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Jacko's Forex House of Pleasure and Pain

  • #701
  • Aug 26, 2007 4:27pm Aug 26, 2007 4:27pm
Quoting charlinks
Jacko, first I want to say you are helping a lot of people here learn some very good fundamental principles.

I want to apologize for the newbie question but I believe it very much applies to a long term investment strategy such as Jacko's


So to my question: If you have a trailing stop at 50 pips, what happens if the market reopens on a Monday and it is at say 200 or 300 pips below your current position. What happens if your account's margin can not cover the difference? Does the broker just liquidate your acct and your money is gone for good? Or are we suggesting that a long term investor should make sure 300 pips move is less than 2-3% of his acct balance?

Thanks in advance... This is a money management question, but from what I understand that is half the battle.
Hi charlinks,
this is a good question you ask, and it is obvious that you are aware of the importance of the answer. If and until Jacko answers, please allow me to throw in my two cents.

Jacko has said he risks between 2% & 4% on each trade depending on his personal level of confidence. This percentage is applied to the 50 pip stop, so if the market gapped down 200 to 300 pips over the weekend as you suggest then in theory, the trade would be stopped out with a max loss of 2% to 4%. However, I think the question you are asking is how Jacko's broker would treat Jacko's trade. Only Jacko can answer that, as I do not know who his broker is. With my broker (fxsol) whenever a weekend gaps beyond my stop, they have closed the trade at, or within a pip or two, of the stop (knock on wood they keep doing this).

If this trade did get stopped out by such a large move, Jacko would apply the AH to the stop point (assuming he remains dollar bearish), so it would be picked back up when the market resumed its trend.

Now, assuming Jacko's broker gave him the shaft, and did not honor the stop, would the 200 to 300 pip drop cause Jacko to have a margin call that auto closed his positions? That will depend on how much of his account he is holding in an insured bank account, and how much is kept with the broker for margin purposes. If his whole account is with the broker, then a margin call is highly unlikely. But if only a fraction is with the broker, then a margin call is far more likely. Does this make sense?

If you will forgive me for being so bold, I detect some fuzziness in your understanding of basic money management. Allow me to suggest you read through my money management sticky thread in the Forex Beginner Q&A forum here at FF.

Hope this answered your question (at least as I understood it).

Dial
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #702
  • Aug 26, 2007 5:14pm Aug 26, 2007 5:14pm
If a 50 pip stop is 2 to 4%, and the market gaps down 200, then wouldn't that be a loss of 8 to 16% (4 times)?
  • #703
  • Aug 26, 2007 5:40pm Aug 26, 2007 5:40pm
Yeah, but dial says fxsol will close the trade at the stop instead of the open price. That's the upside of retail spot trading vs. an ECN.

Quoting blueruby
If a 50 pip stop is 2 to 4%, and the market gaps down 200, then wouldn't that be a loss of 8 to 16% (4 times)?
  • #704
  • Aug 26, 2007 6:12pm Aug 26, 2007 6:12pm
Quoting tdion
Yeah, but dial says fxsol will close the trade at the stop instead of the open price. That's the upside of retail spot trading vs. an ECN.
Wow! I did not know that! I guess you can see I've not got caught in the gap yet. I've only had open trades over the weekend a couple times, I usually avoid that.

I guess you can also see I didn't read the whole post..
  • #705
  • Edited 10:31pm Aug 26, 2007 7:32pm | Edited 10:31pm
Don't quote me.... I'm just replaying what dial said..... I personally haven't been caught either. There is a sticky pertaining to this subject in the Broker's forum..... "ECN is the grass greener?"

Quoting diallist
With my broker (fxsol) whenever a weekend gaps beyond my stop, they have closed the trade at, or within a pip or two, of the stop (knock on wood they keep doing this).
Sorry to digress Jacko, no more talk about this here.

Quoting blueruby
Wow! I did not know that! I guess you can see I've not got caught in the gap yet. I've only had open trades over the weekend a couple times, I usually avoid that.

I guess you can also see I didn't read the whole post..
  • #706
  • Aug 26, 2007 10:01pm Aug 26, 2007 10:01pm
Hi Jacko

Brilliant concept i'm going to use it from now on.. thanks.

One question to anyone on the thread.. which i couldn't find the answer on.. (forgive me if i missed it please!), is:

On the trailing stop:

At what point does it start reducing the stop?
If the price went up 10 pips would the stop limit also go up immediately or does it wait for the trade to go into a bit more profit before moving it?

I don't have access to trailing stops on my platform so i will do this manually..

Currently i am thinking i will let it go up around 20 pips then move the stop to break even..

However this may not give the trade enough "room to breathe".

I guess I'll find out in due course but would be good to know how you do it..

Thanks again, and good trading!
  • #707
  • Aug 26, 2007 10:17pm Aug 26, 2007 10:17pm
Quoting mjolimer
Hi Jacko

On the trailing stop:

At what point does it start reducing the stop?
If the price went up 10 pips would the stop limit also go up immediately or does it wait for the trade to go into a bit more profit before moving it?

I don't have access to trailing stops on my platform so i will do this manually..

Currently i am thinking i will let it go up around 20 pips then move the stop to break even..
...
Thanks again, and good trading!
Jacko updates his trailing stops manually every 2-4 hours IIRC. Keep it simple and dont worry too much.
  • #708
  • Aug 26, 2007 10:21pm Aug 26, 2007 10:21pm
Quoting tdion
Yeah, but dial says fxsol will close the trade at the stop instead of the open price. That's the upside of retail spot trading vs. an ECN.
Wow! I didnt know that. I think that's a very huge advantage for long-term traders.
  • #709
  • Edited 1:36am Aug 27, 2007 1:14am | Edited 1:36am
Quoting mjolimer
Hi Jacko

Brilliant concept i'm going to use it from now on.. thanks.

One question to anyone on the thread.. which i couldn't find the answer on.. (forgive me if i missed it please!), is:

On the trailing stop:

At what point does it start reducing the stop?
If the price went up 10 pips would the stop limit also go up immediately or does it wait for the trade to go into a bit more profit before moving it?

I don't have access to trailing stops on my platform so i will do this manually..

Currently i am thinking i will let it go up around 20 pips then move the stop to break even..

However this may not give the trade enough "room to breathe".

I guess I'll find out in due course but would be good to know how you do it..

Thanks again, and good trading!
Here are my thoughts on this. If Jacko answers differently, then go with his answer.

Trail the 50 pip stop beginning immediately after the trade is opened. Keep the stop at, or as close to 50 pips at all times as you can. The reason for doing so is to maximize both risk reduction, and retention of profits.

In a losing trade, every pip over 50 is equity lost unnecessarily.

In a winning trade, every pip over 50 is profit lost unnecessarily.

Let's say you have an account with FX Solutions, where they will automatically trail a stop every 10 pips. For a trade opened at 1.3600 with a stop of 1.3550, this would be the sequence for a losing and winning trade:

LOSING TRADE

Price = 1.3600, Stop = 1.3550
Price = 1.3610, Stop = 1.3560
Price = 1.3620, Stop = 1.3570
Price = 1.3630, Stop = 1.3580
Price = 1.3639, Stop = 1.3580
Price = 1.3610, Stop = 1.3580
Price = 1.3570, Stopped out at 1.3580 for a loss of 20 pips

If the stop had been trailed perfectly, pip by pip, the trade above would have been stopped out at 1.3589 for a loss of 11 pips instead of 20.

WINNING TRADE

Price = 1.3600, Stop = 1.3550
Price = 1.3610, Stop = 1.3560
Price = 1.3620, Stop = 1.3570
Price = 1.3630, Stop = 1.3580
Price = 1.3650, Stop = 1.3600
Price = 1.3660, Stop = 1.3610
Price = 1.3669, Stop = 1.3610
Price = 1.3630, Stop = 1.3610
Price = 1.3600, Stopped out at 1.3610 for a 10 pip gain.

If the stop had been trailed perfectly, pip by pip, the trade above would have been stopped out at 1.3619 for a gain of 19 pips instead of 10.

50 pips is plenty of room for the trade to breathe. Over a long series of trades, the average stop-out may be 23 pips if the trailing stop is kept as close as possible to 50. If trailed more loosely, then the average stop-out will be larger at, say, 28 pips. This is an average of 5 additional pips per losing trade. That's 500 pips over the course of 100 trades. Jacko is trading $1500 per pip. Do you think he wants to lose an extra $750,000 every 100 trades?!

Again, over the course of a long series of trades, the average win might be 127 pips if the trailing stop is kept as close as possible to 50. If trailed more loosely, then the average win would be smaller at, say 117 pips. This is an average of 10 fewer pips per winning trade. That's 1000 pips over the course of 100 trades. At $1500 per pip that is an extra $1,500,000 in profits given back to the market.

I believe I read that Jacko has an 80% win rate. That means that, on average, every 100 trades would have additional losses of:

$750,000 * 20% = $150,000

and, on average, every 100 trades would give up profits of:

$1,500,000 * 80% = $1,200,000

So we have $150,000 in extra losses, plus $1,200,000 in gains given up for a total of $1,350,000 over 100 trades on average.

For that kind of money, I can understand why Jacko has someone constantly updating his trailing stop. I would too!!

But, most of us have much smaller accounts than Jacko. Does that mean we can be more lax with maintaining the stop as close as possible to 50 pips? I think not!!! The math works the same regardless of pip value. If we are lax, and don't update the stop often, then it will take much, much longer to grow our accounts to the level where we too can trade at $1500 a pip!

Dial

P.S. I let FX Solutions trail my stop automatically every 10 pips, so I get at least SOME trailing action when I'm away from my computer. But, in addition, I also update the trailing stop manually every chance I get. FX Solutions makes this easy with buttons to increment and decrement the stop one pip at a time. Once I'm done updating the stop manually, FX Solutions starts counting 10 pips again from the new stop, not from the initial stop. Very handy!!
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #710
  • Aug 27, 2007 2:08am Aug 27, 2007 2:08am
Thanks very much for the responses guys Most helpful.
  • #711
  • Aug 27, 2007 3:17am Aug 27, 2007 3:17am
Quoting jacko
To everyone,

Even though this is not a live trading thread I will try to outline, in advance, what I trade.

This week, I am ...(surprise,surprise)... looking to go long on the euro again.


However, I currently have two sets of trades, one in the low 1.3500's and one at 1.3600 (A-H trade). Both have the trailing stops at 1.3631 (1.3681- .0050 = 1.3631).

As a result I am heavily invested. But I also believe that we are in the "sweet spot" of this trend. I believe that any downsides are VERY limited and that this week we will see 1.3800+ towards the end of the week.


However, I also think that I may buy them cheaper than the current price of 1.3666. (I don't think that we will see a lower low than than 1.3550...but I can see a possible small retracement)

But....I could be wwwwwrong !!!!

But I am a buyer at 1.3650.


.

It is 9.11 GMT. London has just opened. Market at 1.3660

Have decided that the market may show a little weakness early.

Just closed all positions at 1.3660.

Have revised my buy target to 1.3600


.
  • #712
  • Aug 27, 2007 4:01am Aug 27, 2007 4:01am
hi mr jacko, first sorry for my bad english...

... i have 2 question for you.

The first is: ok you trade the big trend and now there is a big trend on the €/$ that is start from about the middle of 2001.

but in this period i see many big downtrends,

If your opinion is to go long on €/$ what do you do in this downtrend?

did you try to trade it or do you simple skip?
If you trade it how?

the second question is: i see your Anti-Hedging strategy if i understand correctly, you buy at 1.3500 ,stop at 1.3450 then if the € go to 1.3400 you go in loss, and put an other buy order at 1.3450 and wait the return at this price, but i don't understand for how many time the order is valid, if at 1.3400 start a short downtrend for about 3 month, do you cancel that order?

Thank you and sorry again.....

Quoting jacko
Hi,

Well, last week was interesting......

The market drifted down to a low 1.3449 which was one pip below my 1.3450 buy price then proceeded to power upwards to 1.3672 before closing at 1.3666.

Unfortunately, because I am not sure if anyone here (esp. newbies) are using my posts as a basis for trading, I then took a more conservative approach and suggested that it would be better to wait until the market had fallen to around 1.3420. That was not the best advice I have ever given, but since I would not like anyone to lose money because of anything I say or do, I would rather err on the side of caution. (I would definitely rather be out of a market rather than be in a market on the wrong side).

Having said that, I did manage to grab a good positional trade, but not at as low a price as I would have liked. Still, something is better than nothing. It was at a price that was acceptable to me (and my risk factor), but not one that I would have recommended here.


So............., it is just as well that I give these posts for free....because nobody would pay for it.


.
Financial Freedom
  • #713
  • Aug 27, 2007 5:00am Aug 27, 2007 5:00am
Ciao Adelmonora

See answers below


Quoting adelmonora
hi mr jacko, first sorry for my bad english...

... i have 2 question for you.

The first is: ok you trade the big trend and now there is a big trend on the €/$ that is start from about the middle of 2001. I wasn't trading forex in 2001. I started trading forex very late in 2005

but in this period i see many big downtrends, In late 2005 until March 2006 I was a strong seller of Euro. If you read my original trading journal at DailyFX, you will see that I was a strong seller.
Also see post 8 here on FF

If your opinion is to go long on €/$ what do you do in this downtrend?
did you try to trade it or do you simple skip? However, in the current bull Euro market, I don't try to trade the "short" side. I skip it. I would definitely rather be out of a market rather than be in a market on the wrong side, so I go on holidays with the wife.

If you trade it how? Having said that, sometimes I will have a little play on the short side, just for fun, but small and VERY quick trades only

the second question is: i see your Anti-Hedging strategy if i understand correctly, you buy at 1.3500 ,stop at 1.3450 then if the € go to 1.3400 you go in loss, and put an other buy order at 1.3450 and wait the return at this price, but i don't understand for how many time the order is valid, if at 1.3400 start a short downtrend for about 3 month, do you cancel that order?
No.... orders are GTC (good till cancel) and I check them weekly.

Thank you and sorry again No need to apologise, ...my Italian is appalling.....
  • #714
  • Aug 27, 2007 5:10am Aug 27, 2007 5:10am
thank you mr. Jacko
Financial Freedom
  • #715
  • Aug 27, 2007 10:35am Aug 27, 2007 10:35am
Hi Jacko,

Do you think you will be "catching the knife" at 1.3600 or waiting for a break below 3600 and price to come back up?

Quoting jacko
It is 9.11 GMT. London has just opened. Market at 1.3660

Have decided that the market may show a little weakness early.

Just closed all positions at 1.3660.

Have revised my buy target to 1.3600


.
  • #716
  • Aug 27, 2007 10:58am Aug 27, 2007 10:58am
Quoting trevwest
Hi Jacko,

Do you think you will be "catching the knife" at 1.3600 or waiting for a break below 3600 and price to come back up?
Don't know yet.

I am waiting to see what the market is going to do over the next 4-6 hours. It looks as though those damn proper Brits with their strange accents may have gone weak at the knees on selling the euro.

Damn shame, old chap. Pip,pip and all that nonsense. Rule Brittania....Brittania rules the waves.


.
  • #717
  • Aug 27, 2007 11:11am Aug 27, 2007 11:11am
Bank Holiday over here in the UK today.

Forexhen
(damn proper female Brit with a strange accent!!!)
Forget What You BelieveBelieve What You See
  • #718
  • Aug 27, 2007 11:52am Aug 27, 2007 11:52am
Quoting jacko
It is 9.11 GMT. London has just opened. Market at 1.3660

Have decided that the market may show a little weakness early.

Just closed all positions at 1.3660.

Have revised my buy target to 1.3600


.
Have revised my buy target to 1.3650

Bought back in at 1.3650.

Only one set of 150.


.
  • #719
  • Aug 27, 2007 11:53am Aug 27, 2007 11:53am
Quoting jacko
Don't know yet.

I am waiting to see what the market is going to do over the next 4-6 hours. It looks as though those damn proper Brits with their strange accents may have gone weak at the knees on selling the euro.

Damn shame, old chap. Pip,pip and all that nonsense. Rule Brittania....Brittania rules the waves.


.
Bank holiday, didn't you know that?
Regards
  • #720
  • Aug 27, 2007 2:28pm Aug 27, 2007 2:28pm
150 rounds lots.....??????

Men you rockkkkk.
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