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A Lot of Money and Risk

  • #1
  • First Post: Apr 11, 2010 1:35pm Apr 11, 2010 1:35pm

I've spent probably the better part of the last year researching and building automated strats for FX. I'm definitely not a pro. I do have about 500K that I'm willing to risk. I'm wondering what the rest of you, experienced guys think about this scenario:

1. Trading eur/usd during periods of average to slightly below avg vol.
2. Making no more than 3 trades per day
4) Using 10-1 leverage ( 5M positions)
5) Profit Target of 5 pips per trade
6) Fixed stop of 40 pips ( initially 8% of capital).

I'm wondering what you think of my chances of success given that I'm only looking to do this for 1 month , 5 days/week. I'm willing to lose 25% or 125K. I'm using an ECN broker ($15/million) commission.

Thanks guys. Hope you all are doing well!

  • #2
  • Apr 12, 2010 12:05am Apr 12, 2010 12:05am
Quoting glennl2000
[left]I've spent probably the better part of the last year researching and building automated strats for FX....
I'm not sure I fall into the category of experienced guys, but you gave me an idea and here's my 2 pence worth.

If I had 500k to risk, I'd be tempted to use 50k or so on a managed account or 2 and see what it yeilds.

Using an 8:1 sl:tp ratio will mean you need a VERY high hit rate, however by the same logic, using 8:1 means you will naturally get a high hit rate, you just need to make it very high

8% is too high risk per trade, 4 bad trades puts you over your intended potential loss.

I am in the process of developing a scalper and I have put some of your requirments into a demo account out of curiosity.
It trades USDJPY, 5tp 40sl and will risk 2% per trade. It doesn't fit all of your criteria but I think it will be interesting to see if it breaks the 8:1 ratio.
Keep track of it here for yourself
http://www.myfxbook.com/members/BenS...fyIxsR6S54LoWf
  • #3
  • Apr 12, 2010 1:35am Apr 12, 2010 1:35am
and we're off, trade 1 in the bag
  • #4
  • Apr 12, 2010 1:51am Apr 12, 2010 1:51am
Man! Ain't life unfair. Some people just have all the luck!
This is a FACT.

As of July 2007 14 people have Won a state or multi-state lottery TWICE!

Understand what twice means???????????
They, 14 of them, just have all the luck!

If you are having a hard time in FOREX, try your luck in the lottery.
Risk and reward is about 1 to winning millions and billions. Really great.
Probability of winning is outstanding too.
Remove all the bad numbers and you have improved your odds of winning by many folds!!!!!
  • #5
  • Apr 12, 2010 1:57am Apr 12, 2010 1:57am
If you have 500K, you can afford to hire a pro to manage it.

And if you are in this for "the thrill of the hunt", you better get educated before you come in. I'd say several months of learning everything you can about the industry.
  • #6
  • Apr 12, 2010 1:59am Apr 12, 2010 1:59am
You know, remove all the bad trades so that we can have all good trades only.

Nah! Only we can do that on the lottery....
One of this day, man... man.. I am going to hit that lottery to the roof.
  • #7
  • Apr 12, 2010 2:02am Apr 12, 2010 2:02am
I hear you talking about money and pip targets and frequency, but you don't mention anything about what your actually plannig to do. The things you mentioned are only useful in calculating how long its going to take you to blow up your account, which is a useful statistic, but not a good starting point for putting that kind of money behind something.

My guess is that your thinking that by setting your TP so much closer then your SL that you are skewing the probabilities in your favor. All things being equal, your rate of return will be zero over a large number of trades. Once you factor in the commissions and slippage, the probabilities are actually skewed against you. The end result is that even with a high number of wins, your going to be a net loser.

Given the simple fact that your asking a bunch of random stragers on a forum if they think your plan will be profitable is indicative that your not ready to put any meaningful figure behind your trading plans. When your actually ready, you wont need to ask anyone what to do.

My advice would be to put $480k of your trading capital in the money market. Trade the remaining $20k in whatever manner you are planning to and see how it works out. IF you are profitable for 6 consecutive months, make your own decisions about what to do going forward. If not, start a new account with $5k or $1k and work on some other strategies. Once you get one that works, scale your capital up as you gain confidence with it.

Luck be with you.
  • #8
  • Apr 12, 2010 2:05am Apr 12, 2010 2:05am
Here is my best advice to you buddy....

Don't let a pro manage your money.
They are licensed and have studied the art of suckering
people.

I say, $100k is good enough to start a forex business.
Save that $400k for retirement or something.
You will thank me one day.

And remember, trust nobody when it comes to money....
  • #9
  • Apr 12, 2010 2:16am Apr 12, 2010 2:16am
I like where your head is at. Keep you exposure limited by aiming for small market movement while increasing your lots. This is just the way I trade. As I always say: 10 pips is a lot easier to gain than 100 pips.

So, here is the problem? You are not ready to trade. The fact that you are looking for validations from a bunch of faceless traders on a message board tells me so. Here is my take on a solution: Trade with only 10k and leave the rest in a CD, money market, under your mattress, etc ... just don't put that money in a live market. Not until you've gain the knowledge and discipline needed to become a profitable trader. When you've turned 10k into 100k, then and only then can we talk (give advise).

BTW ... if you could do that then you wouldn't need our council.
  • #10
  • Apr 12, 2010 2:39am Apr 12, 2010 2:39am
Quoting BenScoobert
If I had 500k to risk, I'd be tempted to use 50k or so on a managed account or 2 and see what it yeilds.
I agree with it. Since you have $500,000 try investing $50,000 or $100,000 into managed forex account with reputed and experienced forex trader/manager who has good past performance. They will earn you excellent profits for long-term.
  • #11
  • Apr 12, 2010 4:32am Apr 12, 2010 4:32am
I would look at trading Stocks, forex is one of the most efficient markets and its not easy to find an edge, it is popular because it has high leverage and lots of bucketshops with low capital requirments.. You have the capital to make stock trading very cheap.
Economists have forecast 9 out of the last 5 recessions
  • #12
  • Apr 12, 2010 10:28am Apr 12, 2010 10:28am
Thanks for the replies everyone. I am definitely doing this for the "thrill of the hunt". Darkstart is right in that I failed to mention exactly what I'm doing, how do I determine when to make a trade, etc. Certainly long term, this produces negative expentancy.

I'm a programmer by trade (real time systems, digital signal processing, etc) and i've develolped a strat that I've back tested and forward tested with good success (using max 1% risk/trade, generally between .5% and 1%). I've decided for several reasons that I want to take a bigger risk here. My strat uses data mining, fuzzy logic, and a neural network with various linear statistics and TA as inputs. I use TA to confirm the signals as well. I've built my own bactester and trading system with position management (multiple TP and SL levels), as well as an executor component (order splitting, etc), and GUI to manage these parameters while trading. I'm working on integrating it with the broker's api currently. I haven't traded live yet, so I definitely have unanswered questions. I will be using stop limit orders to manage slippage. When I do start live, I will start slow for 2 weeks just to gain my bearings. I am going to spend probably another 2-3 months or more refining the models and my overall system.

Ben,
How is your scalper determing when to trade? My strat trades with a 2 min frequency. It does between 2 and 6 trades a day (between 7am and 4:30pm NY time). I'll give you some basic rules to decide when to trade and how to manage the position, but the signals won't be anything similar really to what my strat will produce. I can give you some of the TA inputs however, and some position management rules ( setting stop limits at 3 pips depending on volaility, etc.). So while I said a 40 pip stop, 5 pip TL, that wasn't entirely true. The 40 pip stop is true in all cases, but I will let a winning trade continue in certain cases with stop limit orders to lock in profit. Hopefully you'll have good results over 1 month. My goal is to be successful for 1 month, and return to normal risk afterwards.


Ben, I'll send you an email with some details if you don't mind?


Quoting BenScoobert
I'm not sure I fall into the category of experienced guys, but you gave me an idea and here's my 2 pence worth.

If I had 500k to risk, I'd be tempted to use 50k or so on a managed account or 2 and see what it yeilds.

Using an 8:1 sl:tp ratio will mean you need a VERY high hit rate, however by the same logic, using 8:1 means you will naturally get a high hit rate, you just need to make it very high

8% is too high risk per trade, 4 bad trades puts you over your intended potential loss.

I am in the process of developing a scalper and I have...
  • #13
  • Apr 12, 2010 12:33pm Apr 12, 2010 12:33pm
Quoting glennl2000
Thanks for the replies everyone....
I can see you are a million miles ahead of most of the people giving advice here, I don't think you need to worry you seem to know what you are doing.
Economists have forecast 9 out of the last 5 recessions
  • #14
  • Apr 12, 2010 1:01pm Apr 12, 2010 1:01pm
glennl

You do not know what you are doing, stop this before it ends up in tears.
The first thing you do not know, is that these so called "brokers" are looking at you like at a turkey on a thanksgiving. They will certainly alter the real price once you start trading with money, and all your backtesting is going to be worth nothing. This is not my imagination, it is a certainty. I have been through this too many times. If you want to trade short term, you need real data from a real marketplace, where there are no phantom prices and rejections. The only place you can find this is IMM futures, unless you set up a company, a prime broker and start trading on interbank platforms like EBS. Not even multibank "pro" platforms are immune from problems - believe me, as I am trading on one right now.

As far as your strategy is concerned, there is a near certainty that you will lose money, as from my testing there is no strategy which trades with tight orders on EURUSD several times a day and makes money - you simply cannot overcome the cost of spread and commission. This market is extremely efficient. You will be better off with strategies with inverted R/R, or with a roughly symmetrical one and orders more spread apart.
  • #15
  • Apr 12, 2010 1:32pm Apr 12, 2010 1:32pm
Hi takef,
You are right, I don't know what to expect during live trading and I don't want to be a turkey on thanksgiving! I've done the broker research and am using an ECN broker (no dealing desk) with access to currenex/ebs/fxall. I plan on using currenex initially. I also have formed a company to do this. How will they alter the price? Can you describe a scenario in which that will happen? Are you talking about what happens on a retail platform? What do you mean by multibank "pro" platforms? I defintiely am lookiing for all the info/advice I can get, so I do appreicate the concern.


Quoting takef586
glennl

You do not know what you are doing, stop this before it ends up in tears.
The first thing you do not know, is that these so called "brokers" are looking at you like at a turkey on a thanksgiving. They will certainly alter the real price once you start trading with money, and all your backtesting is going to be worth nothing. This is not my imagination, it is a certainty. I have been through this too many times. If you want to trade short term, you need real data from a real marketplace, where there are no phantom prices and rejections....
  • #16
  • Apr 12, 2010 2:02pm Apr 12, 2010 2:02pm
I forgot to address this part. Is your concern over the frequency time, and/or attempting to close a position at a small number of pips? I assume you think I'll get too much slippage, etc?

I plan on trading only in avg or slightly lower than average vol, certainly no where near news. I also have a dedicated line and pretty powerful stripped down machines, overclocked cpu's, tuned network cards, etc. As far as the coding is concerned, I have a lot of experience developing high performance critical apps, so hopefully that's gives me a little advantage.

All in all, I haven't traded live yet, and you have, so I am going to proceed with caution, but if you could expand on what you mean given what I've described in my last few posts, that would be great..
thanks!

Quoting takef586
glennl


As far as your strategy is concerned, there is a near certainty that you will lose money, as from my testing there is no strategy which trades with tight orders on EURUSD several times a day and makes money - you simply cannot overcome the cost of spread and commission. This market is extremely efficient. You will be better off with strategies with inverted R/R, or with a roughly symmetrical one and orders more spread apart.
  • #17
  • Apr 12, 2010 2:51pm Apr 12, 2010 2:51pm
There is a fundamental difference between EBS or Reuters Dealing and the likes of Currenex. The first is a closed network with "almost" equal rights for all participants (there are some limitations for algo traders), and beyond the credit issue all prices are the same, and no one can undo a trade. On multibank platforms like Currenex you normally have a mix of participants and liquidity providers, with the liquidity providers having the right to reject your trade (undo a done trade) within a certain time span, and this is for two reasons: 1 - most prices are in reality indicative only and have to be requoted when you hit them, 2 - the banks want to have the last word in case of an erroneous quote, or simply when they do not like the deal.
On top of that , Currenex is famous for making you jump the queu of same price orders in the book if you pay extra bro, or similar nonsense. Hot Spot Pro has some price streams with no right to reject, but this makes the prices les efficient. If you want to access EBS, get ready to spend big - between the acces fees, AI fees, server hosting fees and bro, you are easily looking at 10000+ USD a month.
If you get access to Currenex, give them a try, but trade small - I mean small, like 100k, for a time sufficient to see the real impact of trading costs on your P&L.
  • #18
  • Apr 12, 2010 2:57pm Apr 12, 2010 2:57pm
As far as trading in tight distances is concerned, you would have to be extremely smart to overcome the trading costs. When your machine sees the price change and wants to follow the market, you will often get filled at a price much worse than results from backtesting, because lots of quotes are stale. If you trade on limit orders, you will be rejected many times on the bottom or top ticks by the banks that apply the lookback trick. Be careful and generate enough trades on small positions before going ahead.
  • #19
  • Apr 12, 2010 2:58pm Apr 12, 2010 2:58pm

Forex trading






Dare for the Double.
the art of simplicity of logical trading.

You can make a lot of money with Forex, if you handle it correctly.


I have seen my balance double in hours and then a few days.


This must seen extreme but it happens as often as you want it to, with the correct EA's not just one, using all of the currency pairs.


Do you want to buy a Ferrari, yacht or large house in an exotic country? Well think of it simply as it is.


FOR EXAMPLE: If you start with £100 and double it in either months, days or hours, and hopefully double the balance multiple times over the next months or years. You can soon see that if you manage the periods between that intense profitability without loosing much you only need to keep doubling the balance 20 times before you see a profit of £104,000,000. Yes that is what it would be...if you double £100 and then the balance doubles again ecta.


However most Forex accounts have a maximum balance of $20m. So if you build a lucrative account have more accounts with other brokers or in you wife's name ecta...


So lessons of the day.

  2. Use Ea's that trade using different strategies

  3. Use all currency pairs

  4. Start by using a demo account that supports lot sizes of 0.01 such as Fxcast. This will help build profit as this lot size increases will use every £10 in you account balance.

  5. When trading for real start with an account balance of £100 and Ea's settings that support a margin of a small balance.

  6. Use large leverage settings on your account.

  7. The trend is the best time to double your account.





Paulme33 2010

  • #20
  • Apr 12, 2010 3:33pm Apr 12, 2010 3:33pm
As far as I know, my broker has stated I'll be seeing executable prices, but you're saying these aren't really executable, and if they are, the spreads are larger? In any case, they can reject my order at will, ur undo it? I wasn't aware they have the right to undo; seems unfair to me. I'll confirm this with the broker. I will take your advice though and trade small at first.

I've seen the spreads via my broker on currenex and they vary from .2 pips to .5 pips for 1M. On average it widens down the stack on each side to about 1 or 1.3pips for 10m.

Also, you can pay extra on currenex for better placement on the order stack?? Is that true??

Didn't realize ebs was that expensive. That's out of the question for now.

Quoting takef586
There is a fundamental difference between EBS or Reuters Dealing and the likes of Currenex. The first is a closed network with "almost" equal rights for all participants (there are some limitations for algo traders), and beyond the credit issue all prices are the same, and no one can undo a trade. On multibank platforms like Currenex you normally have a mix of participants and liquidity providers, with the liquidity providers having the right to reject your trade (undo a done trade) within a certain time span, and this is for two reasons: 1 -...
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