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Building an equity millipede

  • Post #61
  • Quote
  • Edited 3:38am Jul 15, 2010 3:15am | Edited 3:38am
Dear all fellow traders

As per intended flow of my explanation Im nearly at the end of my endeavour. I have taken great deal of care and patience in explaining my method however I understand if its not settling down in your thought process smoothly as I hoped it would. Which is all natural as human perception only chooses to see what they wish to see.

Most likely by this weekend I will finish the last 2 topics.

1. Required thinking process to be a long term trader
2. Emotion control

I will summarise the whole method with charts at the end. My initial intentions was never to stay around the forum as I shun the limelight or necessarily have any benefits to be around.

So please do not hold back any questions as I value your enquiries with genuine interest.

Please look forward to my last few posts and once again thank you for the support.

God bless you all.

Kindest Regards,

Graeme
About the diversification: When do you start to diversify ? is it at an exact point in time or is it mere a gut instinct ?
Inflation in things we need, Deflation in things we want.
  • Post #63
  • Quote
  • Edited 7:08am Jul 15, 2010 4:17am | Edited 7:08am
Quoting Thijs
About the diversification: When do you start to diversify ? is it at an exact point in time or is it mere a gut instinct ?
Good afternoon, Thijs

Excellent question.

I diversify after some growth on the group and when the market cannot decide. You will notice these periods of undecision after considerable movement. Price can retrace, stall, range after a large movement and it is around this time I will diversify.

However the true power of diversification is when im not sure about the intended movement of the market. Diversification will increase my capital balance + balance out any losses incurred + opportunity to move few legs to a bigger group above for more growth.

For example, if all readers could please open a weekly chart of gbp/jpy and zoom out so you are looking at approximately 100 candles. It is an obvious downtrend. And this obvious downtrend started from mid 2007. Imagine growing your capital on this main trend for the last 3 years (and this is what everyone should be only doing).

I had a group that started on the first week of this year and until mid february it was a fantastic move down. I had many positions with comfortable entries. Then I noticed that my newer sell positions started dying and I had increasing number of buy positions then sell positions; which is a sign of range, retrace, or stall.

Even though I was confident that this was just a blip of fluctuation and downtrend would continue, I diversified here on 2nd week of February. This increased my capital for a fair amount which smooths out my equity curve. It is traders best interest to avoid jagged equity curves. Also from this diversification I was able to move few legs to the larger group which was formed from mid 2009 and they are all still alive to this day.

Interestingly from march until mid april there was a good movement up on gbpjpy. I noticed sell positions dying and buy positions growing. I let it happen and once I had a good number of buy of positions and enough time for growth I diversified again around end of April taking another bundle of profit on the countertrend.

Downtrend resumed and I followed and started another group. This group has now grown for me to consider another diversification.

Timing of diversification is not important as long as you gave enough time for growth. The market will decide the fate of your group. When you diversify you are accepting the markets judgement. And when you diversify it doesnt matter if the market is trending or ranging as the result is the same.

I said this before in previous post but I will say it again as this is important to diversification.

If you find that when your diversifying you are closing legs to cover your losses. Then a) better entries are required b) your trying multiple times on one single day to establish positions c) you didnt allow enough time for the market to judge your positions. I have never diversified for a loss. NEVER.

Apologies for the lack of chart to explain but it is very simple once you open a weekly gbp/jpy chart and zooming out to 100 candles or so.

Very good question indeed

Regards,

Graeme
Your method of trading makes so much sense to me its crazy. I am not new to trading Forex but it seems like I am slogging away months upon months to eventually after 100s of trades over the year ‘hopefully’ have my edge play out and manage to make a few % on my account.

Taking low risk trades and just walking away leaving them to mature makes total sense but I imagine it is very hard to do at first until you are used to it and see your first millipede starting to grow and produce nice profits.

Over the past few days I took a new account (demo) and picked a couple of pairs to try this method on, always keeping in mind the weekly trend but allowing the market to decide my positions fate. So far I have had 1 loss 1 break even and I have 4 positions alive with stops at break even and well in profit... this is my first group .

The problem I am have now is how to keep track of these groups, as I added more positions today it became confusing. As far as I am aware in mt4 there is no function to put open trades into categories or groups.

Do you have any special method to keep track of your groups especially as you diversify later on?

Last question…

On average how many attempts does it take for you to initiate a group of trades? Would it be normal to have say 30 - 50 trades be taken out at loss or break even before you finally get a group running with the trend for the long term?

Thanks again
Hi Graeme,
Thank you for your quick response. The main way we were shown to trade was intraday, trading candle formations at previous levels of support and resistance. We were told to trade 1 hr charts and trade the trend. My profit comes from way more than 30 trades, probably nearer 50. I was up to $780 at one point but that was over a month ago.
We were told to trade with a 1/1.5 risk reward ratio. When we reached 60 pips for the week we were told to walk away. The idea was to build our bank organically and as our equity increased so did our risk.
In my limited experience the hourly/daily trading is just far to unpredictable.I am pleased not to have lost money, but at the same time I don't feel like I am in control of my trading, It is also very time consuming constantly checking for the right set up.
What I like about your system is that you do your technical analysis, place your trade if it works walk away and let it run, if it doesn't work you look for another entry. The hardest part about trading for me is not when to get in, but when to get out. With your system the timing is not as critical because as you said these bigger trends take a lot longer to reverse. I am currently looking at shorting the pound with your system in mind. Its up around a trend line on the weekly. Am I on the right track??
Regards
Ben
  • Post #66
  • Quote
  • Edited 7:55am Jul 15, 2010 6:37am | Edited 7:55am
Quoting Someone
Your method of trading makes so much sense to me its crazy. I am not new to trading Forex but it seems like I am slogging away months upon months to eventually after 100s of trades over the year ‘hopefully’ have my edge play out and manage to make a few % on my account.

Taking low risk trades and just walking away leaving them to mature makes total sense but I imagine it is very hard to do at first until you are used to it and see your first millipede starting to grow and produce nice profits.

Over the past few days I took a...
Good evening Someone

Im glad to hear that you have started testing out my method and I wish you all the best.

In regards to keeping track of the numerous groups. This will improve over time but its half manual and half mental. Personally I use a large journal but Im aware of the current groups im building. You will become accustomed to them over time.

Diversifying is the easier part of your trading and you can diversify with many different option. The main thing you do when diversifying is, you are moving the larger legs of the group to the group above and closing out the smaller legs. This is important as it will smooth out your equity curve. You can close more than necessary or move more than necessary as long as you are adding profit into your trade balance. It will look impressive either way.

Please do not rush to make positive positions everyday. You will soon learn why. Why do you think Im requesting you dont try adding positions everyday? Can you try answering for me?

Running into continuous breakevens and small losses will happen however as long as you are entering with low risk. Soon you will be able to pick your entries with high probability so please continue practicing low entries.

Please let the market dictate your entries and enter both buy and sell as it happens. The market will be a fair judge and decide their fate later on.

Someone, can you handle a streak of 20 breakevens or more? You need the willpower and the unbending faith in your own beliefs.

Your first hurdle in emotion will come when the legs die out on breakeven. Please dont grow any sentimental attachments as there will be plenty more to come. Trust me when I say you must be a bigger person and not allow such emotion overshadow your clairty or participation in the market. If you are entering low risk entries on both buy and sell, the market will dictate the winning side sooner or later. Your job is to 'participate'.

Soon there will be a post entirely on emotion control.

The reward will definitely be worthwhile.

Please dont stop with the questions.

Sincerely,

Graeme
  • Post #67
  • Quote
  • Edited 9:50am Jul 15, 2010 6:59am | Edited 9:50am
Quoting leggo
Hi Graeme,
Thank you for your quick response. The main way we were shown to trade was intraday, trading candle formations at previous levels of support and resistance. We were told to trade 1 hr charts and trade the trend. My profit comes from way more than 30 trades, probably nearer 50. I was up to $780 at one point but that was over a month ago.
We were told to trade with a 1/1.5 risk reward ratio. When we reached 60 pips for the week we were told to walk away. The idea was to build our bank organically and as our equity increased so did our risk.
In...

Good evening Ben

Thank you for your correspondence. Sounds like the equity correction was more than due and it is already underway.

Ben, I agree with most of the method of entry they showed you. Entries are not easy and requires a good deal of practice. It would take a keen learner a good 6 months to be effective. Consider positions closing breakeven as a good bonus cause you had a chance to stay in the market but unfortunately was stopped out from fluctuations that we have no control over.

Unfortunately, I still enter from 1hr, 4hr charts but definitely not as many as yourself. Probably not even quarter. And my entries have higher chance to at least make breakeven.

The stress must be overwhelming. The biggest problem with the method is 1:1.5. This is a big no. There is so much more in forex than the 80 pip Ben. Good portion of my legs I currently have are 1:70 or more. Positions that are 1:5 or less is not even a leg to me yet.

Entering with low risk is a big learning hurdle for everyone and its a must. Exit is at our leisure and choice. You can diversify when you are feeling unsecured. Exit plays a major role in short-term intraday, intraweek traders whose profit and loss depends on the random fluctuations of a merciless market. For me exit doesnt excite me nor worry me and it is one of my lower priorities. When you are a long term trader you cannot lose on exiting after growth unless your on the wrong side of the road.

Also, im aware of this common belief among traders to walk away when they reach a certain proft target for the week. All I can say is that the market doesnt know each individual traders profit target and certainly dont care. I never stop trading cause I reached certain limit.

No trades on fridays? Yes if there are no low risk setups forming. No if there are low risk setups forming worth entering.

And this applies to all days, not just fridays.

Market decides whether a trader enters on friday or not. Traders can only follow the market.

Sincerely,

Graeme
Graeme,
What you are saying makes far more sense to me. It should not be too hard to convert what I have learnt on the hourly chart to the weekly/monthly. The main principles of support and resistance and trendlines are the same.
I have a couple of questions.

1. Do you leave your stop at break even until you exit your trade or do you move it down every few hundred pips? The reason I ask this is because sometimes there are life changing events such as wars etc. Would something like this happening have the potential to wipe thousands of your accounts?

2.As you mentioned you run a business. Do you draw an income from your forex trading or do you see it as a long term investment. If you do draw an income how does/would this fit in with your strategy.

I appreciate your time helping me.

Regards
Ben
Good evening all.

Hope you are all warm and safe.

Please dont stop with the questions as my intentions are to answer everyone on everything till weekend.

After my replies please refresh the page as I usually add more content that I missed out.

Sincerely,

Graeme
Hi Graeme,
thanks for starting this thread and the time to explain your trading style in detail. However, there are still details unclear for me personally.

With your approach, you will inevitably have lots of dying positions and/or small losses due to your initial stop loss level (around 30+ pips if any, right?). So my first question is about the timing when to set your stop loss to break even for an individual position. Do you move it as soon as possible? Then of course many positions don't have the chance to evolve and will die rather sooner than later. Do you set them to BE at the end of the day or after a certain amount of pips? Or do you risk them to hit the initial stop loss?

I guess the more correct your entries are, the less you will get into this trouble at all. But let's assume we are at the beginning of setting up such a millipede from scratch and our judgement is not that evolved (which is not hard for me to imagine, at least for my own trading career ^^). How do I find the right balance when to move to BE, when to take the loss? How do I increase the chances to get valid "legs" over time?

Your trading style seems to carry itself once you already are in a good position, when you already have some legs to close to cover all those many small losses. But how to get there? How many losses do I have to take into account before I get one or more profitable positions? The answer of this question is most crucial as it will determine the position value in order to survive until the millipede forms.

Thanks in advance
.....and since then, i type my text in Notepad and copy/paste it in the forum. And thanks for this exellent tread.
Ludo
Quoting pipEASY
Amazing, i just spent good 30minutes typing the next post and the site went down and it has perished in peril.
  • Post #72
  • Quote
  • Edited 9:49am Jul 15, 2010 8:15am | Edited 9:49am
Quoting leggo
Graeme,
What you are saying makes far more sense to me. It should not be too hard to convert what I have learnt on the hourly chart to the weekly/monthly. The main principles of support and resistance and trendlines are the same.
I have a couple of questions.

1. Do you leave your stop at break even until you exit your trade or do you move it down every few hundred pips? The reason I ask this is because sometimes there are life changing events such as wars etc. Would something like this happening have the potential to wipe thousands of your accounts?...

Good evening Ben

Great questions.

I have no doubts that you will be able to shift your entry methods to higher time frame and also you will find few new ones.

1. Yes, I will leave my SL at BE until I close that positions. I dont use moving sl. I had far more success from using BE SL then using moving sl. Diversification will serve the purpose but on different level.

One quick example: I enter sell at 150.000. After 1 week it moves +250 pips so I move my sl to +150 pips to lock in 150 pips. Market retraces and takes my stop loss out. I shrug cause I just made 150 pips anyway...

But..

4 years later, price is now at 050.000 and has moved 10,000 pips... This single position would have closed out with so much more profit than all the small profits I made from moving my sl.


2. Yes I drew twice but mostly still in my capital pool. I do not require any income from forex to live.

My major plan is to building a huge equity millipede on monthly and yearly candles and will start looking for platforms with yearly candle charts. I will do exactly the same. I probably be able to only witness probably the next 30 or 40 yearly candles but it would be worth a try.

Im still evaluating but enjoying every moment.

Sincerely,

Graeme
Quoting ludo willems
.....and since then, i type my text in Notepad and copy/paste it in the forum. And thanks for this exellent tread.
Ludo
Good evening, Ludo

Your most welcome and thank you for the feedback.

Sincerely,

Graeme
Quoting Someone

Last question…

On average how many attempts does it take for you to initiate a group of trades? Would it be normal to have say 30 - 50 trades be taken out at loss or break even before you finally get a group running with the trend for the long term?

Thanks again

My apologies Someone, I seem to have missed your question.

Im glad to see that you have a realistic view. Yes it will be 30-50 attempts before a group appears. This is will definitely improve over time so please keep practicing entries.

It seems my efforts may after all been worthwhile.

Sincerely,

Graeme
Quoting leggo
With your system the timing is not as critical because as you said these bigger trends take a lot longer to reverse. I am currently looking at shorting the pound with your system in mind. Its up around a trend line on the weekly. Am I on the right track??
Regards
Ben
My apologies to you too Ben. I seem to have missed your question as well.

Ben, entries are at your discretion however I would like to add some guidance.

I do use trendlines, support and resistance lines in my focal interpretations. However I will never solely rely on something. I will follow the market and enter at low risk. This might sound vague at first but you will understand soon.

Please keep an open mind and let the enlightment approach you.

You are on right track.

Sincerely,

Graeme
Wow, Great thread. I very much appreciate your efforts in detailing your trading strategy. I daresay this thread now contains some of the best content on here. Thankyou.


If I may ask a few questions on some of what you have already covered:



1) You talk of "legs": Can you explain how you personally define a "leg", I notice that you briefly mentioned them in terms of RR. If you do define them in terms of RR can you talk about the RR you are looking for and why you have picked that number.



2) You also talk about the "survivability" of positions: I actually view this as one of the most crucial parts of trading, yet I really don't see many traders talking about it.

I see you move your trades to BE, however I was wondering what you think of the idea of:

1) Enter
2) If trade reaches 1:1 (Or another pre-defined RR) remove half of your position size.
3) Leave stop where it is, if price takes out your stop then you are left with a BE trade, of course you will have trades that don't reach 1:1 and full losses are taken.

Do you think this is a better/worse approach than moving stops to BE. Survivability of positions is increased as price has to get through more orderflow to remove your stop, especially if your stops are at swing highs and protected by areas of orderflow.



3) Money Management: On your initial entries are you using Fixed Lotsize Enty or %R or what are you using and why are you using it ?


Best regards,
Jigsaw
Quoting Wonko
Hi Graeme,
thanks for starting this thread and the time to explain your trading style in detail. However, there are still details unclear for me personally.

With your approach, you will inevitably have lots of dying positions and/or small losses due to your initial stop loss level (around 30+ pips if any, right?). So my first question is about the timing when to set your stop loss to break even for an individual position. Do you move it as soon as possible? Then of course many positions don't have the chance to evolve and will die rather sooner...

Good evening, Wonko

Thank you for your enquiry.

I had to read it twice before I started typing my answer.

Wonko, you will have many positions die on you. Please dont let this upset you in anyway. In regards to moving stop loss, once again the market dictates whether to move stop loss asap or let it endure little more.

For example, one of the ways (and preferred ways) I enter the market is pennant breakouts. When I decide to enter on the breakout I expect the majority of other traders also entering with me. If there is no momentum when I enter I will move sl immediately. Not all pennant breakouts are same and experience will teach you the ones to watch and the ones to ignore. Price doesnt want to breakout but needs to breakout. It needs to.

There are also areas where price is either going to stall or burst through. Major support resistance lines and round numbers. I use double zero and ignore 50. With enough screentime you will be able to create your own personal edge around these areas.

Practice entries on all timeframe, every pair, everyday. It will show your inner traits. And one day you will just know when to move that sl to be.

Or not even use a stop loss at all.

I have no intention to misguide you so I will answer your next question truthfully.

Can you handle 20 or more losing streaks?

Your entire focus should be only on how you can participate into the market. Enter at every low risk entry given and manage your sl and let the market decide your fate. Your only job is to enter the market for your positions.

Then millipede will emerge.

Sincerely,

Graeme
I'm forming some analogies in my mind to what I perceive as your concepts. Do they make sense?

1) Diversification.
I misunderstood what you meant by this at first, thinking that you meant trading more currency pairs. Now that I've actually read all your posts, diversification seems more akin to "re-balancing" in a mutual fund portfolio. In mutual fund investing, you invest in a diverse set of funds, say 6. Some stock, some income, some bonds, some cash. You allocate capital to each investment based on beta, risk, etc. Every quarter you review the pie chart showing your allocations. Over time the pie slices shift around, some got larger, some smaller. So you re-balance the allocations if they've shifted too far away from the original allocations. The pie slices that grew the most are reduced in size by selling off some of the positions at a profit. The profit is used to buy more of the under-performing funds (assuming they still make sense).
In this sense it seems like your "groups" are kind of like the pie slices in a portfolio of mutual funds. You periodically review which groups are performing best and reduce their size. You're simultaneously adding to smaller groups (or starting new groups) with part of the proceeds.

2) Trend following systems.
Your long-term trading approach is a trend-following system. I recall reading in one of the bajillion trading books I own that trend-following systems typically have a 40% or less win rate. That means that 60%+ of your trades end in a small loss or breakeven. The 40%- trades that "make it" are the ones with the big return. The mental toughness to withstand 20 losses in a row is what pushes people to look for high probability systems with lower Reward:Risk. Trend followers look for very high Reward:Risk trades.
You are in a maze of twisty little passages, all alike.
Hi Graeme,

This is an awesome thread that you have going. I think it is a blessing for traders who cannot watch the charts all day long. Not a single chart shown yet; but I’m following it religiously. J
I have one question. Let’s say EURUSD weekly is in a dominant uptrend right now. On a particular day if you feel like a small correction with a downtrend on daily is likely, would you enter a short position on that particular day?
Thanks.
  • Post #80
  • Quote
  • Edited Jul 16, 2010 1:08am Jul 15, 2010 10:55am | Edited Jul 16, 2010 1:08am
Quoting Jigsaw
Wow, Great thread. I very much appreciate your efforts in detailing your trading strategy. I daresay this thread now contains some of the best content on here. Thankyou.


If I may ask a few questions on some of what you have already covered:



1) You talk of "legs": Can you explain how you personally define a "leg", I notice that you briefly mentioned them in terms of RR. If you do define them in terms of RR can you talk about the RR you are looking for and why you have picked that number.



[b]2) You also talk about the...
Good evening Jigaw

Thank you for your questions. They are very well thought after.

1. I do not have any pre-defined r:r as I find them as an excuse to close a leg for no apparent reason. My reward grows exponentially while my risk remains static. This is possible cause the risk has already been settled and accounted for through diversifications.

After completing few thousands entries, a hard stop loss becomes unnecessary. Hence I cannot claim a definite r:r. Multiple groups of larger positions all growing exponentially overrides any risk incurred when entering one single position but will be accounted for sooner or later in diversification. It now moves on its own and with all fairness I think I dont even have a r:r anymore. It could be my perception or the fact that stacks of positions growing larger by the minute on every main trend of every curreny pair is simply too powerful to even be dent, let alone few sloppy entries.

2. Im well aware of entering 2 positions and closing 1 position @ 1:1 at certain amount of pips and leaving the remaining position virtually free but with a slightly bigger space to breathe. This entry method is also pleasing on the equity curve as you will be able to take profit of the 1:1 position and the final big position when it finally closes. But do we really want to close out our large main group?

Im confident I can implement this into my entries as well but at the moment I dont see the necessity for such measure. I was extra careful not to mention this in my thread as this would have caused more damage than good to our new starters.

3. Fixed lot size and unfortunately I dont have a special reason for this. It was a suitable lot size for the capital i started with. If you are enquiring whether I adhered to the market myth of 1% of your capital rule I have to say no.

Thank you for the great questions.

Sincerely,

Graeme
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