of trading.

good luck

https://www.youtube.com/watch?v=FQhENfeM9dc

regards

Phil.

hi phil,

take care my friend.

partly what you mentioned about the video is what affected me.

however, i think another factor is, my scorpion came out to sting me again, my scorpion which is my unwillingness to take losses and wanting to rescue everything, which i ended up rescuing against the trend. i guess i have to learn to curb this scorpion better.

yes, i think i may have overextended myself this time on a very small account.

Hmm.

So I was furthering some experimentation of the idea above using same pair to flatten the position, and applying it to system 2, specifically to handle whipsaws and this time in conjunction with system 2's limit of 2 to 3 entries rescue and with stoploss.

It seems that the flattening then rescue where feasible function on top of having a stoploss of certain value seems to work well for system to and handling draw down.

So this itself created a new system 4. Which is swing trading on h4 with limited rescue and having a stoploss and a max loss limit and on top of it, the principle above of using same pair to flatten the position.

Seems the results are fairly good.

The draw down is fairly minimal even with a max stoploss and now it produces a positive risk reward ratio of 2 and above. On top of being able to withstand volatility and whipsaws when markets are looking like it could turn.

So for this system, I do take losses as there are physical stoploss entered but is being managed in real time.

Now as the markets are whipsawing, I can widen my stoploss very much while flattening it to see if it's a genuine move before deciding to rescue or not, hence allowing for performance in a whipsawing phase. Hence decorrelating the pair's volatility to the portfolio volatility.

Part of the main issue with system 2 was that I have to get the volatility correct when the market is turning, which if taken wrongly will cause my stoploss the get hit. So what if I could widen my stoploss without having to take on too much extra risk? So the flattening function achieves such results. So now I can widen the stoploss and then observe while flattening my position without having to exposure to extra fluctuations. Then when the market proves that I am simply mistimed, I can add in my rescue limited to a stoploss.

Then I enforce an extra layer of maximum loss management. And then if it goes in my favour I let the trend ride.

This is tied to part of the fallacy of martingale paper researches. Which is that, the main problem with those papers is that, they actually traded against the trend. Which is adding to losers and that is a huge issue. If you do it enough times you will blow the entire account.

The 1 major difference that is in the taf mo thread is, never trade against the trend, and that is whats the difference between using martingales as a trading strategy whereas there, it only uses martingale as a money management strategy while the feel the trend aspect had to help to decide if we are actually trading against the trend or simply in a mistimed scenario, or are we range bound so rescuing is correct.

This is the case where how it's used makes a whole world of a difference between a consistently profitable strategy and a blown account.

So, it is right back to the equation of the p&l
P = s v x

P= s f(v) g(x)
So now what if v is now f(v) function of volatility in how we manage the trade that causes how much exposure the portfolio takes.
Then function of x which is the money management module.

So now if f(v) has a bound as well as a flattening function to reduce exposure to market volatility, we have a decorrelation from the base function of p=s v x

So what the bound will look like is that there will be a loss limit according to volatility. But what the flattening function does is remove exposure from volatility and because it can remove exposure from volatility, now the bound can be re-augmented to become wider without impacting exposure. So now the function of v is a complex trading method meant to handle and adapt to variances in volatility, which is volatility of volatility, like vix.

Basically, how to handle the variances in volatility while the markets are transiting from 1 market terrain to another while maintaining a stoploss.

The concept is the exact same as long short portfolio and the 3 legged animal, except how it is carried out is different.

All these are meant to do is to manage and financially engineer portfolio volatility.

Hope you are doing ok my friend

Alex

wow, getting complicated ...

sorry to hear that, but i guess the lessons made it worth while right. its ok, just levelling up, preparing yourself to fight the market boss/bosses... lol

rgds

hehe, its worthwhile definitely, i was able to derive other usages for it, so my other book which variant version of it was working alot better with some limits and insights into it and its working great

managed to recoup most with this book.

if i did not had this loss i would not have gotten the idea how to derive the variant usage for the other book.

also because of it, this book is able to handle local whipsaw and distribution and accumulation ranges profitable by default, while being able to handle varying volatility variances.

All derived and inspired by phil's strategy to flatten exposure.

hi so, here goes, another trade employing the mechanics mentioned above.

so first off, i was long USDJPY and the market had a numbers released so by that time i already had a flattening position set ready to engage and deploy a short position should the market push downwards.

so the down push manifested and i engaged to move short, and was hedged and locked in 4 dollars loss. so as the market was pushing downwards, my exposure was 0, given by the equation p&l = s f(v) g(x), so f(v) is 0 since exposure to volatility is 0, but actual locked in loss is -$4.

next as the market begins to turn for a short term pullback, i took out usdjpy short as market is turning, so i was exposed -$11 short , while taking a $8 profit, price had bounced abit back, and i also deployed additional rescue. so now f(v) is no longer 0, so p&l can fluctuate again, so now im long 2x, and price retraced, to the spot i took out at -$5. and with $8 profit and -$5 loss, its net $3 up. total position draw down while the entire thing was moving on, floating loss reached -$8 at 1 point, so the max loss seen was really $8 profit realized - $16 floating, hence $8.

so 1 safe way to employ this is to have a max loss you are willing to take maybe 1% of the account loss, while managing the position, and perhaps targeting anywhere between 1% to 2% but if price looks to turn even if its 0.1% its good to take it out.

important point to note: you can only do this with brokers with hedging enabled.

also do note, i am target leg swing turning points / developing hip and lops as my timing, so that i can scale the volatility and leg range better and not end up deploying too many troops.