"It's tough to make predictions, especially about the future."
- Yogi Berra
INTRO
Wow... it's almost a year since I've been on FF. Time for an update on my trading reflections. I've been honing my system for over two years now, so I think it's time to take it off of "Dr Zeus Does Demo" and take things live. Actually I went live July 2010, but I haven't bothered to make a new trading journal. I updated it last March to include using two subaccounts, and made further adjustments in the past few months with a new "go live" in May.
I call this the Yogi Berra System because of the quote attributed to him - in trading forex, the future is hard to predict. Will price go up or down today? What will it do in the next hour? Sure there are oscillator indicators, but how many times have you been trading an oversold pair only to see it fall further and further? And I've yet to see an oscillator that provides an indication of the magnitude of change from an OS/OB condition.
From a fundamental perspective things aren't much better. How will the market react to upcoming news? Is Yen over priced? Does EURUSD price accurately reflect the risk of a Euro breakup or cost of another bailout?
Time and again I've seen technical and fundamental analysts fail. The more "successful" analysts commonly provide multiple target prices and coyly call for the market to "go up if this" or "go down if that" so they often appear to be correct in hindsight.
The question is, can we be consistently profitable in a market where we consistently fail in our prognostication? I believe we can, and I have for the past two years.
Admittedly, it has been a journey with its share of losses, drawdown, and lessons learn. I've found that some analysts are partially correct, at least with the price levels where movement will occur (even if they are wrong about the direction or magnitude).
BASIC PREMISE
I make one assumption about the forex market: whatever the price is now, it will change in the future.
That is the heart of how I trade. I don't try to predict when it will move, which direction it will move, or really how much it will move. I simply assume that it will eventually go somewhere. Turns out I'm right.
I do NEED it to move, and I need it to pick a direction and move that way for quite a bit so I can take some profit.
CHART SETUP
There's no chart setup. I usually enter my orders in late evening in the first part of the week (after NY close, before TOKYO open). This isn't a hard and fast rule, it's just a convenient time for me.
I trade three pairs: EURUSD, USDJPY, and EURJPY. I do this so I can sell EU, sell UJ, and buy EJ and end up with a hedge. Hedges themselves won't make you any money except in the rare case of a swap overpayment, but my goal is not to get hedged but take advantage of whatever move occurs in the future.
I take advantage of future moves by placing orders above the current price for BUY, and below the current price for SHORT. I place orders that are each equal to the account size, and space them 3 to 5 pips apart.
So I'll have a series of 10 sell orders for EURUSD below its current price, the same for USDJPY, and then 10 buy orders for EURJPY above it's current price. On my other account, I do the exact opposite and buy EU and UJ and sell EJ. This way, if the dollars bulls take off in the next couple of days, I'll have big EU short and UJ long positions. If BOJ is able to move Yen, I'll have big UJ and EJ long positions. In a risk-on situation, my EU and EJ longs are big.
I usually end up with huge losing positions too which makes my history look wierd. I may have 10 EU long positions deep in the money, but 4 EU shorts deep in the hole. Net-net, I'm in great shape though!
Generally I like to close everything at the same time. I'll read a few fundamental and technical analysts for their opinions, and if I feel good about my profit and where the market is, I close it all and take my profit, redistributing so that both accounts have the same balance.
ADVANCED CONCEPTS
It's not uncommon for me to have huge winning and huge losing positions, and sometimes all of the orders on both sides will be taken. In that case, I can't close everything and get a profit! When this happens, I try to guess which side has reached the extent of its move and close it out.
At this point, you must always ALWAYS ALWAYS enter re-enter orders just beyond where you close out the position in case you are wrong!! I've been wrong too many times to take that risk anymore. If you are right, then the market will continue to move in your favor and the rest of the trades can be closed out later. if you are wrong, the orders you placed will be taken out and the most you'll lose is a few pips.
PERFORMANCE TO DATE
I've made a few major changes. The first version only traded one account, and that with 25 pips spacing. I added the second account after I missed a huge up move on EU. In theory I should have caught it with the EJ-UJ synthetic, but as Yogi says, "In theory there's no difference between theory and practice, but in practice there is."
So my second version included a second subaccount trading the opposite direction, still at 25 pip spacing. The current iteration tightens the spacing to 3-5 pips. The wider spacing took a long time to catch a move, and the drawdown would get very very high. My DD hasn't exceeded 10% with the current version, and I'm able to get everything closed in a shorter period of time.
With that said, my average performance for the 8 months of single account trading was 9.8% per month. For the 9 months With the dual account system, it was only 4.9% per month. This however includes two months of extraordinary personal difficulty and bad decision making; remove those two months and performance is 12.54% per month.
The tighter spacing has yet to be proved, but so far the results greatly exceed previous versions. I need a few months of performance to draw any conclusions, but I'm excited so far!
WHY AM I PUTTING THIS UP HERE
There are several reasons. I've benefited from discussion at FF and other forex sites, so I think I should contribute something. So much of what I read is very bad advice, and most of the writing is by unprofitable amateurs, so I think that being able to trade live profitably for a couple of years gives me a useful perspective.
Unlike some systems, my performance won't degrade if other people jump on the bandwagon. So I don't feel a need to protect my intellectual property like other successful traders.
In fact, I'm sure that by sharing what I do, I will hear some useful feedback on more adjustments to make. Perhaps other pairs work better, or a different spacing or entry size will be more profitable. Maybe someone can write an EA, although I don't know of an MT4 client that would let an EA manage two accounts at the same time.
Also, there's a bit of a brag here. :-) After so many years of paper trading, studying, and demoing with small live accounts, I'm proud to have created something that works for me and that I haven't seen anywhere else. I'm still humble though - seeing 30% losses on your account will do that for you! Plus I know other people are doing much better than me.
CLOSING REMARKS
I'll try to post now and then and reply to any comments. Screenshots will be on their way if I get around to it. If anyone else tries this out, please let me know and post your performance and changes.
- Yogi Berra
INTRO
Wow... it's almost a year since I've been on FF. Time for an update on my trading reflections. I've been honing my system for over two years now, so I think it's time to take it off of "Dr Zeus Does Demo" and take things live. Actually I went live July 2010, but I haven't bothered to make a new trading journal. I updated it last March to include using two subaccounts, and made further adjustments in the past few months with a new "go live" in May.
I call this the Yogi Berra System because of the quote attributed to him - in trading forex, the future is hard to predict. Will price go up or down today? What will it do in the next hour? Sure there are oscillator indicators, but how many times have you been trading an oversold pair only to see it fall further and further? And I've yet to see an oscillator that provides an indication of the magnitude of change from an OS/OB condition.
From a fundamental perspective things aren't much better. How will the market react to upcoming news? Is Yen over priced? Does EURUSD price accurately reflect the risk of a Euro breakup or cost of another bailout?
Time and again I've seen technical and fundamental analysts fail. The more "successful" analysts commonly provide multiple target prices and coyly call for the market to "go up if this" or "go down if that" so they often appear to be correct in hindsight.
The question is, can we be consistently profitable in a market where we consistently fail in our prognostication? I believe we can, and I have for the past two years.
Admittedly, it has been a journey with its share of losses, drawdown, and lessons learn. I've found that some analysts are partially correct, at least with the price levels where movement will occur (even if they are wrong about the direction or magnitude).
BASIC PREMISE
I make one assumption about the forex market: whatever the price is now, it will change in the future.
That is the heart of how I trade. I don't try to predict when it will move, which direction it will move, or really how much it will move. I simply assume that it will eventually go somewhere. Turns out I'm right.
I do NEED it to move, and I need it to pick a direction and move that way for quite a bit so I can take some profit.
CHART SETUP
There's no chart setup. I usually enter my orders in late evening in the first part of the week (after NY close, before TOKYO open). This isn't a hard and fast rule, it's just a convenient time for me.
I trade three pairs: EURUSD, USDJPY, and EURJPY. I do this so I can sell EU, sell UJ, and buy EJ and end up with a hedge. Hedges themselves won't make you any money except in the rare case of a swap overpayment, but my goal is not to get hedged but take advantage of whatever move occurs in the future.
I take advantage of future moves by placing orders above the current price for BUY, and below the current price for SHORT. I place orders that are each equal to the account size, and space them 3 to 5 pips apart.
So I'll have a series of 10 sell orders for EURUSD below its current price, the same for USDJPY, and then 10 buy orders for EURJPY above it's current price. On my other account, I do the exact opposite and buy EU and UJ and sell EJ. This way, if the dollars bulls take off in the next couple of days, I'll have big EU short and UJ long positions. If BOJ is able to move Yen, I'll have big UJ and EJ long positions. In a risk-on situation, my EU and EJ longs are big.
I usually end up with huge losing positions too which makes my history look wierd. I may have 10 EU long positions deep in the money, but 4 EU shorts deep in the hole. Net-net, I'm in great shape though!
Generally I like to close everything at the same time. I'll read a few fundamental and technical analysts for their opinions, and if I feel good about my profit and where the market is, I close it all and take my profit, redistributing so that both accounts have the same balance.
ADVANCED CONCEPTS
It's not uncommon for me to have huge winning and huge losing positions, and sometimes all of the orders on both sides will be taken. In that case, I can't close everything and get a profit! When this happens, I try to guess which side has reached the extent of its move and close it out.
At this point, you must always ALWAYS ALWAYS enter re-enter orders just beyond where you close out the position in case you are wrong!! I've been wrong too many times to take that risk anymore. If you are right, then the market will continue to move in your favor and the rest of the trades can be closed out later. if you are wrong, the orders you placed will be taken out and the most you'll lose is a few pips.
PERFORMANCE TO DATE
I've made a few major changes. The first version only traded one account, and that with 25 pips spacing. I added the second account after I missed a huge up move on EU. In theory I should have caught it with the EJ-UJ synthetic, but as Yogi says, "In theory there's no difference between theory and practice, but in practice there is."
So my second version included a second subaccount trading the opposite direction, still at 25 pip spacing. The current iteration tightens the spacing to 3-5 pips. The wider spacing took a long time to catch a move, and the drawdown would get very very high. My DD hasn't exceeded 10% with the current version, and I'm able to get everything closed in a shorter period of time.
With that said, my average performance for the 8 months of single account trading was 9.8% per month. For the 9 months With the dual account system, it was only 4.9% per month. This however includes two months of extraordinary personal difficulty and bad decision making; remove those two months and performance is 12.54% per month.
The tighter spacing has yet to be proved, but so far the results greatly exceed previous versions. I need a few months of performance to draw any conclusions, but I'm excited so far!
WHY AM I PUTTING THIS UP HERE
There are several reasons. I've benefited from discussion at FF and other forex sites, so I think I should contribute something. So much of what I read is very bad advice, and most of the writing is by unprofitable amateurs, so I think that being able to trade live profitably for a couple of years gives me a useful perspective.
Unlike some systems, my performance won't degrade if other people jump on the bandwagon. So I don't feel a need to protect my intellectual property like other successful traders.
In fact, I'm sure that by sharing what I do, I will hear some useful feedback on more adjustments to make. Perhaps other pairs work better, or a different spacing or entry size will be more profitable. Maybe someone can write an EA, although I don't know of an MT4 client that would let an EA manage two accounts at the same time.
Also, there's a bit of a brag here. :-) After so many years of paper trading, studying, and demoing with small live accounts, I'm proud to have created something that works for me and that I haven't seen anywhere else. I'm still humble though - seeing 30% losses on your account will do that for you! Plus I know other people are doing much better than me.
CLOSING REMARKS
I'll try to post now and then and reply to any comments. Screenshots will be on their way if I get around to it. If anyone else tries this out, please let me know and post your performance and changes.
