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Technical Analysis Fallacy

  • #2,341
  • Edited 8:41pm Apr 16, 2008 8:16pm | Edited 8:41pm
Quoting luSan
Folks,

today I rode the wrong bus...and I learned several lessons that I want to share with you about my learning on risk managment.

1-Define clearly how much you want to lose for peace of mind. This will help at the time that we need to bail out and not have much regret. Losing more than 1000 pips is not worthy. 1000 pips? Yes, 1000 pips. When yo reach your limits....PULL THE TRIGER!

2-Keep your sizing small and do not have too many troops outs. More than 3 waves out is probably too much.

3- Fti seems to be correct. It would take quite a few months of practice before we could understand -somewhat- this MO.

fti' strategy works but oh lord...it is really really dangerous...if you do not have the gut and a large bank account, you could easily go for broke.

Me? I am reducing again my sizing not because I was emotional but because I am still developing the best way of take profit as well as managing the news.
My loss today was too high for my style....I either go full size to deal with win/loss ratio -which is fine with me- or keep evaluting different approach to manager risk. I prefer the later.

Note: I stopped placing my trades in my forex factory journal for my own peace of mind. People should practice they own way and find their path.

In my short learning, I came to the realization that naked trading is tough and for the tough one. Why? There are not regulalities and we must be totally aware of the market unless she will destroy us. What I mean?...you are on your own...It is she and you. Peace.
lemme guess, you shorted the euro and it moved a 100pips against you in a matter of minutes? Its a worst case scenario...the nearest thing to a black swan. This was my biggest fear and it happened today. I bit the bullet, with substantial loss too. Volatility matters and it wil always affect sizing. Back to the learning blocks for me.

I have noticed that with a 10k acc its still hard to go past level 5 there's just not enough muscle to sustain the possible losses wo hurting your account proportionally. Then there is a case where if you go small , your profits are just too litle to get by (the effects of being a small player not taking advantage of leverage), for this to work for a retailer like me, i need to have some sort of proegrammed skew and sizing. And im keeping it that way. Consider it my MM and MO. Maybe when im trading 100k, i'll consider going deeper. For now, the max for me will be up to $12 per pip. No matter what my skew or sizing is. (1,2,3,6) at 0.5per troop returns me abt 10-30 bucks daily, i guess thats fairly okay for a start.

If I am BS-ing right here, someone please spank me, but yesterday (EU) was a classic example of a black swan to me, whats worse was some may have been actively averaging and were almost maxed out in sizing(esp for small acc) when the spike happened. Go small, well, it'll take forever to be make your account look cool, go medium the risk increases proportionally. The anaswer for me i to this is to go medium, small skew and if level 5 fails, bite the bloody bulllet.

regards
jest
  • #2,342
  • Apr 16, 2008 8:29pm Apr 16, 2008 8:29pm
Quoting auxesis
You can control the lion with whip and chair but take your eyes off him for a second and you’ll be lucky if he doesn’t take a pound of flesh with his claws or worse make you his meal.

Preservation of capital is an absolute must in the markets, unless you can print your own. To be really aggressive you need to be trading with a small percentage of what you’ve got stashed in your boot, so if it gets taken by the dealer you have enough to ante and play the game on the next hand.

You hit the market large and she goes against you, you’d better know how your going to handle it, just how far you can go and the point where you have to cut and run or else you'll have the deer in the headlights look right before you get ran over.

The markets have to move to make money, volatility is something to embrace not avoid, but to survive the long run, the mindset needs to be more of a marathon than a 100 meter sprint.

Fwiw,
A
The markets can be very humbling, very quickly..... we must learn from the experience as it's part of the ropes.

Will to win and continue on!!!

fwiw,

a
  • #2,343
  • Apr 16, 2008 8:44pm Apr 16, 2008 8:44pm
Quoting jest1081
lemme guess, you shorted the euro and it moved a 100pips against you in a matter of minutes? Its a worst case scenario...the nearest thing to a black swan. This was my biggest fear and it happened today. I bit the bullet, with substantial loss too. Volatility matters and it wil always affect sizing. Back to the learning blocks for me.

I have noticed that with a 10k acc its still hard to go past level 5 there's just not enough muscle to sustain the possible losses wo hurting your account proportionally. Then there is a case where if you go small , your profits are just too litle to get by (the effects of being a small player not taking advantage of margins), for this to work for a retailer like me, i need to have some sort of proegrammed skew and sizing. And im keeping it that way. Consider it my MM and MO. Maybe when im trading 100k, i'll consider going deeper. For now, the max for me will be up to $10 per pip. No matter what my skew or sizing is.

If I am BS-ing right here, someone please spank me, but yesterday (EU) was a classic example of a black swan to me, whats worse was some may have been actively averaging and were almost maxed out in sizing when the spike happened. Go small, well, it'll take forever to be make your account look cool, go medium the risk increases proportionally. The anaswer for me i to this is to go medium, small skew and if level 5 fails, bite the bloody bulllet.

regards
jest
Ah...I was not alone..sorry to join you club...

I am considering implementing an exit strategy: out if loss= size x 500. I mean: if 1k unit then out if loss= 0.1 minilot x 500 $/minilot = $50. Why? I have not seen drawn down for more than that...if you have 1 lot= 100k then your exit would be 10 x500= $5000...so by that time you have so much cash than losing $5000 is not a real problem?!... Any way...let us see... Now by sizing is 2k so if am losing $100 I will be out!

Clearly, there is a lot to learn and practice...let us keep the sizing small and tighten the drop dead line... The proble is find a way to deal with big surprises... I believe that we have a way to trade when no news are coming...but we do not have a choice but to either not trade during the news, wait until the news is out, or exit if pa get angry and goes againts us...you figure...and fti is not here to help us.

Any insight about the black swans are really welcome.

Regard and happy pipping.
Empty as water and soft as a facing wind mountain
  • #2,344
  • Apr 16, 2008 8:54pm Apr 16, 2008 8:54pm
If you have the guts to trade real money with a system, you should look at it like I do....

You are walking through a mine field.

In fact, perhaps we should stop calling ourselves traders and start calling ourselves minesweepers. Like the Windows game.
  • #2,345
  • Edited 9:54pm Apr 16, 2008 9:11pm | Edited 9:54pm
Quoting tdion
If you have the guts to trade real money with a system, you should look at it like I do....

You are walking through a mine field.

In fact, perhaps we should stop calling ourselves traders and start calling ourselves minesweepers. Like the Windows game.
Thats right tdion, its all these dangers out there that we're facing. Every failure is a step closer to victory though.

I hvae stressed this fear a few times, the probabilities of the highly improbable, the one that pops my balloon. Of course when we look back at the charts on hidsignt, we (or someone) are gonna go like, this is what we/you should have done here and there. In an active trading environment, the situation is entirely different i must add.

Like fti says, there is no way to reduce a drawdown other than to re-avg. But never disregard the improbable, if you dont have the muscle then don't get in the fight. Mircolots below 0.5 brings home peanuts, (imo). Minilots can strech your size to abysmal levels, if you're trading a <5k acc. One will have to plan properly. Bringing home 50bucks on a 5k acc is fine to me.

I think what Lusan, tdion mentioned is a snap back to reality don't let our hopes fly too high, anything can happen, we after all trading, no matter what, we are exposed to the dangers that everyone else is. Target is to take no loser, but you WILL find a time where you just don't have the muscle to fight unless you trade so miserly small. Just a food for thought for members.

Quoting auxesis
The markets can be very humbling, very quickly..... we must learn from the experience as it's part of the ropes.

Will to win and continue on!!!

fwiw,

a
@auxesis : Yes. And im glad i've seen it earlier rather than later.

@Lusan : Like you I will never allow myself to lose more than 600. I intend to keep a similar troop sizing but reduce the skews. i.e. bit ethe bullet early. Small size give small returns too small imo (Time spent, not worth the returns). After all, i had traded the method for 4-5months and realised that i hate the rescues, i don't see why one would love to be in a rescue situation, it porportionally increases risk and rescues beyond the 3rd level signifies one's lack of ability in timing and understanding of market impulses, to be effective. I have worked out my sizing.

Skew Size : 24 (1, 2, 3, 6, 12) I try not to go to level 5
Army Size : 120,000
Avg troop size must be <= 5000

at 120,000 it takes abt 50pips to be $600 down. Thats where i bite the bullet.
  • #2,346
  • Apr 16, 2008 9:51pm Apr 16, 2008 9:51pm
Quoting jest1081

If I am BS-ing right here, someone please spank me, but yesterday (EU) was a classic example of a black swan to me, whats worse was some may have been actively averaging and were almost maxed out in sizing(esp for small acc) when the spike happened. Go small, well, it'll take forever to be make your account look cool, go medium the risk increases proportionally. The anaswer for me i to this is to go medium, small skew and if level 5 fails, bite the bloody bulllet.

regards
jest
No black swan. Looks pretty much a normal trading day for me. Its pretty common to have sudden move like this especially after news hit the market. Reason for the move Up is the news that there might be a possibility of further rate cuts by the Fed.
  • #2,347
  • Apr 16, 2008 10:05pm Apr 16, 2008 10:05pm
Quoting luSan
Ah...I was not alone..sorry to join you club...

@Lusan & Jest

I was also no alone.

Now you see something similiar happened with my "dead in warter" illustration.

E/U pullback is less than 30 pips between GMT12 and GMT24:00.

Would you traded 12 hours that long to rescue? Are you sure you can catch each small waves? Are you sure your new troops would not be trapped again? If the answer is yes, you are dancing so well, that you shall never need rescue.

Luckily, I also traded G/U, and G/U rescue is quite successful, since its pullback is more than 100 pips. It reduced about half the loss yesterday.

Please dont' misunderstand the rescue concept.

When rescued and you break even or small profits, if you close all positions , surely closing scout position is cut loss, isn't?

I don't think fti is against stop loss. He is against stop loss order. Because there are stop loss sweeps, and we don't want to be sitting ducks. And your scout position is very small, so small that you don't need to worry at all if down with 100 pips again.

And if you don't want to be a sitting duck, then you better do something. Then, there is rescue. If rescue(if new trades opened) started, either it is a new entry with better timing, or close all as a damage control process.

Why not close scout and change direction? Well, don't forget bus road-kill story.

And don't be so hard on ourself. Fit's boys, who have been well trained, also can have similiar situation with hands shaken (or maybe pis in pants?). They have more resources, how about us?

And I found out that if a position is in trouble for more than three days. Normally it is dead in water already. If trying to save that position, maybe we are trying to fight agains the trend unconciously.

There is no easy way.

Good trading.
  • #2,348
  • Apr 16, 2008 10:09pm Apr 16, 2008 10:09pm
Quoting luSan
Ah...I was not alone..sorry to join you club...

I am considering implementing an exit strategy: out if loss= size x 500. I mean: if 1k unit then out if loss= 0.1 minilot x 500 $/minilot = $50. Why? I have not seen drawn down for more than that...if you have 1 lot= 100k then your exit would be 10 x500= $5000...so by that time you have so much cash than losing $5000 is not a real problem?!... Any way...let us see... Now by sizing is 2k so if am losing $100 I will be out!

Clearly, there is a lot to learn and practice...let us keep the sizing small and tighten the drop dead line... The proble is find a way to deal with big surprises... I believe that we have a way to trade when no news are coming...but we do not have a choice but to either not trade during the news, wait until the news is out, or exit if pa get angry and goes againts us...you figure...and fti is not here to help us.

Any insight about the black swans are really welcome.

Regard and happy pipping.
Welcome to the club....i got the black swan too....haha.....that Eur really jus go up and never want to come down...hahaha......
but it does have some point at around 1.5967 to send in the third rescue.........but that really need the ball of steel to do that....haha....guess still need to pratice more on that......
  • #2,349
  • Apr 16, 2008 10:22pm Apr 16, 2008 10:22pm
Quoting Green_David
@Lusan & Jest

I was also no alone.

Now you see something similiar happened with my "dead in warter" illustration.

E/U pullback is less than 30 pips between GMT12 and GMT24:00.

Would you traded 12 hours that long to rescue? Are you sure you can catch each small waves? Are you sure your new troops would not be trapped again? If the answer is yes, you are dancing so well, that you shall never need rescue.

Luckily, I also traded G/U, and G/U rescue is quite successful, since its pullback is more than 100 pips. It reduced about half the loss yesterday.

Please dont' misunderstand the rescue concept.

When rescued and you break even or small profits, if you close all positions , surely closing scout position is cut loss, isn't?

I don't think fti is against stop loss. He is against stop loss order. Because there are stop loss sweeps, and we don't want to be sitting ducks. And your scout position is very small, so small that you don't need to worry at all if down with 100 pips again.

And if you don't want to be a sitting duck, then you better do something. Then, there is rescue. If rescue(if new trades opened) started, either it is a new entry with better timing, or close all as a damage control process.

Why not close scout and change direction? Well, don't forget bus road-kill story.

And don't be so hard on ourself. Fit's boys, who have been well trained, also can have similiar situation with hands shaken (or maybe pis in pants?). They have more resources, how about us?

And I found out that if a position is in trouble for more than three days. Normally it is dead in water already. If trying to save that position, maybe we are trying to fight agains the trend unconciously.

There is no easy way.

Good trading.
Btw, if anyone remembers, I had posted sometime back that I fought a 5 day battle to rescue my position and then turn it into attack.

It is something similar to what most of you had experience yesterday. I couldn't implement a rescue until the market give me a chance to. Yesterday's market was quite similar to what had happened to me then. At that time, I did not bite the bullet but instead chose to stay and fight on hence the long fight.

As what David had say, sometimes it is better to cut loss fast with only the scout in before we dug a hole too deep for us to climb back out.
  • #2,350
  • Apr 16, 2008 10:28pm Apr 16, 2008 10:28pm
Quoting sitoca
No black swan. Looks pretty much a normal trading day for me. Its pretty common to have sudden move like this especially after news hit the market. Reason for the move Up is the news that there might be a possibility of further rate cuts by the Fed.
of course its normal.

But there was no major economic news for that day. well except for housing starts & CPI which comes much later. I was there sitiing and watching the EUR move 100pips against me in a matter of minutes, how would you trade that? You mean u can take 100pip whipsaw with no problems? Then its either your position must be really small or u account is HUGE.

Further more at that point of time i was actively averaging my position due to the small volatility. Its like being hit by a big wave from no where.
  • #2,351
  • Apr 16, 2008 10:42pm Apr 16, 2008 10:42pm
Quoting jest1081
of course its normal.

But there was no major economic news for that day. well except for housing starts & CPI which comes much later. I was there sitiing and watching the EUR move 100pips against me in a matter of minutes, how would you trade that? You mean u can take 100pip whipsaw with no problems? Then its either your position must be really small or u account is HUGE.

Further more at that point of time i was actively averaging my position due to the small volatility. Its like being hit by a big wave from no where.
See? That's why I said better we have some distance away to start rescue. Otherwise it is increasing the size in effect.

There is news. The news is EUR CPI which is higher than expected.

Actually I am worried about if EUR/usd would increase above 1.5980. It looks so strong. If it did breake 1.6, sure there would be some turbulance.
  • #2,352
  • Edited 11:29pm Apr 16, 2008 10:46pm | Edited 11:29pm
Quoting Green_David
See? That's why I said better we have some distance away to start rescue. Otherwise it is increasing the size in effect.

There is news. The news is EUR CPI which is higher than expected.

Actually I am worried about if EUR/usd would increase above 1.5980. It looks so strong. If it did breake 1.6, sure there would be some turbulance.
well you can call it bad judgement on my part, i din expect the euro cpi to have such an effect in the first place.

Abt rescues, i usullay trade in between swing points. Thats the reason i got caught by the spike. heheh anyway, lesson learnt, its a good experience to bag.

And the furthe raway ur rescues are, the bigger your skew will get. Its abt sending it in and cutting it out fast, something which i have failed to execute. Base on hidsight, the picture below illustrates what i SHOULD have done....
Attached Image (click to enlarge)
Click to Enlarge Name: eu.jpg Size: 70 KB
  • #2,353
  • Apr 16, 2008 10:46pm Apr 16, 2008 10:46pm
Quoting sitoca
Btw, if anyone remembers, I had posted sometime back that I fought a 5 day battle to rescue my position and then turn it into attack.

It is something similar to what most of you had experience yesterday. I couldn't implement a rescue until the market give me a chance to. Yesterday's market was quite similar to what had happened to me then. At that time, I did not bite the bullet but instead chose to stay and fight on hence the long fight.

As what David had say, sometimes it is better to cut loss fast with only the scout in before we dug a hole too deep for us to climb back out.
You fought 5 days? Well, good fighter.
  • #2,354
  • Apr 16, 2008 10:52pm Apr 16, 2008 10:52pm
Quoting Green_David
You fought 5 days? Well, good fighter.
Thats why I reiterate your point...."sometimes it is better to cut loss fast with only the scout in"

5 days is too long and stressful. Well, then again I may be taking the easy way out now after experiencing what I had gone through.

Btw, you have mentioned a good point regarding the rescue distance.

Quoting Green_David

See? That's why I said better we have some distance away to start rescue. Otherwise it is increasing the size in effect.
  • #2,355
  • Edited 6:28am Apr 17, 2008 12:18am | Edited 6:28am
People in my oppinion to lower the risk is to always trade with the trend that means. If we chart is going from down left corner to upper right corner we have bull trend and vice versa. And that consider on daily TF and hourly TF. On 5 min always trade in the trend what daily and hourly trend is showing (if you missed the fire trend will help YOU and you can add rescue forces than. (Otherwise if you bet on a market reversal what is the WORST OPTION AT ALL you can become ROGUE TRADER.) and be ware of sudden moves what can cause news releases. I also noticed that always in the last 10 minutes of every hour we have incresead volatiliy which continue than for 30min. I checked on metatrader interbank rates and noticed spread is not always the same. When is the spread lowest be careful banks will come in. When it is big nobody will trade only if it's news released. Metatrader has publish this info always x hour:50 min. Regards and enjoy your trading
  • #2,356
  • Apr 17, 2008 6:40am Apr 17, 2008 6:40am
All:
Thank you for experience sharing
I'd like to share my last month trading knowledge.
First:
If one is 500 pips away with full bunch of troops. It is not dance IMHO.
I enter market with small troop, and if I babysit it well, and watch dance
I have in losing situation 2 options:
1. rescue
2. Stop&reverse
i'm not rigid what is the best option
If i view and feel that I'm completely against market movement (few moments ago it was trend in my direction but now it's not)
I do not hesitate I just stop and reverse with fast moving market with double or triple troops to get some bucks ASAP and get out of market ASAP.
May be 2-3 troops it is too much
But I remember teachings of FTI he said that one can drop some losing position in order to go to profitable market
Some times maybe it can be just drop losing position in order to trade other currencies

Any comments appreciated
it's o'k to win ...
  • #2,357
  • Edited 8:39am Apr 17, 2008 7:02am | Edited 8:39am
Quoting jest1081
of course its normal.

But there was no major economic news for that day. well except for housing starts & CPI which comes much later. I was there sitiing and watching the EUR move 100pips against me in a matter of minutes, how would you trade that? You mean u can take 100pip whipsaw with no problems? Then its either your position must be really small or u account is HUGE.

Further more at that point of time i was actively averaging my position due to the small volatility. Its like being hit by a big wave from no where.
Man, that is exactly what happen to me. It seems that a bunch of us were hit by the same lightning... Of course, it does not make happy...it is just a prove that we have still plenty to learn..

Actually, too many winnings were making me uneasy...something was wrong...so noo I know better.

My solution:

(1) I am not changing my style...now way, Jose... I like it...but I now place a yellow line on the 15M chart...if a single 5m bar closes above that line I pull the plug...I think I will call it...the "surrender line."

(2) No sizing change because I am on a training program...Yes...One must be trading higher than 0.5 minilot to start making a lot of cash...but I will not do yet just yet...I need to be happy with my yellow line new friend...

(3) Have a plan, have a plan, have a plan...Now I understand that having a plan does not mean to be rigid...but to know what to do when the dragons are knowing down the door...be ready...this will happen again and again...

Edit: (4) Foreign capital...very important...get those pips ASAP...I collect at 12 pips increments...straight to the bank...

A question for all...what at the big news that could create our own black swan? I could eliminate the news things would be safer but we cannot...so we need to prepare for it...either only 1 and 2 rescues...kill and reverse...kill and watch the show...

David...so I have my sunamit!!! I love my many lost pips...

What a day!

My own definition of the black swan? an unexpected and killing event...
Empty as water and soft as a facing wind mountain
  • #2,358
  • Apr 17, 2008 8:43am Apr 17, 2008 8:43am
Quoting mijamoto
People in my oppinion to lower the risk is to always trade with the trend that means. If we chart is going from down left corner to upper right corner we have bull trend and vice versa. And that consider on daily TF and hourly TF. On 5 min always trade in the trend what daily and hourly trend is showing (if you missed the fire trend will help YOU and you can add rescue forces than. (Otherwise if you bet on a market reversal what is the WORST OPTION AT ALL you can become ROGUE TRADER.) and be ware of sudden moves what can cause news releases. I also noticed that always in the last 10 minutes of every hour we have incresead volatiliy which continue than for 30min. I checked on metatrader interbank rates and noticed spread is not always the same. When is the spread lowest be careful banks will come in. When it is big nobody will trade only if it's news released. Metatrader has publish this info always x hour:50 min. Regards and enjoy your trading
Sure...but how to define a trend?...it depends on your trading and timing time frame...I prefer not trend at all for the 1D and 1H time frame...so what is my trend? My real trend is the 5M and my timing is the 30S...Am I a rogue?
I guess so..

Maybe I should looki into the spread you describe...I would like to trade when the spread is large...I will check this out...Thanks.
Empty as water and soft as a facing wind mountain
  • #2,359
  • Apr 17, 2008 8:48am Apr 17, 2008 8:48am
Quoting jest1081
well you can call it bad judgement on my part, i din expect the euro cpi to have such an effect in the first place.

Abt rescues, i usullay trade in between swing points. Thats the reason i got caught by the spike. heheh anyway, lesson learnt, its a good experience to bag.

And the furthe raway ur rescues are, the bigger your skew will get. Its abt sending it in and cutting it out fast, something which i have failed to execute. Base on hidsight, the picture below illustrates what i SHOULD have done....
Nice chart...it shows the killing field...Have you consider that the place you indicated at the point to bail out it also the place where must people would put a stop? How to distinguish between this crazy move and killing the ducks?

What I learned from the book on Black swans.?...we need to purchase an insurance policy! That is my surrender yellow line... and plenty of foreign capital to control the risk....Now, so what is the best place for the surrender line?

Any thoughts?
Empty as water and soft as a facing wind mountain
  • #2,360
  • Apr 17, 2008 9:41am Apr 17, 2008 9:41am
Quoting jest1081
of course its normal.

But there was no major economic news for that day. well except for housing starts & CPI which comes much later. I was there sitiing and watching the EUR move 100pips against me in a matter of minutes, how would you trade that? You mean u can take 100pip whipsaw with no problems? Then its either your position must be really small or u account is HUGE.

Further more at that point of time i was actively averaging my position due to the small volatility. Its like being hit by a big wave from no where.
Hi ,
I heard that Bloomberg ran a report that 2 of the ECb members said they were concerned about inflation and might have to raise interest rates.
I must admit that although this was several hours before the spike up, I only heard about it 2 hours after the spike.

I wonder if Lusan is still laughing at me for using stops on my $20K real money account ?

Ian
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