Building an equity millipede

Dear Graeme,

Thank you very much for the article, indeed it brings home a few key points.

All in all I had a wonderful time probing EURUSD this week and learned quite a few things that I wasn't aware of or I wasn't focusing on previously.

I wish you a Merry Christmas surrounded by the loved ones,

Cam

P.S. I won't be taking trades today either, it's an X day

very good job.

one of the best threads in ff.

i´m reading this from the page 1. it´s very hard but the knowledge that i am earnig it's incredible.

thanks a lot.

Dear Greame!

How do you think, it`s possible to built dozen of profitable posiotions starting from now? Sometimes Iam wondering thats the best setups gone ... months and years ago ...
Merry Christams
Jacek

my first anticipation was down (because of the last months engulfing bar and the main trend) about the present month which is what happening for now ...
just wanted to share something very obvious and big which confluences with my hindsight on cable...
as most of you know its a bearish pennant and considered as a continuation pattern most of the time..
last month price made its third touch to the trend line and headed down with big momentum and an engulfing bar...
honestly i expect that thing to crush the lower trend line within 2-3 weeks..
but you never really know..until then i'll stick to my hindsight as Graeme suggested to do so..
playing obvious means moving with the crowd...
Good luck and happy new year to all..

I`ve been experimenting with stacking, and so far the result is that EURUSD seems to be the best pair for it. actually it`s the only pair that has consecutive 1hr up candles or down candles happening in a row consistently. we all know that this is crucial to successfully stacking, as consecutive up/down bars give the best chance for stacks to survive. other pairs do occasionally exhibit the same behavior, however they are much less consistent, and when it does happen, it lasts much shorter, which makes stacking attempt based on 1hr chart almost pointless and even dangerous.

this does not mean that we can not successfully stack other pairs. because if you look at the monthly chart, you can observe that all pairs boasts of consecutive up/down candles. however it does imply that with other pairs, it might be best for stacking attempt to happen only on higher timeframes, and much less frequently, maybe just once a copule of days, or even once a week.

my current approach is to stack only one leg per week for each currency pair. and I still got quite a large drawdown, though my floating profit does cover the losses already and there is still more to spare. this has been quite satisfactory to me as I was only looking at 10% monthly return when I began trading Graeme`s way. and honestly 10% monthly return seemed quite impossible to achieve at that time. I`ve been trading this for 3 weeks and I`ve already got 50% return on initial investment. so I have no complaint for the drawdown.

so my current trading plan is to pay special attention to EURUSD, and try to stack aggressively when opportunities arise. and for the rest of the pairs, I`ll continue my current approach of trying to add one leg per week.

I have a sneaking suspicion that you are over geared on your trades.

I once used to look for 'just' 10% a month. I hit upon a 50% return in October 2007. By December 2007 I had crashed and burned. I thought I had my trade sizes in check; that my gearing was adequate. I was wrong (all the gory details of how wrong were recorded on my blog at the time). Just don't want to see someone make the same mistake I did.

no pair trends well indefinitely. i once ran an EA for 2010 for EU. 60% but when run for other year, it's negative. adding e legs like u did will kill u. but then u can prove us wrong.

I`m currently trading with Oanda though I`m seriously considering moving elsewhere because I really don`t like their sudden widening of spreads. their maxmium leverage is 50:1. so I think I`m not over geared even though I did constantly have to move funds between my two accounts to avoid margin calls. this has caused me to miss quite a few profitable moves, but also a number of losing trades. this has made it difficult for me to draw a conclusion on my past performance for the last 3 weeks. I`ve funded my account with a bit more juice so as to get a fuller picture in my future trading.

I`m sorry to hear that your trading didn`t go well in 2007. may I ask what method you were trading, and what your gearing was? I really appreciate your warning me from your past experience. I still don`t fully understand the impact of trading the currencies Graeme`s way. I guess only time and practice and tell.

Hello yuan83, I agree with you that no pair trends well indefinitely. that`s why Graeme tells us to diversify, and to trade both directions by following the market. I think you haven`t read much of this thread, particularly Graeme`s posts. I`d suggest you do that first for your own benefit. I didn`t make a comment here until I have read all of Graeme`s posts as well as a few of the other contributing members, and also not before I`ve had a few weeks real trading practice with positive results.

Hi there,

How much you want to leverage up is a personal thing of course. I've seen many many traders be impatient to get rich and use lots of leverage that make HUGE % account gains in a very short time but always come back to blowout. On some other forums, there was a journaled race that was open to the public to participate and each participant had to post their account statement daily. Some guys made very quick several 100% gains, but everyone blewout. See the post of Graeme's above to do with the trade distributions.

Graeme recommends with a 5k account to trade 10k lot size, that is a 2:1 leverage. I personally choose 1:1. It comes down to your win %, the amount of pairs you trade concurrently, and your stacking approach. If you have a very high win % like you would if you were scalping, then 50:1 is probably OK but then you leave nothing left for adding to your winners or for trading other pairs simultaneously. I don't see how you could trade with Graeme's philosophy using 50:1 margin - you must be doing something else.

With kind regards,
MK

50:1 is still more than enough to do severe damage far faster than you would think possible.

When I blew up all my open positions had me at 20:1. I was basically short USD across multiple pairs and then there was a dollar rally (of just a couple hundred pips) and I was caught on the wrong side. The sword of Damocles was vicious when it dropped.

I was trading the BWILC (Bird Watching in Lion Country) method and had been doing it successfully for almost two years. I thought I knew what I was doing and doubled my leverage and started trading more than one pair, at the same time. Bad mistake. Instead of being happy with the 3-5% I was making per month I wanted 10+%. Greed got the better of me.

There are a lot of similarities between the millipede method and BWILC which is why I feel especially comfortable trading the millipede way. The way that hedging is used I see as the missing piece of the puzzle for my trading.

At the moment I am using only 0.5:1 gearing per trade. But once you have multiple legs on a single pair, that begins to add up nicely.

It has taken me three years to get back to feeling as comfortable trading as I did during my more successful BWILC days. Recovery, especially of the mental variety, takes a long time. After blowing up I went back to trying anything and everything, as if I was back to square one. In the end, I've ended up close to where I was with some sensible tweaks that make sense to me. Trading is nothing if not an interesting personal journey.

Hello MK, although I have 50:1 leverage, I did not utilise it for every trade. instead I risk only $1 for each position, so depends on market condition my position size has varied from 400 to 1600 to date. that makes my true leverage 4:1 to 10:1 for each trade, since I began trading Graeme`s way with only $150 or so left in my account. but I do trade 12 major pairs, and occasionally have as many as 8 open positions, that makes my combined leverage much higher than 10:1. but there are other factors such as synthetic hedge, or moving positions to BE, that also have an impact on the true leverage I utilise. this can get quite complicated so I had long ago stopped worrying about it altogether. http://cdn.forexfactory.com/images/icons/icon10.gif I think as long as I concentrate on getting on the right side of the market, everything else will take care of themselves.

best regards
iPG

Hi Horned,
What similarities do you find between Bwilc and what is taught here ?

all the fx pairs are retracing and my p/l is half what it was. I should have diversified when i was ahead.

Good evening, all

Hope everyone is enjoying their festive celebration.

There is certainly alot more activity today than compared to monday of last week.

Currently, there is great selling pressure with good momentum on eurusd, gbpusd. Weekly retrace has been established and its poised to go down.

http://img818.imageshack.us/img818/2443/68925156.jpg

Great distances are covered with great momentum. Please dont forget this mantra.

If this momentum is prolonged and continues straight forward until end of the week and also closing below the support of 1.3080 then we are at the area where price will not come back (near the open of weekly candle)

We will never know until we anticipate and participate.

eurusd daily

http://img577.imageshack.us/img577/7831/26019001.jpg

eurusd weekly

http://img213.imageshack.us/img213/589/48052160.jpg

Looks good on paper. And this is our trading goal for this week for eurusd. Now the market might not move to our anticipation but if it does it is our responsibility to make it into reality.

Apologies for not replying to any of the private messages as I am currently aborad on a vacation. Will answer them as soon as possible.

Sincerely,

Graeme

Dear Graeme,

Thank you for the time taken to write the message even though on vacation. It is certainly beneficial that we can check if our anticipation matches yours.

Enjoy the holiday,

Cam

The usual cycle of my trading habits can be generalised in this sequence:

1. During weekend, best pairs are pre-selected
2. 2 hours before asian open on monday morning, I double confirm the weekend pre-selection are still holding value
3. I place 1 probe straight away for the weeks/months that opens and charges straight forward. This is do or die scenario but brings in excellent reward on the occasion.
4. I watch the retrace of the movement that goes against my hindsight and wait till it starts to lose power.
5. I will probe
6. I will continue to stack until the power of the intended direction dies down/weakens

Best type of weeks are small retraces that are less than 33% or maximum 50%

As long as the week's candle does close as per my hindsight I will definitely have a position or few on the wick.

Sincerely,

Graeme

hello to all,


WOW, thats all i can say. i started beeing intersted in forex tho years ago, came to the conclusion very quick: i want to master this, period.

frustration was not to wait long for. the good thing was it didnt took to much time to realize that all that technical mumbo will never get me there. so i decided to become a fundamentalist. i started (on demo)a carrytrade and a homegrown hedge strategy that has some similarities to your method but missed the core functions to make it happen.

i lost interest to become a trader and just learned some macro economic stuff frome time to time. it took much longer to realize that fundamentals are a good background to understand market basic behavour but wont make you a succesfull trader.

so after weeks of reinforced interest to find a brandnew approach, i found this thread and it took only a few minutes to be 100% sure that this is what i want to master.


Graeme

at last this method is so much beauty, its like evolution and it reminds me at a film i saw last week about sea turtles.
this is how they do:
they burry 1000 eggs on the shore where they was born and only one out of them gets it to sexual maturity - after 25 years. most of them will be hunted by humans and birds.

the surviving turtles have the ability to age till 150 years or more. theoreticaly the have a chance to live forever, they can control their metabolism by will.

sadly the world is not perfect and there are humans who decimate them over proportion.

here are some basic beginner questions:

given someone like me is not able to follow the market for more then 1-2 hours in the morning, how would you use this time at the london opening? am i doomed to fail when i have one hour analizing the market and then one more hour to execute something? (certainly o want to train market entrys for the next months first)

do you care about fundamentals at all?

what are your thoughts about carry trades?



thanks so much

Hi Graeme,

I'm wondering how you decide what the best pairs are. Is it as simple as the pairs where you having multiple successes are the best pairs? If that is true, then you must have a list of pairs that you will be probing with so you can start the success string. If this is not the case, maybe you could elaborate a little please?

With new years good wishes,
MK

There are basically five parts to BWILC, so I'll cover each in turn.

1. One currency pair. In BWILC, Dirk (du Toit) has you start with just one currency pair. You stick to just one until you know it inside and out. When you can profitably trade one pair you are free to add more as you see fit. Each currency pair has its own personality and it makes sense to master one so you know what it takes to become equally comfortable and profitable with additional pairs. Graeme has basically said that traders should take the same approach with the millipede method.

2. One direction. With BWILC you try to identify the long term trend in your chosen currency and look to only take trades in that direction. With the millipede you have your hindsight, which is essentially the same thing: a preference for one direction which you think is the long term trend direction, which you then use to anticipate.

One key difference between the two methods involves how you deal with being wrong in your choice of long term trend. Using BWILC you don't set stop losses. Instead you manage trades in a way that leaves them open to withstand a lot of market gyrations to allow them to become profitable. If they go in the red you manage culling them generally when they are negative 200-300 pips, or you can enter hedge trades. BWILC hedging involves freezing a bad position in place, giving you more time to understand what is happening with the market and hopefully either working out that its worthwhile waiting for the market to come back or deciding to take a loss.

Millipede hedging is looking to get in at the start of a new trend direction. Here you are only looking to hedge positions that you have open that are profitable, which is a completely different mindset. I was never comfortable hedging losing trades when I traded BWILC (I preferred to just take the loss, although many BWILC traders are able to hedge negative trades very successfully). Hedging profitable trades because you never know what the market is going to do next makes a lot of sense to me and thus I've been able to incorporate into my trading vocabulary successful and very easily.

3. One lot. This means trading with low gearing. When I initially stared trading BWILC my position sizes ranged from 1:1 to 3:1. Using low leverage allows you to ride out market fluctuations so that you don't have to pinpoint with extreme accuracy the 'perfect' entry. I'm using 0.5:1 gearing right now, so have become even more conservative over time.

4. One percent. The BWILC method has you take frequent wins. You aim for small, medium and large wins (30, 50, 100+ pips). The small wins become your daily bread and butter. The medium profitable trades aim to grow your account and the large trades are mainly used to offset the, hopefully infrequent, large losses that you'll suffer.

The millipede method is radically different on this point, looking for infrequent very large wins, and lots and lots of small losses. If anything, the millipede method reminds me of Nassim Nicolas Taleb's way of trading when he ran a hedge fund.

5. Relational analysis. The last BWILC cornerstone is Dirk du Toit's forte: applying fundamental analysis and market timing to know when and how forcefully to trade. There was a great link earlier in this thread that provides a great description about what trading is all about: ambiguity and being able to read the market. This is so important. It alerts you to potential turning points in the market, which allows you to start placing more counter trend (counter hindsight) trades in case the tide really is turning.

BWILC was an important leg of my trading journey, and probably the one that I learnt the most from (about trading in general, the forex world and myself), but it didn't suit me fully in the end. Three years later and following the millipede method I'm still basically following four of the five BWILC points. I'd still recommend checking out BWILC if you haven't done so before.