(can) small accounts make a living ?!

A quick note on this mornings happenings in the market:

Just had my son taking this mornings first trade on behalf of the test account for the thread. (yes, there was an opportunity before the current one - and there could be another big one later)

As you can see the price hitting resistance on the chart time frames M1 & M5 (with both, price and stoch's at low's) but not just yet on M15 - hence only a smaller expectation on the target.

H. Rearden

Ok, moving on.

One poster (Victor Ray, I believe) mentioned indicators. Before I actually talk about strategies as such and the use of indicators/oscillators, let me put some concluding remarks on the concept of having an edge and using it to its potential.

The main question is whether a trader can actually fully explain his/her edge in terms of what market phenomenon/occurrence it is based on, what time frame(s) it works on best, the associated frequency of occurrence, the expected average winning as well as losing amounts per occurrence (measures for each time frame) and as a result derive a strategy (or discard it) which would be in line with how the trader would operate best, based on her/his personality traits. I mean by that the following: If you have indentified an edge which has its optimum results based on a time frame that does not correspond well with you trading aptitude, then it will ultimately lead to failure. (the example with the impatient trader looking at monthly time frames springs to mind)

So, question is whether you can actually find and apply an edge which is suited to your personal best internal setup? Please don't go simply picking blindly a method from the trading systems department and try to copy the apparent results.

If you want to pick a method without developing it yourself, make sure you understand what it could do to your mental setup. It would be a cosmic coincidence if you picked something that suits your personality entirely.

H. Rearden

Ok, back again.

Although there are other 'regular' phenomena that can be observed on all time frames, I am using two of them in my personal approach - so I will incorporate their discussion in the thread - or better leave you with possible ideas behind constructing an edge for yourself.

If you find a specific repeating pattern in the market, you can assume that it will happen with higher frequency in lower time frames. Although you would gain more opportunities by looking at the lower time frame, each opportunity yields a smaller return on average compared to looking at the same pattern, one or more time frames up in the scale. That is a point worth considering in terms of your possible style of trading.

Now, 2 patterns of market behaviour happen on a regular basis:

1) the price breaks to new high's (or low's)

2) the price reverses from new high's (or low's)

They happen regardless of time frame (with the obvious limitations explained above)

They are phenomena that can be exploited without the fear if found out by others, that they might cease to exist.

H. Rearden

Ok,

Three more topics mentioned in several posts to cover:

1) the use of indicators,

2) trade management (profit taking and stops)

3) the concept of back-testing.

More Coffee - no offence taken Piccolo - and no, I am planning to open a brokerage firm.

H. Rearden

Price hits support when falling not resistance.

You seem like a nice guy, but I have yet to see any successful traders using stochs in the FX market, fully aware of the risk of generalizing. Also, the fascination of buying when price falls down to previous high/low like you describe here, shows nothing more than a 50% success-rate in the long run. If this used to be/is your bread and butter, I take my hat of for you

There are intersting scenarios with S/R but I consider it more complex than shown here. Where would you place SL in this scenario? Exits are far more important than entries.

Next topic.

Now, my personal take on indicators is this: don't use them, if they have nothing to do with the basic concept of your strategy. That means for example if you trade BO's, which require the price to break a certain level, there is no need to use indicators that display areas of overbuying or overselling. Moving averages in the same context are not useful either because what would be the point in having an 'average' of let's say the last 50 bars measured when you are only interested in the next 2 or 3 bars for your trade. The problem with most indicators is that any signal needs to be interpreted in the context of current price movements and that different indicators can give (not wrong in themselves) but conflicting signals in their combination.

The price itself is the main aspect to orientate on - any indicator should be secondary - and always look and ask where the price is first.

If you want to make use of indicators, it is always a good idea to check out their ingredients - what are the calculations based on? In one of my two own approaches, I am looking for for new high's (low's) - therefore, an indicator like stochastics 'indicates' areas where it has calculated overbuying (overselling) levels. Ultimately, I take the trade based on a real high or low since the indicator will at times show overbought/oversold levels while the price is still in a range - basically a false signal. When the signal of the indicator and the price show the same, and on more than one time frame, then it is usually time to act. So, make sure if you want to use the help of indicators, you pick them in accordance with the concept of your strategy and moreover, know what the calculation base is for what the indicator shows a signal.

H. Rearden

Aediaz1,

Keep on reading - your thurst will be quenched, I am sure. The market phenomena I am capitalizing from, have existed since charting began - why should that be any different nowadays?

H. Rearden

[quote=aediaz1;2589345]Price hits support when falling not resistance.


Yes, Aediaz1 - that is what I meant. (if you looked at the chart upside-down, it would be resistance, haha)

Thank you for correcting me.

H. Rearden

I'm well aware of price-patterns and their existence. Wouldn't we all be rich if last H/L on 5m/15m had any significant value ?

I must admit I'm not that thirsty anymore, if you exclude Friday nights, but I still keep an open mind. To the right knowledge

I am going as far as to say that one does not need an hourly or daily chart to identify levels with significance to certain approaches - like the way I look at charts (M1 M5 and M15 zoomed out show me a maximium of 2 weeks trading data including high's and low's). Now, I have taught traders to make a living by gunning for 5 pips at a time when the chance presents itself.

All this is slightly besides the point - I am not telling people what indicator to use or not (otherwise I would be found in the 'trading systems' department), I am merely making suggestions based on my personal experience with indicators.

What you are stating though, I would never have the courage to do: that you have analyzed the market to such an extend to be able to discount any possibility of profitably exploiting specific occurrences during such time frames.

H. Rearden

Moving on to trade-management.

I have stated a 2% trade risk in my approach - that does not mean it has to be applied to exhaustion on every trade opportunity - on the contrary.

As an example, I take the 10.000 account. Risk per trade can be up to 200 or in other words 40 pips of the stated value of 0.05% of initial acc. value (5/pip).

Depending on my expectations for the trade, I use the full value on trades which are promising the best return - i.e. when for example the price has made a significant new high which is also indicated by stochastics showing overbought levels on all 3 time frames. Due to the 4% daily risk limitation, I would take a max. of two attempts with full risk to see whether the trade works out.

Otherwise, I might enter several more trades based on 10 to 15 pips risk - which have in turn a reduced chance of yielding larg(er) profits.

The point is to keep a balance between the amount of trades put on (each with their individual risk) vs the amount of expected profit (for each individual trade)

Don't forget that in line with the aim of the thread, to achieve the average monthly return of 10%, you would have to produce 0.5%/day for 20 days. Now, 0.5%/day in the case of a 10.000 account value, you would have to produce 50/day or 10 pips. The majority of my trades are in the region of 1:1 (or slightly below) of the 'smaller expectation' group of trades. There are some of the next bigger group of trades which have a 'small' risk and slighly elevated levels of profit and the odd trade per month where taking the max. risk is rewarded with a high risk/reward ratio. That can be achieved with either trailing stops or splitting the original unit in half, taking some early profit and manage the second half for the remainder of the move.

The average amount of trades per sequence (1 month) works out to be enough to not having to take all opportunities deliberately (when not 100% sure), missing opportunities and having losses without damaging the account.

H. Rearden

Last topic: backtesting

One poster brought up the question whether and how useful it is.

Again, my personal view based on experience is this:

The trading method as shown will prove impossible to back-test for the simple reason that trades are based on visual signals, which when seen in hindsight will definitely influence the traders 'would have been choice' as I'd like to decribe it. Such signals look obvious, once they have come and gone. When they are forming right now, the trader has to rely on a number of factors which are right now in play.

The only way in my opinion to truly back-test and to gain statistically valid results, is to backtest on 100% mechanical models where the entries and exits are for example based on precise time and/or precise price in an uncompromised repeatable process. An example would be a model that enters every day at 7am GMT and exits at 7pm GMT regardless of anything at that point in time. The trader cannot interfere with these parameters on the basis whether the situation looks favourable or not - he has to enter and exit according to plan. That means for the backtest, that the data collection process can be repeated without human hindsight 'colouring' the results. They will be true according to the parameters.

H. Rearden

Ok Ladies and Gentlemen,

We have come to the end of the tread. Hopefully I have answered the outstanding queries to your satisfaction.

Finally let me give you a few lines of advice on your way:

It is never the market that is complicated - it is always the trader who makes it complicated.

Control your risk as it is the only part in trading you can control.

Take what you believe the market is willing to offer you at the time - if the market does not offer you anything on your trade, it is mostly because you had the wrong expectation. (don't forget, you cannot offer the market anything except your margin in return)

Don't overtrade in either circumstances: when you're winning or when your losing.

And the most important thing to remember: you only live this life for a relatively short time - don't let your work take away from you more than necessary of that valuable (life) time.

All the best (again) to all of you out there.

I will leave the thread open in the hope that if continued, it will be on a basis of mutual respect regardless of standing or experience.

Everything is relative.

H. Rearden

Now, 2 patterns of market behaviour happen on a regular basis:

1) the price breaks to new high's (or low's)

2) the price reverses from new high's (or low's)


If we can determine which is more likely to occur, #1 or #2, then we would be on to something. It could be as simple as following the DIBS philosophy - selling on down days and buying on up days.

Hello to all & thread starter, H. Rearden..I'm currently trading with USD1500 FXCM Micro account..it has come to almost 3 years now since I first took off for an actual trade..just recently to realize the 'myth' on using only certain amount to open position..like only 2% as an example..
The 'truth' struck on me,knocking my head telling that as I'm sure of the market direction I shouldn't wait for anybody to tell me to put down 20-30% of my balance for maximum gearing..shorten down my on screen alert time..& for your info I never ever use a stoploss..& I'm baggin in averagely 40-60% profit which comes to USD2000 weekly & USD400-600 daily base on London & New York Open Breakout period..it only requires me to target 35-60pips from those two breakouts to achive my targets..
As for loosing off my emotional fear,I cash out everyday till overcome my USD1500 so as to make my account & my trade equal to free trade..meaning that I wont loose any money now bcoz I already taken back my cost earlier..I got another Mini Account that I can put in some money from my daily Micro account profit which I trade only once weekly..
That all enough said from my actual experience & the most easy way to trade with no fear like demo is to let it be 'free trade'..you must take back your cost & just pull the trigger wisely..cash out everyday,dont let the market take back our spending money..

Oh yes,just to add on to my earlier post,the Price Action Bar Setup,James 16 thread & DIBS techniques does improves my trade drastically..& of course,the precision on timing..especially on both the London & New York open.

Hello and thank you for this thread. I enjoyed reading your posts.
It seems there is one issue that remains to be dealt with : targets. When you say you "push the trade" what targets do you have in mind for taking profit ?

Thanks.

If anyone is still wondering about the topic of this threat then the answer is YES! lol

but it comes with a lot of effort.. it will be the hardest easy money you have ever made.

You need to read some of the posts again. I have no targets - only expectations. Nobody ever knows how far a trade will go in your favour; you have to apply your own judgement for how long you want to hold on to it.

Good luck.

H. Rearden

Thanks H.Rearden & appreciated your willingness to share trading experiences.

Your successful in intraday trading (on lower TF eg M15)
have very much boosted/hardest my confidence while i'm working out
my swing & intraday system/method on H1 & where most
entries are based on M15 TF.(I used to trade H4 & D1).

It's meant for & to grow my new separated micro account. small/tiny buck
Tuning to lower TF, to find more entries(from Daily TF) with tight SL and TP
as well. Hence, it needs many, many, times of compounding effects,
starting from small % of ROI. I'll remind myself not to over-leveraged
as it's always tempted to do so when working on lower TF.

hope, to see u still around here for more sharing/guidance.