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Chicky's Trading Journal

  • #201
  • Aug 10, 2009 4:34pm Aug 10, 2009 4:34pm
Entered 2/3rd long position of EUR/USD at 1.4139. SL at 1.4040, TP at 1.4444.
The Thief of Wall Street
  • #202
  • Aug 10, 2009 9:15pm Aug 10, 2009 9:15pm
To readers who may drop in here by any chance - This is a journal and therefore some of the posts are just my views at one particular point of time while in one particular state of mind. Therefore they are subject to change.

Loud Thinking



1. A trader breaks chains of average or poor trading and enters into the arena of professional trading, when:

  1. Feels that he/she is in charge of the trades and not the market.
  2. Enters, holds and closes trades with a relaxed mind with no fear, greed or frustration.
  3. His/her brain subconciously focuses more on up-side (reward) than the down-side (risk) of a trade OR at least equally foucuses on both.
  4. Does not frequently change his/her mind.
  5. There are absolutely no regrets on losing one or several consecutive trades unless such losses occur for the sole reason of violating own rules.
  6. Is willing to and can wait for days and weeks to enter or exit at right moment.

2. Timing is one of the most important element of any trading method.

The Thief of Wall Street
  • #203
  • Aug 11, 2009 2:46am Aug 11, 2009 2:46am
Quoting Chicky
Entered 2/3rd long position of EUR/USD at 1.4139. SL at 1.4040, TP at 1.4444.
Just added remaining 1/3 position to longs at 1.4167.
Average price got for longs 1.4148. TP and SL remain the same at 1.4444 and 1.4040.
The Thief of Wall Street
  • #204
  • Aug 11, 2009 5:45am Aug 11, 2009 5:45am
Quoting Chicky
To readers who may drop in here by any chance - This is a journal and therefore some of the posts are just my views at one particular point of time while in one particular state of mind. Therefore they are subject to change.

Loud Thinking



1. A trader breaks chains of average or poor trading and enters into the arena of professional trading, when:[list][*]Feels that he/she is in charge of the trades and not the market.[*]Enters, holds and closes trades with a relaxed mind with no fear, greed or frustration.[*]His/her brain subconciously...

I have followed your journal and wondering whether you have any advice for someone who is retired and in absence of any interest incentive rate on fixed deposit with any bank would like to use forex for long-term gains. The risk is draw down. How can this risk of draw down be calculated? And once this risk is acceptable what kind of money management or lots trading be planned with minimal leverage (or no leverage) to maximise returns. Should it be a monthly, quarterly, six monthly or yearly position?

A visual check (chart attached) shows the capacity to withstand draw down is vital. If there is little leverage then the fear of losing big money won't be there. And in the existing regime of nil interest rates on deposit is putting money into forex (buy and hold) or (Sell and buy) or have both strategies in place.

If you can backtest and determine in worst of worst times how much draw down would have been incurred during the last 5-6 years in respect of Eur/USD, or closely related currencies like Aud/NZD, Eur/GBP, Eur/CHF, GBP/CHF (so that extreme volatility is avoided), it will be great. You are good with figures and your advice will be greatly appreciated.
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  • #205
  • Aug 11, 2009 4:57pm Aug 11, 2009 4:57pm
Loud Thinking was good. (Tho I don't agree 100% on all points - but hey this is yer journal and I might change my mind later)
forget about tomorrow, just steal away into the night
  • #206
  • Edited 6:27pm Aug 11, 2009 5:00pm | Edited 6:27pm
Quoting pj9100
I have followed your journal .
PJ, these are key questions. Everything revolves around them. Let me answer some of these with the way I look at the things.

Q1. Wondering whether you have any advice for someone who is retired and in absence of any interest incentive rate on fixed deposit with any bank would like to use forex for long-term gains.

A1.
Retirement is something one plans for. One aspect of this planning is securing investment. Among many other factors, Investment principles require 1) setting investment objectives, 2) spreading risk. My advice would be to break investment into few funds. One of such fund may be invested in speculative trading. Since speculative trading has “high risk high reward” investment objective, this fund maybe kept limited up to 20% of total investment in all the funds. Kindly note that 80:20 rule will apply to return on such investment i.e. though little funds at stake but with expectation of greater reward in % terms.

Spreading risk should be taken in its broader sense i.e. beyond trading, including selection of brokers and division of funds among various brokers, having a safeguard against human nature of betting whole farm by splitting funds into various smaller accounts and/or using only one designated account with predetermined drawback for a particular move, etc.

Q2. The risk is draw down. How can this risk of draw down be calculated? And once this risk is acceptable what kind of money management or lots trading be planned with minimal leverage (or no leverage) to maximise returns. Should it be a monthly, quarterly, six monthly or yearly position?

A2.
The risk of drawdown will always be there. In my opinion, “risk of drawdown” and “fear of drawdown” are two different things. Many would debate and would come up with probabilistic theories, but my final conclusion is that Risk of drawdown (in $ terms) should never be less than reciprocal expected return (again in $ term). To let some people criticize my this statement even more strongly, would stress that one’s profit target should never be less than the amount of risk no matter how many odds are in one’s favor. If there is 90% chance of a favorable outcome, the risk : reward ratio should still be 1:1. Why? Because THIS IS the edge.

For me account leverage over 1:20 is unnecessary and I only use 1:50 just for some tiny fun trades. There are variety of reasons, but I will give only one reason, and that is, it helps maintaining one’s trading capacity. I do not try to maximize return or minimize associated risk in individual trades – because risk and reward are directly proportional (most of the time).

The beauty of this market is that it is random, and therefore one should not set predetermined profit/loss % for a given period i.e. week, month, year, etc. Market will give us when it wants or take from us when it wants and at the pace it wants. However, if one (like myself) takes each trade with a fixed profit/loss aim, the average number of trades in a month should give a fair idea about such %. Mine is 15% gain a month, based on three trades a day with 1% fixed risk and reward in each, two wins out of each three trades, 20 trading days a month and less ¼ for contingencies. So far achieved a level generating 1/3 of the monthly target.

Q3. A visual check (chart attached) shows the capacity to withstand draw down is vital. If there is little leverage then the fear of losing big money won't be there.

A3.
Yes, not only the capacity to withstand drawdown but also to generate return that respects the level of risk one takes, is very important. I use a simple formula for both. Let’s say if operating with $1000, my 1% risk would be $10 per trade, same would be my reward. If my account is down to $900, my risk/reward for next trades would come down to $9 per trade. However, if my account grows to $1500, my risk/reward per trade would go to $15 – always 1% of my recent account balance.

I would not suggest “small position sizing”, but “consistent position sizing” that are 1% of account balance as appropriate. Consistency beats the fear.

Q4. If you can backtest and determine in worst of worst times how much draw down would have been incurred during the last 5-6 years in respect of Eur/USD, or closely related currencies like Aud/NZD, Eur/GBP, Eur/CHF, GBP/CHF (so that extreme volatility is avoided), it will be great. You are good with figures and your advice will be greatly appreciated.

A4.
I don’t believe in back or forward testing. This is the game of probability. Anything that works theoretically, may or may not work in practice during the period of time we test. Similarly there may be some patterns but no theory to justify them.

One option is to continuously remain in trade like a position trader. However, I like to go for snap or flash trades on daily chart reading. Why? Because stocks, commodities and forex are three different markets (will let many people scratch their heads and argue on this point). Number of trades are more important for my forex method than their longevity. I focus on dollar amount not on number of pips. My 1% my come either in 100 or 15 pips. I set my lot size based on 1% risk /reward.

Using the diminishing/incremental balance method mentioned in A3, one could trade for infinite period with finite capital. The whole game to me is about two things 1) Finding an edge, 2) waiting for the right time to apply this edge with right amount and right mindset.

Could not express several thoughts but I hope this may help a little. Kindly feel free to comment or ask any questions you may have.
The Thief of Wall Street
  • #207
  • Aug 11, 2009 5:57pm Aug 11, 2009 5:57pm
Quoting spekitox
Loud Thinking was good. (Tho I don't agree 100% on all points - but hey this is yer journal and I might change my mind later)
Me too,
The Thief of Wall Street
  • #208
  • Aug 11, 2009 9:14pm Aug 11, 2009 9:14pm
Chicky's Gambling Rules

Gambling Rule #2: Disaster is the ultimate result of any kind of gambling. Because, there is a limit to how much one can lose, but no limit to how much one wants to win.

How it applies to forex: Always open small positions; decide your risk based on highest possible timeframe you think is reasonable (e.g. daily to monthly, but not five seconds or century); take some profit off the table when market offers you; sit tight (on your winners not losers).

Gambling Rule #3: It takes a big magnet to attract small objects.

How it applies to forex: Keep your position sizes smaller


Gambling Rule # 4: Always be liquid. Carry cash in bulk to avail any good opportunity.

How it applies to forex: Trade small. Do not block all your funds in only few trades. Save and use your margin to avail good opportunities.
The Thief of Wall Street
  • #209
  • Aug 11, 2009 11:22pm Aug 11, 2009 11:22pm
Quoting Chicky
Chicky's Gambling Rules

Gambling Rule #2: Disaster is the ultimate result of any kind of gambling. Because, there is a limit to how much one can lose, but no limit to how much one wants to win.

How it applies to forex: Always open small positions; decide your risk based on highest possible timeframe you think is reasonable (e.g. daily to monthly, but not five seconds or century); take some profit off the table when market offers you; sit tight (on your winners not losers).

Gambling Rule #3: It takes a big magnet...

Again bro, excellent post
Thank You
  • #210
  • Aug 11, 2009 11:28pm Aug 11, 2009 11:28pm
Quoting wormboy
Again bro, excellent post
Thanks brother.
The Thief of Wall Street
  • #211
  • Aug 12, 2009 6:56am Aug 12, 2009 6:56am
Quoting Chicky
PJ, these are key questions. Everything revolves around them. Let me answer some of these with the way I look at the things.

Q1. Wondering whether you have any advice for someone who is retired and in absence of any interest incentive rate on fixed deposit with any bank would like to use forex for long-term gains.

A1.
[color=black]Retirement is something one plans for. One aspect of this planning is securing investment. Among many other factors, Investment principles require 1)...
Chicky,

You have been very helpful and are full of ideas and energy. My whole idea is that we should develop some kind of visual analysis model (Excel with Chart) as well as a simple MT4 indicator for a retired person/housewife who already has some experience in placing a multi-currency fixed deposit with the bank (long term basis) with confidence - and based on their own analysis of the currency market.


In Hong Kong, where I live, most of the non-working women are aware of the risks of placing multi-currency deposit. They don't use leverage and are only after yield. More so now as there is hardly any interest offered by banks to deposit holders.

The banks offer DCD (Dual Currency Deposit) which is linked to the selling of options. In case of the option being exercised, the depositor gets the equivalent of alternative currency. Previously it was known as carry trade. Now it is just speculation.

If it is just speculation, why not choose fx spot wherein they can make far better returns.

The visual analysis model should help them see the long-term trend and map out the positions where they can take profit. Weekly/monthly/quarterly ATR should be used to give out those projections.

The analysis also should tell them if the trend reverses or stalls, then how long it may last and how much draw down they need to be prepared for.

Tips also should be given to them only follow the trend and wait for pullback to go in the direction of the trade. Counter-trend ideas should be kept out of the analysis model.

It is in this context I want your help as to make some draw down model based on history.

Thanks again for taking time to write so clearly and concisely.

PJ
  • #212
  • Aug 12, 2009 11:09am Aug 12, 2009 11:09am
Quoting pj9100
Chicky,

You have been very helpful and are full of ideas and energy. My whole idea is that we should develop some kind of visual analysis model (Excel with Chart) as well as a simple MT4 indicator for a retired person/housewife who already has some experience in placing a multi-currency fixed deposit with the bank (long term basis) with confidence - and based on their own analysis of the currency market.


In Hong Kong, where I live, most of the non-working women are aware of the risks of placing multi-currency deposit. They don't use leverage...
This will be an excercise after many years. I used to do similar stuff for KPMG. Let me see how can do that.
The Thief of Wall Street
  • #213
  • Edited 11:40am Aug 12, 2009 11:12am | Edited 11:40am
Quote:
Originally Posted by Chicky http://cloud.forexfactory.com/images...s/viewpost.gif
Entered 2/3rd long position of EUR/USD at 1.4139. SL at 1.4040, TP at 1.4444.


Quoting Chicky
Just added remaining 1/3 position to longs at 1.4167.
Average price got for longs 1.4148. TP and SL remain the same at 1.4444 and 1.4040.
Brought SL up to BE at 1.4148.
The Thief of Wall Street
  • #214
  • Aug 12, 2009 2:00pm Aug 12, 2009 2:00pm
I very much agree: trade small. You're a clever boy Chicky. Very much worth listening to you.

An FF member wrote an excellent article about position sizes.

Today I had a face to face meeting with fellow traders - interesting how differently we view "position sizes"

One looks at it: I'm opening a 1k position. That is, he uses 1k of his margin.
The other: I'm opening 10k units. That is, a tenth of a full lot.
My way - X pips will be roughly Y % of my capital. I tend to use 100 pips = 0.75 % on very volatile pairs (eg. poundyen or poundswiss). 100 pips = 0.8 .. 1 .. 1.2 % otherwise.
forget about tomorrow, just steal away into the night
  • #215
  • Aug 12, 2009 2:04pm Aug 12, 2009 2:04pm
Quote:
Originally Posted by Chicky http://cloud.forexfactory.com/images...s/viewpost.gif
Entered 2/3rd long position of EUR/USD at 1.4139. SL at 1.4040, TP at 1.4444.


Quote:
Originally Posted by Chicky http://cloud.forexfactory.com/images...s/viewpost.gif
Just added remaining 1/3 position to longs at 1.4167.
Average price got for longs 1.4148. TP and SL remain the same at 1.4444 and 1.4040.

Quoting Chicky
Brought SL up to BE at 1.4148.
This spike down was very funny. It went down to hit my stop loss 100 pips below.

Trade concluded at BE. Now waiting for next opportunity.
The Thief of Wall Street
  • #216
  • Edited 4:56pm Aug 12, 2009 2:29pm | Edited 4:56pm
Quoting spekitox
I very much agree: trade small. You're a clever boy Chicky. Very much worth listening to you.

An FF member wrote an excellent article about position sizes.

Today I had a face to face meeting with fellow traders - interesting how differently we view "position sizes"

One looks at it: I'm opening a 1k position. That is, he uses 1k of his margin.
The other: I'm opening 10k units. That is, a tenth of a full lot.
My way - X pips will be roughly...

Spekitox,

Market is the best teacher.

Once you have learned your lessons, begin to enjoy trading.

Consistently trading at a fixed operating level, each time risking just a fraction of your capital is one of such lessons. This works for many traders.

ps. Almost forgot about the link amid trading after that spike. Thanks for the link. Will go through this article in the late evening. A doctor's appointment in few minutes.
The Thief of Wall Street
  • #217
  • Edited 2:49pm Aug 12, 2009 2:45pm | Edited 2:49pm
Entered short at 1.4208
TP: 1.4180 (28 pips), may let 1/4 position run up to 4150 (i.e. 58 pips)
SL: 1.4260 (52 pips)

Reasons for taking this trade:
1. PA may re-test 1.4148
2. Channel break on 15M
3. Strong resistance at 1.4250
4. Cannot spot a longer term opportunity at this moment
The Thief of Wall Street
  • #218
  • Aug 13, 2009 1:22am Aug 13, 2009 1:22am
Quoting Chicky
Entered short at 1.4208
TP: 1.4180 (28 pips), may let 1/4 position run up to 4150 (i.e. 58 pips)
SL: 1.4260 (52 pips)

Reasons for taking this trade:
1. PA may re-test 1.4148
2. Channel break on 15M
3. Strong resistance at 1.4250
4. Cannot spot a longer term opportunity at this moment
This trade was a loser. SL got hit at 1.4260 during Franky session. Earlier it had missed TP of 1.4180 by one pip

Waiting for next opportunity.
The Thief of Wall Street
  • #219
  • Aug 13, 2009 1:43am Aug 13, 2009 1:43am
Quoting Chicky
This trade was a loser. SL got hit at 1.4260 during Franky session. Earlier it had missed TP of 1.4180 by one pip

Waiting for next opportunity.
Lessons Learned

Shorter term trades require babysitting. Trade maneuvarability is key tactic in short term trading. It was third time in this month that I forgot to incorporate time factor in SL and TP to maneuvar the trade.
The Thief of Wall Street
  • #220
  • Aug 13, 2009 1:52am Aug 13, 2009 1:52am
Quoting Chicky
Lessons Learned

Shorter term trades require babysitting. Trade maneuvarability is key tactic in short term trading. It was third time in this month that I forgot to incorporate time factor in SL and TP to maneuvar the trade.
That's the best way to explain why I like long time frames so much.

I'm a horrible babysitter.
Not all sins are created equal
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