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Trend Trading

  • #341
  • Oct 6, 2018 3:54pm Oct 6, 2018 3:54pm
Quoting chucksman
Hidden
Hi Chucksman. I agree that spending lots of time to find the holy grail of entries is a waste of lifespan. I'd advise finding a very simple method for finding trending pairs that produces consistent entries and use it without discretion. The goal isn't to find the perfect entry method. Any method is going to be less than perfect. The goal is to make sure the winners win more than the losers lose. If the winners don't produce more profit than the losers lose, then we are better off riding the winners longer, or cutting the losers shorter. I like to use the simplest method I can find that makes logical sense to me. No reading tea leaves or going off astrological signs. If I lose half my trades, then as long as I win 3 times more than I lose on average, I'll still profit in the long run. I may never know why a trade is successful or why it fails. I don't care why. As long as I have profits to show, it really doesn't mater to me why the GBP is stronger today than the NZD. If it's trending up strongly, that's good enough for me to try an entry. Best success. - G
  • #342
  • Oct 6, 2018 8:10pm Oct 6, 2018 8:10pm
Quoting Graviton
{quote}I may never know why a trade is successful or why it fails. I don't care why. As long as I have profits to show, it really doesn't mater to me why the GBP is stronger today than the NZD. If it's trending up strongly, that's good enough for me to try an entry.
Well said. I think many traders feel the need to make trading way more difficult than it needs to be. Just my two pips.....
  • #343
  • Oct 7, 2018 7:07am Oct 7, 2018 7:07am
Quoting moneymaker2
{quote} Well said. I think many traders feel the need to make trading way more difficult than it needs to be. Just my two pips.....
Trading is difficult even for professionals with many years of experience. If you think it isn't then you are deluded.
When you see it, BET big.
  • #344
  • Oct 7, 2018 8:28am Oct 7, 2018 8:28am
Quoting Rennaissance
{quote} Trading is difficult even for professionals with many years of experience. If you think it isn't then you are deluded.
Well Ren, this gets back to the difference between simple and easy. For instance, it's very simple to lose weight. You don't eat and you lose weight. It a 100% guaranteed diet plan. It has never failed in history. It's not easy at all though for those who are overweight. So, sometimes there is a difference between simple and easy.

My trading is elegantly simple. I examine every tiny move to see if I can leave it out or somehow simplify it. But that's not to say it's easy. I have studied for years to make it so. If I were to say I've put 10,000 hours study into this subject, that's probably underestimating it by half or more. I do think it's possible for some to learn from someone else who has already done it and shorten their journey considerably. Best success. - G
  • #345
  • Oct 7, 2018 9:10am Oct 7, 2018 9:10am
in my personal experience, finding an entry isn’t that complicated. However, to ride the trend is somewhat intriguing because at this point my emotions played me a lot. Thus, lately (for apprx the last 1.5 years) I use parabolic as trailing stop. I know that this too is not perfect. But, i can kick away my emotion and it helps me a lot. Anyone here also use parabolic as stoploss?
  • #346
  • Oct 7, 2018 1:59pm Oct 7, 2018 1:59pm
Quoting Graviton
{quote} Well Ren, this gets back to the difference between simple and easy. For instance, it's very simple to lose weight. You don't eat and you lose weight. It a 100% guaranteed diet plan. It has never failed in history. It's not easy at all though for those who are overweight. So, sometimes there is a difference between simple and easy. My trading is elegantly simple. I examine every tiny move to see if I can leave it out or somehow simplify it. But that's not to say it's easy. I have studied for years to make it so. If I were to say I've put...
Yep true.
When you see it, BET big.
  • #347
  • Oct 7, 2018 2:16pm Oct 7, 2018 2:16pm
I think graviton, the main problem with following the trend is volatility. People cant stand those temporary reactions. They always take a reaction to a reversal, or others even less sane take a reversal for a reaction. I think there is no system other than experience which can make you differentiate between the two. You need lots of hours in front of the charts to have that feel.
When you see it, BET big.
  • #348
  • Oct 7, 2018 7:44pm Oct 7, 2018 7:44pm
Quoting dscap
in my personal experience, finding an entry isn’t that complicated. However, to ride the trend is somewhat intriguing because at this point my emotions played me a lot. Thus, lately (for apprx the last 1.5 years) I use parabolic as trailing stop. I know that this too is not perfect. But, i can kick away my emotion and it helps me a lot. Anyone here also use parabolic as stoploss?
It seems like we are moving away from trend discovery toward the subjects of stop losses and risk. If anyone still has problems with trend discovery, we can discuss that more. I just love talking about trends, so the subject never gets old for me. The next item on my list is risk. Once we discover a possible trend, we must decide how much to risk. I'll dive into that subject moving forward. Feel free to offer opinions or enlightenment. - G
  • #349
  • Oct 8, 2018 5:22am Oct 8, 2018 5:22am
Generally speaking, the longer I intend to keep a position, the smaller that position is. I usually prefer short term larger positions than long term small ones.
  • #350
  • Oct 8, 2018 8:59am Oct 8, 2018 8:59am
Hi G., Hope I am not interrupting your flow, but I thought that you might be interested in this MTF MCP Trend scanning gadget for multiple MAs. It was posted by mistakesr on MTF Stochastics Trading, Post 275. The description in the post is very complete.

I can not attach the .ex4 file to share in this note, but I was able to download it and apply it to my MT4 platforms.

You can choose up to 28 Pairs, choose any TF up to 9 and any 3 MAs for the Pairs.

Currently I am in NJ and NU running with some very nice pips on 2 positions for NJ.

Attached Image (click to enlarge)
Click to Enlarge Name: 10-08 Matrix Scanner 8AM.jpg Size: 130 KB


Best, AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
  • #351
  • Oct 8, 2018 10:59pm Oct 8, 2018 10:59pm
Thanks AG, nice gadget. I haven't tested it out, but if it helps you discover trends to trade, have fun with it. If anyone else wants to discuss their favorite method to find a trend to trade, feel free to post it up.

While waiting I'll discuss risk and money management a bit. The first risk we face is the risk of loss of capital by a trade reversing to the stoploss or further. We can define the risk of loss between entry and stoploss accurately, but losses beyond the stoploss, say from a large gap move, are more difficult to define, but not impossibly so. Let's use an example. I'll just use round numbers for this example since I left my TI-55 calculator in my other jacket:

Suppose we have a $5,000 account and we are risking 0.5% per trade, or $25 between entry and stoploss. Also, let's suppose we are trading 0.05 lots (5 micro lots) on each base trade and we are pyramiding with 0.03 additional lots at regular intervals, say of 50 pips spacing. We set the initial base trade risk at 50 pips between entry and stoploss, so at 50 cents per pip we have set our risk at $25 . If we trade this correctly that would be the maximum risk to our account. We can discuss all the techniques of reducing risk through trade management later.

But wait! There's more! On Jan 15th 2015 I watched in horror as my UChf trade gaped down 800 pips before a momentary pause allowed my stop loss to execute and take me out. Price then immediately dove another 600 pips and those who weren't lucky enough to get out earlier were punished a second time for a total of 1400 pips. I was actually pretty lucky and lost less than 20% of my account. The trading example above only risking 0.5% per trade seems very conservative, but consider the effect if one is trading two highly correlated pairs with two trades stacked on each, a common configuration in my trading. If we are only hit with the 800 pip gap move, we are out $1280 or 25% of our account. If we were unlucky enough to ride it down the full 1400 pips, we'd lose $2240 or 45% of the trading account. That's a black swan risk that would be hard to recover from. And that was just based on trading 0.5% risk per trade described above. If you were trading 1.5% risk that day, your account would be wiped out. Now, that's some serious risk.

There may be many types of risk, but this is the worst sort. This risk can wipe out a trading account. The only way to control it is to control the size of the trades we take. Of course this is a very rare event and we might not see another for a lifetime. Even still, something less severe can be devastating. For any who would think that trading larger is the quicker path to riches, I'd encourage them to run the numbers to see what an 800 pip or a 1400 pip gap move would do to their trading account.

After I get a nice long rest, we'll look at some other, less frightening sorts of risks such as missed opportunity costs . I believe I can offer a more cheerful story about that one. In the meantime, it's a discussion thread, so questions, comments, complaints? - G
  • #352
  • Edited Oct 9, 2018 6:32am Oct 8, 2018 11:17pm | Edited Oct 9, 2018 6:32am
Quoting Rennaissance
I think graviton, the main problem with following the trend is volatility. People cant stand those temporary reactions. They always take a reaction to a reversal, or others even less sane take a reversal for a reaction. I think there is no system other than experience which can make you differentiate between the two. You need lots of hours in front of the charts to have that feel.
Good point Renn, I'm sure if price went straight up with no retracements it would be much easier for the novice trader to let her profits run. But perhaps something of value can be learned without thousands of hours of watching screens. Perhaps what we are really learning is we can't tell the difference between a retracement and a reversal? That our trading must be robust enough to handle both retracements and reversals and still make a profit in the long run. Perhaps once we learn we can lose most of our trades and still make a very nice living, our whole approach to trading changes from trying to predict the future, which is impossible, to trying to exploit the odds over many trades for a profit. I mean, we might not be able to eliminate all the need for practice, but perhaps enough could be learned in other ways to reduce the need for practice from 20,000 hours in a slow learner like me, to 10,000 hours, or even 5,000 or less. - G
  • #353
  • Oct 8, 2018 11:55pm Oct 8, 2018 11:55pm
Quoting Graviton
{quote} Good point Renn, I'm sure if price went straight up with no retracements it would be much easier for the novice trader to let her profits run. But perhaps something of value can be learned without thousands of hours of watching screens. Perhaps what we are really learning is we can't tell the difference between a retracement and a reversal? That our trading must be robust enough to handle both retracements and reversals and still make a profit in the long run. Perhaps once we learn we can lose most of our trades and still make a very nice...
Sometimes I wonder if you're Graeme yourself

Seriously.
  • #354
  • Oct 9, 2018 5:16am Oct 9, 2018 5:16am
I would like to say that I am really enjoying this thread and I hope you continued to post.
  • #355
  • Oct 9, 2018 8:05am Oct 9, 2018 8:05am
Quoting rescuenava
{quote} Sometimes I wonder if you're Graeme yourself Seriously.
Rescuenava, I'm just me, but it's quite possible that many of us wind up trading in a similar fashion. Many of the most successful traders in history trade trends. I could go through a long list of successful trend traders, many who have made billions in the markets, but I'll leave that research to the reader. Best success. - G
  • #356
  • Oct 9, 2018 8:11am Oct 9, 2018 8:11am
Quoting PoetLaureate
I would like to say that I am really enjoying this thread and I hope you continued to post.
Hi PoetLaureate, glad to hear you are enjoying the thread. I'll continue to post as long as I feel I have something to contribute. This is really a simple method and I suspect I'll soon have posted everything I have to say about it. I never get tired talking about trend trading though, so I hope to be around for a long time to come. Best success. - G
  • #357
  • Edited 3:35pm Oct 9, 2018 9:51am | Edited 3:35pm
We have discussed many methods to identify trends to trade. Anyone who wants to post their favorite method of trend discovery is welcome to do so. The next thing I wanted to discuss was risk and money management. First off we discussed a very damaging risk, the loss of trading capital between the entry and the stoploss. Of course, that is fairly easily controlled by controlling trade size and stop loss settings. We discussed the most damaging risk of all, a black swan risk where price gaps well beyond the stop loss. I encouraged all traders to "stress test" their trading by considering the effect on their account of a black swan similar to the worst events we have experienced in the past. If anyone has a comment on those items, please feel free to post it. Next I'd like to examine other types of perceived risk. I'll start with the risk to earned profits. I'll follow with missed opportunity costs, sunk cost and broker risk. Any other types of risk that anyone wants to talk about is now fair game. Let's try to understand risk multidimensionally rather than just the single dimension of risk from entry to stoploss.

The next risk I'd like to look at is risk to potential profits. The worst risks are those that take trading capital directly out of our account and transfer it to people who probably don't need it. Next might be risk to potential profits. So, suppose in our made up example above a trade is going well and we are 1XSL ahead, or in our example 50 pips ahead. We have moved the stoploss from 50 pips below entry up to 25 pips below entry, reducing our stoploss risk to our trading capital by half and increasing the space between current price and stoploss to 75 pips (50 pips profit + 25 pips from entry to the new sl position) allowing more room for the trade to breathe with volatility and increasing our chances of staying in the trade longer to get more entries stacked on. The risk we face here is that the trade reverses or more likely suffers a deep retracement and the 50 pips profit is lost.

This risk to profits is real, since we could have cashed in our 50 pips profit at any time, but if we lose those profits, it doesn't take trading capital out of our account other than the remaining 25 pips from the entry to the sl. So, in a very real sense, risk to profits is not as serious as risk to trading capital. Risk to profits reduces our profitability, but it will not by itself take us out of the trading game. In a sense, that 50 pips profit that we are risking is "house money". We are taking on risk and managing it for a profit, but when we are risking mostly profits and not our own trading capital, we can afford to take on greater risk without suffering greater consequences to our account balance. The conclusion here is risk to potential profits has less negative impact on our trading than direct risk to our account balance. Therefore, once we are able to remove all stoploss risk by setting stoploss to break even without increasing the risk of being kicked out of the trade by a deep retracement using profits or "house money", the market on average will pay us for taking on that additional risk and managing it wisely. This is my view of risk to profits. I'd be interested in hearing others views. Next I'd like to look at missed opportunity costs. - G
  • #358
  • Oct 9, 2018 10:33am Oct 9, 2018 10:33am
Quoting Graviton
We have discussed many methods to identify trends to trade. Anyone who wants to post their favorite method of trend discovery is welcome to do so. The next thing I wanted to discuss was risk and money management. First off we discussed a very damaging risk, the loss of trading capital between the entry and the stoploss. Of course, that is fairly easily controlled by controlling trade size and stop loss settings. We discussed the most damaging risk of all, a black swan risk where price gaps well beyond the stop loss. I encouraged all traders to "stress...
We can avoid black swan if we deposit 10% to broker of our money witch we trade. 90% of our money we will keep in our bank accaunt. Simple
  • #359
  • Edited 12:16pm Oct 9, 2018 11:48am | Edited 12:16pm
Quoting ficibald
{quote} We can avoid black swan if we deposit 10% to broker of our money witch we trade. 90% of our money we will keep in our bank accaunt. Simple
Ficibald, that's exactly correct. Of course, what ever we have in our trading account is at risk, from black swan risk and from broker risk that I'll discuss later. Per my money management rules, I keep twice the margin in my account that I need for trades. Anything more than that is rebalanced out of my trading account once a year into other diversified holdings. The bottom line is that anything in our trading account is at risk, so we don't want more in there than we need to execute our trading plan. Thanks for the comment and welcome to the thread. - G
  • #360
  • Oct 9, 2018 3:05pm Oct 9, 2018 3:05pm
Graviton,

I just finished reading the whole thread for the second time. I must say I thoroughly enjoyed it. Keep up the good work.

I pretty much agree with all the points you have discussed so far.

Although I have developed an entry and trade/risk management style that suits my personality and inevitably is little different than yours, but follows the same sound principles you have detailed in your posts.

Regards,
Sayed
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