For those of you that know me, this journal will probably make some sense. For those of you that don't, well...just try and keep up! :-)
Starting Tuesday, January 2nd, 2007, I will be running a completely experimental journal as part of my ultra-high risk portfolio.
Preface:
Over the years, I have managed to get an excellent diversified portfolio going. I started off with basic savings accounts, and then moved into equities. After amassing some base in equities, including my retirement portfolios, I moved onto EFTs and real-estate.
Then about 4 years ago, I moved into Forex and Futures. This was the last part of my portfolio that I wanted to work on...the high-risk portfolio. I've never really been talented at trading. My forte is really investing (and mathematics). My goals were always simple, and straight-forward...just open accounts, and contributed to the wealth (rather than be a blood-sucker). To-date, forex is probably the smallest slice of my wealth-building pie. Compared to some in this room with accounts in the 6 digits, over the past year, I think I've kept all my accounts in the 4-figure areas. My main accounts are now well past that and deal mainly with hedging and high-yield savings, but those accounts are only "safely" gaining 30-50% a year or so.
So, that leads me to this: I want triple and quadruple digit annual returns or more. Why? well, the obvious reason is the cash. The less-than obvious reason is because I want to say that I can.
The goal:
I have invested $50...yep FIFTY...my smallest account...in a 400:1 leveraged account and what I want to do with it, is turn it into $1 million. As far as time-frames are concerned, I have none, although I suppose, I'd like to make it within the next 10 years or so.
Again, this is total lottery-ticket stuff, but hey, $50 for me is worth that risk. For those of you who will instinctively mention the 2% risk, etc...I assure you...$50...is like WAY WAY WAY less than a 2% risk.
SO...I present you...the WORST SYSTEM EVER...
This is trading system is totally based on my dealings with people inside the forums here that like to think big without doing the math. People like to put pip targets that sound reasonable, but in practice, are quite difficult to maintain consistently. So, to somewhat prove (or disprove) a theory, I have set these rules on myself:
1) Trade only pairs containing the USD with a STRONG preference to trade pairs ENDING in USD (EURUSD, GBPUSD and AUDUSD in that order). This is mainly to keep the math simple since each pip nets you $10 per $100K.
2) Target 1 to 3 pips per trade...unless there is a sudden spike all trades should end as quickly as possible with 1 to 3 pips per trade. I'd like to average 2 pips a trade when all is said and done.
3) Trades end on the condition that 1) Target has been reached 2) A trade has been opened for more than 24 hours AND the loss is greater than 100 pips OR 3) A margin call occurs.
4) Trade margins maintain a specified account percentage value (in USD-based). Thus if the account is $100 and I am trading at 10% APV, I am putting $10 up for margin. At 400:1 and USD based (which may not totally make sense), I'd be buying 4 micro-lots...even though (if I were to buy, say the EURUSD, the margin would be more than $10)...I'm doing this for simplicity. Since I'm not actually calculating exact MM ratios, I figured I would give myself this leeway.
5) We trade in micro-lots only to a maximum that the broker will allow.
If you're still asking yourself "why" then don't worry, I'm sure it will make sense as the journal starts going.
So, to sum up:
Given:
- A is the account balance
- N% is the APV
We trade Q micro lots where Q = (A * N%)/4 until:
- we make a profit of 1-3 pips
- there is a margin call
- the trade is held for more than 24 hours and is 100 pips in the red.
I'm not going to hold myself to a single trade in a given time period, but I will stick to 1 trade at any given time.
The math:
Just so you know there are 2 variables used when calculating time to goal. The first is the # of pips per trade and the second is the size of the trade.
Of course, this is assuming we reach our goal 100% of the time.
Here are some examples:
- If I trade at 10% APV and target 1 pip, we reach $1 mil in 2951 trades
- If I trade at 10% APV and target 2 pips, we reach $1 mil in 1478 trades
- If I trade at 15% APV and target 2 pips, we reach $1 mil in 1112 trades
- If I trade at 20% APV and target 2 pips, we reach $1 mil in 939 trades
Now, why worry about APV and not just invest the entire lot or half...well...the answer to that is simply the risk of reaching a margin call. Now an odd thing happens, the higher the APV, the MORE money you end up with after a margin call. Think...if I margin $25 of the $50 and get a margin call, after the position is liquidated, I'll have $25. However, if I margin $10 and reach a margin call, I'll end up with only $10.
Now, here's the other trippy thing, though...If I were to margin at 50%, I would only be able to last about 20-25 pips...however, if I margin at 20%, I can last a little less than 100 pips...So this is where it gets fuzzy: we need to figure out a decently optimal position, yet maximize the amount of investment at work.
Initially, I believe I will start out with 20%. That should give me enough room while not risking too much on a trade. I may adjust this APV as time goes on depending on how well we do...for instance, if my trade-picking doesn't dip us any less than 10 pips before it reaches 2 pips, I may up the value to take advantage of this. But for now the APV will be 20%. Depending on how far I get, I may very well lower the APV. Obviously, if I manage to get something abnoxious like $10K, I'll probably play it a bit smarter...but for now, I'm fully expecting to treat this money as if I don't even own it, but I'm trying to pull from thin air.
The target will be 2 pips on the EURUSD and 1 pip on the GBPUSD and AUDUSD.
A note about trade setups...I'll be looking at different things daily. The system will take advantage of patterns and news events as it sees fits. I will try to justify each trade made, but there are some times, I'll feel like a coin flip..
So, there you have...the WORST SYSTEM EVER...
Oh and one last thing...there will be no rebuys in THIS journal. Once the $50 becomes untradeable, that's it.
This should be a fun experiment.
Starting Tuesday, January 2nd, 2007, I will be running a completely experimental journal as part of my ultra-high risk portfolio.
Preface:
Over the years, I have managed to get an excellent diversified portfolio going. I started off with basic savings accounts, and then moved into equities. After amassing some base in equities, including my retirement portfolios, I moved onto EFTs and real-estate.
Then about 4 years ago, I moved into Forex and Futures. This was the last part of my portfolio that I wanted to work on...the high-risk portfolio. I've never really been talented at trading. My forte is really investing (and mathematics). My goals were always simple, and straight-forward...just open accounts, and contributed to the wealth (rather than be a blood-sucker). To-date, forex is probably the smallest slice of my wealth-building pie. Compared to some in this room with accounts in the 6 digits, over the past year, I think I've kept all my accounts in the 4-figure areas. My main accounts are now well past that and deal mainly with hedging and high-yield savings, but those accounts are only "safely" gaining 30-50% a year or so.
So, that leads me to this: I want triple and quadruple digit annual returns or more. Why? well, the obvious reason is the cash. The less-than obvious reason is because I want to say that I can.
The goal:
I have invested $50...yep FIFTY...my smallest account...in a 400:1 leveraged account and what I want to do with it, is turn it into $1 million. As far as time-frames are concerned, I have none, although I suppose, I'd like to make it within the next 10 years or so.
Again, this is total lottery-ticket stuff, but hey, $50 for me is worth that risk. For those of you who will instinctively mention the 2% risk, etc...I assure you...$50...is like WAY WAY WAY less than a 2% risk.
SO...I present you...the WORST SYSTEM EVER...
This is trading system is totally based on my dealings with people inside the forums here that like to think big without doing the math. People like to put pip targets that sound reasonable, but in practice, are quite difficult to maintain consistently. So, to somewhat prove (or disprove) a theory, I have set these rules on myself:
1) Trade only pairs containing the USD with a STRONG preference to trade pairs ENDING in USD (EURUSD, GBPUSD and AUDUSD in that order). This is mainly to keep the math simple since each pip nets you $10 per $100K.
2) Target 1 to 3 pips per trade...unless there is a sudden spike all trades should end as quickly as possible with 1 to 3 pips per trade. I'd like to average 2 pips a trade when all is said and done.
3) Trades end on the condition that 1) Target has been reached 2) A trade has been opened for more than 24 hours AND the loss is greater than 100 pips OR 3) A margin call occurs.
4) Trade margins maintain a specified account percentage value (in USD-based). Thus if the account is $100 and I am trading at 10% APV, I am putting $10 up for margin. At 400:1 and USD based (which may not totally make sense), I'd be buying 4 micro-lots...even though (if I were to buy, say the EURUSD, the margin would be more than $10)...I'm doing this for simplicity. Since I'm not actually calculating exact MM ratios, I figured I would give myself this leeway.
5) We trade in micro-lots only to a maximum that the broker will allow.
If you're still asking yourself "why" then don't worry, I'm sure it will make sense as the journal starts going.
So, to sum up:
Given:
- A is the account balance
- N% is the APV
We trade Q micro lots where Q = (A * N%)/4 until:
- we make a profit of 1-3 pips
- there is a margin call
- the trade is held for more than 24 hours and is 100 pips in the red.
I'm not going to hold myself to a single trade in a given time period, but I will stick to 1 trade at any given time.
The math:
Just so you know there are 2 variables used when calculating time to goal. The first is the # of pips per trade and the second is the size of the trade.
Of course, this is assuming we reach our goal 100% of the time.
Here are some examples:
- If I trade at 10% APV and target 1 pip, we reach $1 mil in 2951 trades
- If I trade at 10% APV and target 2 pips, we reach $1 mil in 1478 trades
- If I trade at 15% APV and target 2 pips, we reach $1 mil in 1112 trades
- If I trade at 20% APV and target 2 pips, we reach $1 mil in 939 trades
Now, why worry about APV and not just invest the entire lot or half...well...the answer to that is simply the risk of reaching a margin call. Now an odd thing happens, the higher the APV, the MORE money you end up with after a margin call. Think...if I margin $25 of the $50 and get a margin call, after the position is liquidated, I'll have $25. However, if I margin $10 and reach a margin call, I'll end up with only $10.
Now, here's the other trippy thing, though...If I were to margin at 50%, I would only be able to last about 20-25 pips...however, if I margin at 20%, I can last a little less than 100 pips...So this is where it gets fuzzy: we need to figure out a decently optimal position, yet maximize the amount of investment at work.
Initially, I believe I will start out with 20%. That should give me enough room while not risking too much on a trade. I may adjust this APV as time goes on depending on how well we do...for instance, if my trade-picking doesn't dip us any less than 10 pips before it reaches 2 pips, I may up the value to take advantage of this. But for now the APV will be 20%. Depending on how far I get, I may very well lower the APV. Obviously, if I manage to get something abnoxious like $10K, I'll probably play it a bit smarter...but for now, I'm fully expecting to treat this money as if I don't even own it, but I'm trying to pull from thin air.
The target will be 2 pips on the EURUSD and 1 pip on the GBPUSD and AUDUSD.
A note about trade setups...I'll be looking at different things daily. The system will take advantage of patterns and news events as it sees fits. I will try to justify each trade made, but there are some times, I'll feel like a coin flip..
So, there you have...the WORST SYSTEM EVER...
Oh and one last thing...there will be no rebuys in THIS journal. Once the $50 becomes untradeable, that's it.
This should be a fun experiment.
and everyone else too.
)) 
