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Question about steady income.

  • #1
  • First Post: Dec 14, 2006 12:56am Dec 14, 2006 12:56am
This might have been asked already, but lets say I have $5k initial deposit. I only want to make 100 dollars a day. At 2 lots worth $20, I'd need only 5 pip gain a day. Unless you get in at the low or high of a daily candlestick which you can't determine, it's bound to whip in both direction in 5+ pips.

Question is, couldn't you just use the most simple system in the world to make that 5pips? I think it was someone on these forums that posted it.

The "system": Choose anytime you want, preferably an open of some market. US, Japan, etc...
You trade that same time everybody.
All you have on your chart is the candlesticks, and something to determine trend. It can be oscillators, macd, adx system, or two plotted moving averages.

-At the time you trade everyday, just enter a trade based on the daily candlestick. If it's bear, short, if it's bull, long. Also set in your 5pip TP and SL accordingly.

-If the candlestick coincides with the trend. Risk 50% more. So instead of 2 lots, buy 3.
  • #2
  • Edited 2:37am Dec 14, 2006 2:20am | Edited 2:37am
you dont need to agree with me but just some things to get you thinking before you commit money to this:

1 - The risk of hitting a SL 5 pips away is just to easy regardless of how strong the R/S it needs to break through. Dont look at R/S as a point where the price always bounces off but instead identify it as a possible break out point as well.

2- The thing to remember is that the market thins out in December.. many funds have either already taken profit or on vacation, meaning sudden bursts of volatility of 5 or even more pips occuring for no technical or fundemental reason is common practice in a thinner market. This kind of thing is basically impossible to predict

3 - simple systems using MACD and couple of MA's stop working as soon as the market starts playing a different song. By the time you realise that the systems truly dead and you need to adapt not just going through a temporary phase of losses, the loss to your account would be too substantial.

4 - This approach involves trading the market blindly. this doesnt survive in the longer term.

5 - to add to my point made in (2) about the market thinning out in Dec.. almost unpredictable bursts volatility of around 5 pips occur through the year but more often in Dec... unless your a proffessional scalper and you exactly how to do trade using a SL as tight as 5 pips it would be very difficult to survive in the long term.

6 - about "If the candlestick coincides with the trend. Risk 50% more" this turns it into a game a probability, your giving a large bias to a short term scalp which isnt affected by the trend at all. But if your talking about a shorter term trend like the intraday trend, even then this is a risky business because this increases the probabilty of buying at peaks or selling at troughs.

its kind of like killing your account "softly".. you would easily be able to brush of a 5 pip loss emotionaly , but ultimately they will accumulate.
  • #3
  • Dec 14, 2006 3:12am Dec 14, 2006 3:12am
wont be commiting any money into anything. after testing this for a quarter, I'll reevaluate.

1- I never said that SL was 5. TP is at 5 pips, SL is set at whatever risk level the individual is at. For me, it would be a 50 pip SL. As for R/S, not using it.

2- I would like those frequent sudden burst, all I need is the burst in my favor once a day.

3- Of course price action can always move against a "set" trend. That's how new trends develope. But the main point of this "system" is the daily trend as per the formed daily candlestick.

4- The "system" merely sets out a guideline, so it shouldn't really be called a system. Let's say it's a bullish candlestick, of course it'd be wiser to zero down to a smaller timeframe, say 15min and use any number of other plausible indicators to define a better entry point at around the time you trade.

5- Loving it!

6- All I mean is that if daily trend happens to match a larger trend and a smaller trend at different timeframes of course, it'd be more likely to occur. Of course, more likely is not 100% as with any method of trading. The added 50% is of course to satisfy my greed, but again, different ppl have different risk levels.

If this doesn't work, I'd be taking bigger hits than 5 pips at a time. Since I can't manually backtest this because candlesticks do change, I'd need some time to forward test this. Preferably past december as per the fact you mention. Thanks for your reply, and this is just a means of hopefully having more ppl test this out in their spare times to either comfirm deny the possibility of this method. Making profits at 5 pips at a time to me seems very possible. In time, profits will grow past $100 dollars a day. I understand that long term swing trading is "safer" and you pay less on spread, but to my personality, I wouldnt be able to do it often. I'm trying to see if I can pull this off to the US Opening at around 8ish and just set and forget for the day. Hopefully coming back seeing profits at the end of the day. As far as money management goes, thats up for the individual to determine. Always keep DRAWDOWNS in consideration.
  • #4
  • Dec 14, 2006 3:32am Dec 14, 2006 3:32am
Well, I just started my live account after about a year or two of demo-ing. In my demo, I made money trading a time frame of about 2-3 days? However I started my live account with only a very small capital of about, $500. I started changing my trading style to adapt to the small amount of capital i used, and thank god, it's working fine. I grab about 40 pips everyday trading in this thin market with low volatility.

I go by support and resistance levels that i define on my own analysis ( use your own, don't go by what you read from other sources. ) I trade ranges and get bites out of trend moves. However, this should only be the bread and butter. I average a profit of $60 a day on a mini account.

When the markets start moving, you should adapt your trading style to get not only your bread and butter trades, but also taking huge bites from trending moves.

Trading should be versatile, trade according to market conditions. People using mechanized systems have one downfall. They tend to trade their system throughout the whole period without adapting according to how the market moves.
  • #5
  • Dec 14, 2006 4:01am Dec 14, 2006 4:01am
Quoting ch33z3
wont be commiting any money into anything. after testing this for a quarter, I'll reevaluate.

1- I never said that SL was 5. TP is at 5 pips, SL is set at whatever risk level the individual is at. For me, it would be a 50 pip SL. As for R/S, not using it.

2- I would like those frequent sudden burst, all I need is the burst in my favor once a day.

3- Of course price action can always move against a "set" trend. That's how new trends develope. But the main point of this "system" is the daily trend as per the formed daily candlestick.

4- The "system" merely sets out a guideline, so it shouldn't really be called a system. Let's say it's a bullish candlestick, of course it'd be wiser to zero down to a smaller timeframe, say 15min and use any number of other plausible indicators to define a better entry point at around the time you trade.

5- Loving it!

6- All I mean is that if daily trend happens to match a larger trend and a smaller trend at different timeframes of course, it'd be more likely to occur. Of course, more likely is not 100% as with any method of trading. The added 50% is of course to satisfy my greed, but again, different ppl have different risk levels.

If this doesn't work, I'd be taking bigger hits than 5 pips at a time. Since I can't manually backtest this because candlesticks do change, I'd need some time to forward test this. Preferably past december as per the fact you mention. Thanks for your reply, and this is just a means of hopefully having more ppl test this out in their spare times to either comfirm deny the possibility of this method. Making profits at 5 pips at a time to me seems very possible. In time, profits will grow past $100 dollars a day. I understand that long term swing trading is "safer" and you pay less on spread, but to my personality, I wouldnt be able to do it often. I'm trying to see if I can pull this off to the US Opening at around 8ish and just set and forget for the day. Hopefully coming back seeing profits at the end of the day. As far as money management goes, thats up for the individual to determine. Always keep DRAWDOWNS in consideration.

I interpreted it as if you meant a 5 pip SL. if your using much more then that then this is a different ball game to what i had in mind... to revise my anwer:

First let me say that i understand the underlying principal, your trying to use a *relatively* large amount of capital to produce *relatively* small amount of return on each trade with the less risk possible - you right on the money, this is exactly what you should be trying to reach, but consider this...

A 5 pip TP with much larger SL would give you obviously a very poor RR ratio. The way to overcome the RR ratio would then be to reduce your lot size dramatically to make up for the relatively large SL but then this completely undermines the bottom line which is trying to make $100 a day. Professional traders alike dont risk with an RR ratio such as this because they understand that the possibly of a loss is very real no matter how perfect the set up. You need to fully respect the risk no matter how sure you are that your easy TP of 5 pips is going to be hit (or make that about 7 pips, lets not forget the spread).

Think of a SL as a product: your purchasing the luxury of "increasing the chance of missing the SL and reversing" but your certainly paying for such a luxury. when it gets hit you'll know what i mean.

about "I would like those frequent sudden burst" - your basically hoping the burst will be towards your TP and not your SL. this is just a guessing game instead of any real analysis. doesnt work long term, many very smart statisticians have used very complex formulas to try and beat the market with statistics alone, only to fail.

All this been said, your principal to trading is the correct, your looking for a way to have a low frequency of trades that will give you a small and easy win each time. you spot on right! this is exactly what you should be trying to do. but 5k just isnt enough (and forget about 400:1 leverage etc, because your also obviously increasing the risk)... what you need is something around 100k and then you can comfortably wait for the best set ups a few times a month and easily make that $3,000 a month with *almost* NO risk at of loosing large amounts of capital at all (if its done properly of coarse).

Forward test your approach for a couple of months and see what i mean.
  • #6
  • Dec 14, 2006 4:31am Dec 14, 2006 4:31am
Quoting JodyOng
When the markets start moving, you should adapt your trading style to get not only your bread and butter trades, but also taking huge bites from trending moves.

Trading should be versatile, trade according to market conditions. People using mechanized systems have one downfall. They tend to trade their system throughout the whole period without adapting according to how the market moves.
Good point! - Adapting is key - markets are every changing, the good thing is that change happens over time, once one has identified a change in behaviour one has to adapt to this behaviour and not stay stuck to a method that may be less effective.

ch33z3 - might be an idea to set the TP at something higher even with a 90% success rate you would have (lets use 100 trades):
90 x 5 pips = 450
10 x -50 pips = -500
Net -50 pips over a hundred trades /days - definately not the hallmarks of a steady income...
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  • #7
  • Last Post: Dec 14, 2006 5:01am Dec 14, 2006 5:01am
Hi ch33z3,I’d seen something like this called HedgeHog. Basically, you would place a buy and sell order x pips away for EURUSD at midnight GMT. Odds were about +80% you’d make both orders. Key issue was proper tp and sl sizing to maintain profitability.
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