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Building an equity millipede

  • #861
  • Edited 10:36pm Aug 14, 2010 7:35pm | Edited 10:36pm
Quoting geoffrod
Hi Graeme, yet again you give us diamonds in your words.
i find this very interesting and wonder, if we where only to look and find the flying buddahs, but hold off on acting on them, until we are more certain it was a successful flying buddah, and enter and add to the position as you would normally???, the premise is we are still looking for the possible entry in the same way, but are not just blindly entering because of it???, and we are adding to the position with the momentum of the trend???

anyway just something that came to mind when i was...
Good morning, Geoff

Correct.

All readers please read Geoff's post as there is an important related discovery.

Most flying buddahs are strong indication of trend change but if you want to sincerely lower your drawdown/risk, you can 'add' a personal touch to flying buddahs and filter it. Accuracy may improve but you may also slightly lower your profit. Its all relative.

An amateur trader will look at flying buddahs and sigh at the low win rate but I assure you most sensible systems in this forum is less than 50% win rate.

Inside bar has a similar win rate however they offset the lower win rate by urging traders to enter 2 positions at entry and aim for 1:3 on one position and higher r:r on the second (apologies if the numbers are slightly off as I havent been on their thread for a very long time). Can you see what they are doing? Maximizing profit taking in one given golden opportunity by increasing exposure which in this case is using more than one position.

It is how we manage the trade to maximize our profit takings on a given opportunity that divides the amateurs from pros.

The easiest and most well known method in maximizing our profit is using higher r:r than 1:1. With a 50% win rate and 1:2 r:r you would be very rich sooner or later as the odds are on your favour. However, whether the 50% win rate is a true hard percentage or not is questionable in most cases.

Traders get confused when pros advise them to be mechanical in trading. In a sense the pros are referring to be mechanical in the 'approach' but not the trading. However, traders believe mechanical is when 'something' happens that they are waiting for which triggers their entry or exit. That is not mechanical but pre-defining your action and we all know how I feel about that.

Sincerely,

Graeme
  • #862
  • Aug 14, 2010 7:47pm Aug 14, 2010 7:47pm
Quoting Bakuli
Dear Graeme,

Thanks for your latest posts on entry methods. They are very much appreciated.
With regards to the early stacking of positions after a volatility breakout, am I right to assume that you stack by trading the breakouts of these mini SR in the 5 mins or do you do it differently?

Many thanks.
Bak
Good morning, Bak

Good question. When I notice a volatile breakout it looks very similar to the chart I have posted. It will be more or less a straight express way down or up.

You are correct, I use mini s/r in my focal interpretation which can involve just 2 candles or few. Please try avoid overexposure.

A general rule I adhere to is that, Im aiming to stack just 2 more positions after the first entry on breakout. This is just a psychological reassurance that I am not in a rush.

Usually when I do zoom in, Im playing russian roulette. I continue to stack until I encounter my first loss and then I smile at the result and stop. Sometimes this could be just 3 more after the first position or it could be 17 more after the first position. It whets my appetite just enough for my personal risk taking.

Sincerely,

Graeme
  • #863
  • Aug 14, 2010 7:55pm Aug 14, 2010 7:55pm
Quoting pipEASY
Good morning, Bak

Good question. When I notice a volatile breakout it looks very similar to the chart I have posted. It will be more or less a straight express way down.

You are correct, I use mini s/r in my focal interpretation which can involve just 2 candles or few. Please try avoid overexposure.

A general rule I adhere to is that, Im aiming to stack just 2 more positions after the first entry on breakout. This is just a psychological reassurance that I am not in a rush.

Usually when I do zoom in, Im playing russian roulette....
Thank you Graeme for your very prompt reply. Much appreciated.

Bak
  • #864
  • Aug 14, 2010 8:12pm Aug 14, 2010 8:12pm
First of all, thanks to Graeme for such a quality thread. I very rarely read forex forums anymore as the signal to noise ratio is so incredibly low. I'm glad I ran across this thread on one of my infrequent visits to FF.

Graeme, I know that you keep each entry at 2 standard lots and have done so since you first starting trading this way. I'm guessing that you had a large enough starting equity balance that you have no need to change your entry size.

I'm sure the same is not going to be true of many people attempting to follow this methodology. Say a trader starts off with 5k and uses a 0.1 lot size to start with. If everything pans out and they make money they will eventually want to increase their lot size.

I can two potential ways to accomplish this. I'm wondering if one is significantly than the other, or if there are even other approaches that might be used.

My first potential approach is:

Trader plays the full range of currency pairs available to them, picking the best trending pairs at any given time. Let's say that after two years the trader has doubled their balance through diversifications while there are numerous positions still open equivalent to another 5k. The trader closes out everything and is left with a balance of 15k. With this they start all over again, this time using a lot size of 0.3.

Basically, every couple of years they close out all open positions so that they can start from scratch with a larger lot size. The obvious disadvantage here is that the trader is cutting short the infinite potential of those remaining positions. The main advantage of this approach over the next one is that the trader is free to trade any currency pairs they wish.

My second approach has the trader starting off with 0.1 lot positions on a limited number of currency pairs. As they start off they are able to scan and place positions on those currency pairs that they see trending the best. Once they have positions in say four pairs they will restrict themselves to only looking for further trading entries in those four pairs. Let's say a year has passed and the trader has been able to close out enough trades via diversifying to have doubled their balance. They start to look for trades in few more currency pairs, this time using a lot size of 0.2. After having placed entries in four more currency pairs they stop looking at additional pairs. If new trading opportunities are seen in their original four currency pairs they still use the original 0.1 lot size. If they make it to having an account balance of 15k, they will look to add another four currency pairs to their roster, this time using 0.3 lot sizes in the new four pairs. They continue to only open positions with the lot size that was used when they first placed a trade in that currency pair.

The infinite potential of trades in the pairs is keep at the expense of having to manage different lot sizes in different currency pairs.

Is one approach vastly superior to the other? Or is there a different approach that could be used?
  • #865
  • Aug 14, 2010 8:36pm Aug 14, 2010 8:36pm
Quoting HornedGod
First of all, thanks to Graeme for such a quality thread. I very rarely read forex forums anymore as the signal to noise ratio is so incredibly low. I'm glad I ran across this thread on one of my infrequent visits to FF.

Graeme, I know that you keep each entry at 2 standard lots and have done so since you first starting trading this way. I'm guessing that you had a large enough starting equity balance that you have no need to change your entry size.

I'm sure the same is not going to be true of many people attempting to follow this methodology....

Good morning, hornedgod

Great question.

I would encourage doing both.

If you start off 5000USD with 0.1 lot size, that is reasonable. However I do hope all traders who are serious and have the mentality to take it seriously to continue adding funds into your capital trade 'when necessary.' Not because of the realized losses but because of the margin required. 0.1 lot size requires approximately $120 usd per margin.

I wouldnt advise closing off all positions suddenly at the end of 0.1 lot size millipede as this would inject a very sharp increase in your trade balance but we are professional traders who know the importance of diversifying not just positions but risk and reward as well on an even keel.

My advice is when you have reached 1000 pips per week of unrealizard growth/profit when calculated over the last 4 months to consider 0.2 millipede. It depends on each traders skill and risk tolerance however I can sensibly say it is achievable within 1-2 years. Once you have reached that stage you have tasted success and it will get so much clearer and easier. To phase into 0.2 millipede, start building 0.2 lot size positions but when time comes to diversify start closing off more than usual amounts of 0.1 legs. Soon you will have completely phased out in a smooth transition. Just like shedding skin for new skin.

Once you reach 2000+ pips per week of unrealized growth/profit slowly phase into 0.4 millipede with the same method.

The hardest is the first year, 2nd year will just astonish you. After 2nd year its all relative.

Can you hold out?

Sincerely,

Graeme
  • #866
  • Edited 10:57pm Aug 14, 2010 10:32pm | Edited 10:57pm
Long time FF reader but first time poster. I found this thread so excellent it compelled me to post - my sincere thanks to Graeme and the forum participants for keeping it so civil.

Attached is my exercise 2 point of view....

At the end of this chart, I'd have the following still open:
- The first 2 shorts would still be alive
- 1 short from the second decent correction in the middle of the chart
- The last long would also still be open

With kind regards,
MK
Attached Image (click to enlarge)
Click to Enlarge Name: MK02 _15_Aug_2010.png Size: 174 KB
  • #867
  • Aug 15, 2010 12:14am Aug 15, 2010 12:14am
Hi Graeme,
Your flying Buddha post is great, it confirms to me that in this game you must accept that everything you do is a gamble of sorts. The key is to minimise your losses and let your profits run. For some reason the human brain seems conditioned to do the exact opposite. We seem to want to grab any profit we see while at the same instance we let our losses run in the hope they will reverse.

Just one question about Joe's method if I may. You say that Joe closes half his positions after a bullish candle closes above the last bearish candle. Can you clarify what he does after this. For example if the following candle is bullish does he close out the remainder of his trade or just 50% of what remains? If this is the case does he keep scaling back by 50% until his initial trade is stopped out?

I hope this question makes sense.

Kind Regards,
Ben
  • #868
  • Aug 15, 2010 2:50am Aug 15, 2010 2:50am
"Maybe I am hitting some sort of psychological barrier. Can someone give some actual examples of multiple entries they took last week? I guess I am still searching for that one thing and it would be nice if it was something that occurs several times a day each and every day".

Hi Pipdaddy,
Last week I was entering after pin bars at .00 levels. I was looking for pin bars on 4hr then zooming in to 5 min chart to try and get on the wick of the next candle. I was using 2 lots, 1 lot I closed at the next .00 the other lot I left for the market to decide. My stop would be typically 15 - 20 pips. Its not perfect but there was plenty of trades and I was around 250 pips up with realised profit and around 150 in unrealised profit(legs). I am doing it more for the practice on the 5 min chart than anything else. On Thursday I had 10 pin bars all at the same time at 7.00pm Sydney time! I have not started stacking positions yet but the recent posts about 50% retrace have given me some good ideas. I also like the look of the flying Buddha, my filter would be only to trade if the Buddha candle was in line with the direction you wanted to go ie if you want to go short only trade red flying Buddha.
Hope this helps
Good Luck,
Ben
  • #869
  • Aug 15, 2010 2:57am Aug 15, 2010 2:57am
Sorry to address multiple recipients in a single post.

midknight - thank you for your compliments. It is greatly appreciated. I had a long look at your chart. Nice spacing and well done with covering both buy and sell. Please do not forget that you much advance your skill by one more level from here. You can advance by adding your personal touch whether it is adding position whilst the trade is playing out to your advantage or some type of increase in exposure. Your loss should be forecastable and static while your growth/profit should always be maximized till the opportuntiy dies away.

leggo - Excellent. Your absolutely correct and Im glad someone has came out with it the same way you did. Alot of traders have the wrong mind frame. Its mainly due to not knowing what to expect from the market completely.

http://img535.imageshack.us/img535/7397/aa1r.png

This is a gbp/usd 4hr chart. I have circled the positions that are added and x is a loss as the price retraced further than the previous candle high.

When Joe knows that the initial open position is working well, he will stack positions in 1hr, 15minutes as well with similar approach. When a golden opportunity buddha is happening he will stack very aggressively. He always ensures that the new addition has its SL always moved to BE before adding the next. He is quick to retreat when he notices price close above previous down candle open price or below the previous up candle open price. And once he believes the trend resumes he will start stacking again.

Joe scales out by almost halfing the number of positions. If he has 11 positions before the first reversal candle he will close 5 position leaving 6. If the trend resumes then he will continue stacking however if the next candle is also a reversal candle on the wrong side, he will further close 2 position leaving 3. But if it picks up then he will continue stacking from 3 positions.

He finds this very exciting and once told me that he reached 40+ positions before the first reversal candle and then continued to stack 30+ more positions before the next reversal candle. He believes that he banked enough pips for the next 100 rows of unlucky flying buddhas. What that means is, any loss accumulated from the next 100 rows of unlucky flying buddhas are already accounted and settled. A different mentality to most traders.

Sincerely,

Graeme
  • #870
  • Aug 15, 2010 8:57am Aug 15, 2010 8:57am
Quoting pipEASY
Joe only takes sells and looks for flying buddhas when 5ema is above 10ema. He is a swing trader.

If you scan the charts you will notice flying buddhas quiet often. Please note that the success rate of the initial open position of flying buddhas are only marginally better than 40%.
What/how would Joe (or anyone using flying buddhas for entries) do with a long, sustained up trend (see EURUSD H4 chart 6/2010 - 8/2010) ?

There are quite a few losses in there. Are the retraces enough to make up for the losses? Obviously, this uptrend was preceded by a 8-month down trend where the flying buddhas would have been extremely successful.
Attached Image (click to enlarge)
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  • #871
  • Aug 15, 2010 1:58pm Aug 15, 2010 1:58pm
Good morning, zznbrm

Losses are always 1 position

while..

Winners are always maximized with stacks of positions

Even if there was 10 months of uptrend and 1 months of downtrend Joe always makes money.

Besides he trades multiple pairs of currency spreading his risk potentially 'thinner' and increasing his potential profit 'opportunities' wider.

Cant see clearly but I see few successful flying buddhas on your chart.

Joe would make sure he stretches out his opportunties.

Sincerely,

Graeme

http://img823.imageshack.us/img823/9844/aa1q.png
  • #872
  • Aug 15, 2010 4:03pm Aug 15, 2010 4:03pm
ZZ, this is very interesting. I actually wanted to ask same question use eurusd 2006 chart, that is also straight-up, difficult to trade flying buddha on short side.

then i decided to skip the question, i think that if i were to trade Flying budda, i'll try to determine general trend first, nothing complicated, daily, weekly obvious direction, that's it. I cannot imagine Joe during eurusd bullish years kept shorting it. But this is not a solution.

I think that the solution is that we trade two opposite(sort of) pairs. for example, you can still always short eurusd, if you worry about this kind of trend days, you also always short usdchf. i guess this can solve this "must sell" discipline. (however, i think that it is not necessary discipline of our own trading...)

anyway,
for Master Graeme!
many thanks again ! I never thought that (after 40 pages) he has choosed to stay with us and will further offer his wisdom to us on the thread. I now enjoy every minute reading his posts. that every minute is like a reward to me, and I know how lucky I am.

Quoting zznbrm
What/how would Joe (or anyone using flying buddhas for entries) do with a long, sustained up trend (see EURUSD H4 chart 6/2010 - 8/2010) ?

There are quite a few losses in there. Are the retraces enough to make up for the losses? Obviously, this uptrend was preceded by a 8-month down trend where the flying buddhas would have been extremely successful.
  • #873
  • Aug 15, 2010 7:16pm Aug 15, 2010 7:16pm
Morning Graeme,
You mention that there is sometimes volatility on yen crosses. This appears to be happening this morning. When it happens do you try and build positions on multiple currencies or do you concentrate your efforts on one? I am finding it hard to concentrate on more than one 5 min chart at a time especially when trying to add positions on every mini s&r.
Thanks and Regards,
Ben
  • #874
  • Aug 15, 2010 7:18pm Aug 15, 2010 7:18pm
to be honest i think the reason joe would just trade one side is because his broker don't allow hedging... like oanda... u have to open a sub account and mess with it and that just gets too complicated... might as well focus on one side and don't deal with all the mess.
  • #875
  • Aug 15, 2010 7:30pm Aug 15, 2010 7:30pm
Quoting leggo
Morning Graeme,
You mention that there is sometimes volatility on yen crosses. This appears to be happening this morning. When it happens do you try and build positions on multiple currencies or do you concentrate your efforts on one? I am finding it hard to concentrate on more than one 5 min chart at a time especially when trying to add positions on every mini s&r.
Thanks and Regards,
Ben
Good morning, Ben

Im currently trading so I keep this short. Very large volatility at the moment.

Currently I have 5 sell positions on eur/usd (big retrace on 5min just now)

3 Buy positions on gbp/aud

Yes, it is hard to concentrate on more than 1 5min chart but it gets easier and more frantic.

When your ability grow you will phase into higher timeframe with same entry methods.

Good luck trading to all this morning

Sincerely,

Graeme
  • #876
  • Aug 15, 2010 7:33pm Aug 15, 2010 7:33pm
Sorry need to keep this short

Traders must know when to trade and this morning (asian session) is perfect

4hr/1hr support broken on eur/usd with momentum

This is prime time.

Sincerely,

Graeme
  • #877
  • Aug 15, 2010 7:36pm Aug 15, 2010 7:36pm
eur/usd 1.27335 is support at the moment. Price is stalling. Can everyone see?

7 sell positions, 4 moved to BE. If price reverses I will move all positions to BE and move on.

Retrace/change on eur/usd 5min is starting right now.

Get ready to defend all
  • #878
  • Aug 15, 2010 7:38pm Aug 15, 2010 7:38pm
gbp/aud 1.75185 is resistance on 5min.

4 buy positions, all moved to BE.

Momentum died.
  • #879
  • Aug 15, 2010 7:41pm Aug 15, 2010 7:41pm
eur/usd 1.27335 breaking.

6 sell positions moved to BE, 7 in total

Added one more on break.

I will keep adding until this momentum dies or I suffer one loss.

Im moving away from gbp/aud, I will let the market decide the fate of the 4 legs.
  • #880
  • Aug 15, 2010 7:43pm Aug 15, 2010 7:43pm
1.27335 leg (8th) is fighting. Where are other traders??

No piggyback.
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