Building an equity millipede

Good weekend to all

Apologies to address everyone in one single post

stimulus - Yes, that would work as well. Everything works cause its all relative. The reason why various applications work is because the risk is minimized to a static small loss while the profit is maximized to the very end of the opportunity. Static loss versus infinity growth?

dsan - Yes, all correct. Traders needs the risk tolerance required to take small losses to achieve bigger goals. Following the flow of the market to create profit and maximizing their profit by stacking positions. All correct.

fugly - Yes. I will come to this topic today in detailed post. Thank you

mjotic - Yes, I will also come to this topic today. Thank you

Midknight - Yes, I will also address something for your benefit today. Thank you

Swingman - Thank you for your critical contribution. Greatly appreciated.


Today, I wish to spend few hours to address some of the common questions that are always asked. There is no such thing as wrong questions and I understand why similar questions are asked.

I understand that this thread is now very long and unfortunately it jumps around from topic to topic without any constructed flow. Even though the puzzle pieces are all over the place there is enough blueprint here for any avid new learners to piece the information together.

I hope that the next 10 or more posts that I do here will be the strings that attach those puzzle pieces together.

Sincerely,

Graeme

Why is stacking important? How does it benefit a trader in the long run?

Market is never always a perfect opportunity. Most times, the market will make you lose. It is the traders ability to minimize these losing periods. There are many ways to minimize losses but the main purpose of minimizing losses is that you are conserving your capital for the next better opportunity.

The best way to minimize a drawdown is being upskilled in your entries. Knowing when to enter and how to enter. Growth/profit starts from your participation however there are bad ways to enter and good ways to enter.

Never overexpose. There are many traders trying to hard on one single day. I rarely do more than 1 re-attempt after a failed entry. Anything more is overexposure. Sometimes I have streaks of successful entries. I simply continue adding more positions until I encounter first loss and then I move away from the pair of currency.

All the above has been said few times already in this thread so I wont continue anymore.

Market is neutral and universal.

If you set a pre-defined entry and exit like:

Enter after pin bar, 40 stop loss + 160 take win. (or anything similar)

Will you agree with me that your equity curve is more or less look like below?

http://img816.imageshack.us/img816/4192/aa1l.png

The time represented in the above chart could be over a span of few weeks or months. Even though the curve is slowing arching away from the $0 but we all know how painfully slow it takes for the trade balance to grow. Would you agree?

There are few traders who believe that they could raise their lot size to compensate a good return but assure all traders that is very dangerous.

You should never raise your lot size to make your profits look bigger.

You should raise your lot size when you know you can make your profits bigger.

This is the ideal equity curve for the same period.

http://img6.imageshack.us/img6/258/aa1h.png

Ofcourse we all prefer the above equity curve. Lets analysis the above equity curve. Technical analysis work everywhere in life. Not just forex markets.

http://img844.imageshack.us/img844/5396/aa1v.png

The dips are much shallower and the sharp injection of profit is almost a volatile breakout. How can we achieve this?

Continue on next post..

It is by stacking positions into a given golden opportunity.

Last 2 weeks of eur/usd has been fantastic. A rare opportuntiy that should have been caught by many. There are plenty more coming so please do not worry if you missed it (infact I missed most of last week).

Why did I focus on last 2 weeks on eur/usd? It was golden buddha on the weekly chart.

Nobody mentioned this so Im assuming that most traders are not looking at weekly chart. I spend more time on weekly, daily chart then the smaller ones. Weekly/monthly charts are your total battlefield. Smaller charts are precise locations to deploy your soldiers.

http://img824.imageshack.us/img824/5306/aa1d.png

Now if price moved 550+ pips for you and a trader captures 190+ and basks in the glory unfortunately they are on the losing team in the long run.

How many 550+ for 2 weeks movement do we experience in eur/usd? Not often...

A trader enters with 20 pip stop loss and 180 take win. He is thrilled that he got it cause its 1:9. Shame, thats not what risk:reward is there for.

I assure you, if this same trader does the same thing everyday, everyweek, he will notice one very important fact.

1:9 is very hard to achieve.

Lets stop here and analysis 1:9.

Market is neutral and universal. It would be safe to 'assume' that a trade with 1:9 has approximately 10% chance to achieve its final reward. All numbers are related and correlated with universal happenings and items. However in the markets, numbers (expectations in %) are slightly bent out of reality. If you have 1:9 trades you will find after few months of trades that your successful positions are not 10% of all your trades taken. This is because of the random fluctuation of the market.

Thats why alot of traders say trading is a zero sums game and it is very true.

However, you can play this dirty game against the market itself. If market is going to play tricks on you then you can use the very same principal against the market.

When market wants to take your money. Let him. Let him take 1 lot.

But when market needs to payout, make sure you always take more than he took from you.

Its a give and take game but when he takes you only give 1. When you take you take infinity. Thats when your making money from the markets.

Range is when market is taking money off traders.
Trend is when market is paying out.

1. Your entries must be tight
2. Never overexpose
3. Always be willing to give some to the market

2 traders looking for the flying buddha pin bar. Trader A has fixed stop loss and take profit. Trader B looks at stacking and keeping his losses minimum.

Trader A & B both suffered -100 pips over the last week.

Finally a good flying buddhas comes along.

http://img819.imageshack.us/img819/3140/aa1y.png

Trader A takes 150 pips and is very happy that he has covered -100 pips of last week and made net profit of 50 pips. He moves onto next opportunity.

Trader B adds 2 more positions after the initial and his average pip per position is 100, total 300. Trader B closes 3 positions and banks net 200. 4 times more than trader A.

The risk? It was the same for both traders.

Trader A risking with stop loss for 1 position.

Trader B risking positions @ breakevens and 1 position with stop loss.

Same risk for 2 different rewards.

So what happened last week?

Two weeks ago we noticed the flying buddha on eur/usd weekly chart. He noticed it first and text me.

Joe made a whole bundle for the last 2 weeks +1000 pips at least. All his positions closed.

Myself?

Last 2 weeks on eur/usd

I have 112 pips of total loss and 5 positions still open.

Average pip per position: 200 pips
Current unrealized: 1000+ pips
Total realized loss: 112 pips
Total realized profit: 0

Joe is winning for now but if the current downtrend continues for few more hundred pips I would double his golden opportunity by doing nothing.

I will gladly pay 112 pips everyday, everyweek for something similar.

Sincerely,

Graeme

Graeme what entry methods do you use?

I use the very same entry methods that I use on lower timeframe in the higher timeframe.

Alot of pros recommend traders to use highter timeframe first and then move onto lower timeframe.

I recommend the opposite.

I believe that all traders have alot of unnecessary fear. To overcome this fear I believe all starting traders need to experience some pain purposefully. Pain on the shorter timeframe equates to smaller losses. Pain on the higher timeframe is big drawdowns.

1. Low risk setups; flying buddhas, inside bars, pennants.

http://img443.imageshack.us/img443/7607/aa1e.png

http://img707.imageshack.us/img707/258/aa1h.png

http://img576.imageshack.us/img576/1506/aa1s.png

2. Price action; wick interpretation, price pattern

http://img409.imageshack.us/img409/1378/aa1z.png

http://img718.imageshack.us/img718/3340/aa1f.png

http://img715.imageshack.us/img715/7397/aa1r.png


http://img265.imageshack.us/img265/3397/aa1c.png

Price pattern at .00, outer limits of bollinger band, 50% fib of major weekly/daily trend

For Short

http://img841.imageshack.us/img841/8601/aa1u.png

For Long

http://img52.imageshack.us/img52/9836/aa1w.png

3. I look for volatility breakouts all the time.

a. Open price of the day
b. .00 and .50
c. Continuation breakout

Open price volatility breakout

http://img693.imageshack.us/img693/5396/aa1v.png

.00 breakout

http://img580.imageshack.us/img580/1876/aa1b.png

Continuation breakout

http://img178.imageshack.us/img178/7070/aa1.png

Best advice I can give the starting trader is to experience a few dozen small losses on shorter timeframe and once you taste the success you will know that small losses/drawdowns are inevitable and necessary for the bigger cause. Once you can really get your emotion under control then you would move to higher timeframe with bigger losses and drawdowns but doesnt effect you mentally.

Sincerely,

Graeme

Today I would like to show you another way to manage your positions on the lower timeframe.

I have used this method for some time and works well.

It helps with emotional control + managing stacks of positions + allows to keep larger leg for bigger growth

Does your positions on lower timeframe die when it could have been a golden win?

Does this look familiar?

http://img688.imageshack.us/img688/8601/aa1u.png

Another common scenario. Agree?

http://img829.imageshack.us/img829/9836/aa1w.png

Good morning/evening Graeme,

Just wanted to say the last couple of posts do reflect what happens to me a lot. I am glad you are touching on the subject now and as ever have my full attention. I re-read the whole thread for the 3rd time over the weekend and it's just getting clearer and clearer each time. Many thanks again for your time and effort.
Please don't reply to this post as I don't wish to disrupt your flow right now.

Bak

Watch carefully please.

Did you know stop losses can also be a benefit?

http://img688.imageshack.us/img688/4514/aa1a.png

So you banked +24 pips from position B. This is where I use this 24 pips to my advantage and add it into position A as the stop loss. If the stop loss is hit then 1 position is lost for 2 positions. If price doesnt hit the stop loss you have captured position B for 24 pips + gave position A the chance to run homerun. Can you see this??

http://img844.imageshack.us/img844/9836/aa1w.png

And this method is bendable to anyway you like.

You can focus on your initial position and once price is far away you can start it again and again. It is repeatable. Risk:Reward is always on your side as you are risking 1 position for the profit of 2 positions. The more you add into it, you still only risk 1 position but now profiting from more than 2 positions.

Another common scenario. Agree?

http://img822.imageshack.us/img822/2117/aa1p.png

http://img44.imageshack.us/img44/4259/aa1g.png

You would be amazed how a small 10 pip help from your subsequent position could have helped. Not all the times but enough times.

The risk:reward is always in your favour and you are capturing all the small positions if the focus position survives. Even if the focused position dies you will lose nothing or 1 position.

Hope this position management helps.

http://img682.imageshack.us/img682/4139/aa1zd.png

Graeme, you are a genius, no more pre-defined TP for me that's for sure. And your stop-loss teachings put things in a new perspective.

I hope I'm correct in saying that the breakeven concept is fluid, as in: it can be achieved by moving the stop loss at the buy point to break even, or by offsetting a potential loss with profits (such as in your example when you moved the SL further at the back to allow for more market movement).

A question if I may: entry for position A and position B, would it be alright if they would be open at the same time ? There were a few examples of two position open at the same time on earlier posts from this thread.

Thank you,

Cam

Thanks Graeme for showing another approach to position management. One of the approaches I use, when trading the 5 mins TF, is taking off 50% of my initial position when I reach +20 and then leaving the remaining 50% at -20 sl, which gives that position more breathing space but also a breakeven trade should price reverse on it. The flipside to it is that my position has been"diluted" so any runs captured would also be 50% less. I like the approach you just showed as it adds on to the value of the focus position if it survives. The risk to reward is more favourable
Many thanks.

Bak

My pleasure, Bak

You will find the above position management will help your emotional control as well.

Good evening all

Sincerely,

Graeme

I can't help but notice there are usually a few "invisible" members watching this thread. Come on guys/gals, show yourselves and give acknowledgement to what Graeme is showing us here. Don't be shy now.

Bak

You are right!

[quote=pipEASY;3966500]You would be amazed how a small 10 pip help from your subsequent position could have helped. Not all the times but enough times.

The risk:reward is always in your favour and you are capturing all the small positions if the focus position survives. Even if the focused position dies you will lose nothing or 1 position.

Hope this position management helps.
/quote]

Hi Graeme,
Thanks for this latest group of posts; it will halp me no end.
Since going live a few years back - I could not achieve my prior results - the reason - I was too cautious and had started introducing stops and TP's; this last weeks trading has made me realise that what I first did was not dissimilar to your method, but lacked all the discipline and incisiveness that you have brought to my attention.
In 3 days of trading the FB's I was up 1800 pips on 10 ccy pairs - Friday NY open, but at a loss has to how to preserve this as the prices pulled back. Also 2500 on practice account.
The positions grrrgh..adually got knocked out at BE.
These latest posts show what I should have done.
Still 400 pips up at Close so no complaints.

Many Thanks

Ray