GBP/USD - one trade a day

Nice to be able to do this. Good idea to add some thought to this. Since I'm sleeping during this time, I can't take advantage of this extra edge that you gave yourself, but it's a great lesson on how to start with the general idea and make it work for you.

Many thanks for such a quick and comprehensive reply, you have made things much clearer now.
Geoff

I was expecting the exact opposite - I thought I probably lost at least half of anyone that was still following

Another alternative if you are uncomfortable with the r:r if you are approaching your monthly target... If you are within 2.5% of the monhtly target, just set your TP for these trades at 2.5% to give yourself a minimum of 1:1 r:r. The upside, if you hit TP, you end the month with more than 10% profit. The downside, if the trade goes past the 1% that you NEEDED but not quite to the 2.5% that you WANTED and then reverses and closes for a loss, not only do you not hit your overall 10% target, but now you have to trade another day to get to your target. For me, it's all about hitting the target, quitting while I'm ahead, and preserving my capital to keep my business going in to next month.

There are a lot of variables to consider, but in the end, you need to be comfortable with how you decide to handle this type of situation, and most of all, stick to it, however you decide to address it.

cgrey, it might help some people if we have a excel that does all the math. we can hide all the complexity (its not that much actually) and let user enter entry price, monthly starting balance, risk percentage per trade, monthly target as varaibles.

anyway we have already met the 10% target for this month even before this thread is started, so if we are seeing any losses now its actaully not part of the system. we are doing it for practice.

we will start actual trading from feb 1


meanwhile, i tried back testing other pairs with different numbers that it didnt work. only GU worked, remaining pairs are inconsistent. i havent found a winning year. i tried changing starting hour, trading hour, risk, tp %...

in any case if we are doing 2 pairs in same account, then the overall risk goes up , so not a good idea. in this system strict descipline is important. we should be able to withstand the max dd

I think the simplest thing anyone can do if they're not fully understanding the math, is to follow my advice in my previous post about having an 80-pip target for the month. This way, they can easily adjust risk to their taste... I think the 20 pip SL is important to leave intact. So, if someone would prefer to take a more conservative approach, simply figure out how much they want to risk per trade (%), and multiply that by 4 to get their monthly target. So, if I were more comfortable risking 1% per trade instead of 2.5%, my monthly target would end up being 4% instead of 10. Everything else remains the same - 20 pip SL per trade, 80 pips "target" per month, subtracting the amount of pips won each day (or adding the amount of pips lost) to 80 to get the next day's overall target.

Yes, I am planning to start a "journal" thread late next week to begin February's trades in, so I can record my trades there and leave this thread free for any additional discussion about the "system" or money management.

The nice thing is, this is a very uncomplicated system. There isn't much to discuss. There are no indicators to interpret, no template to tweak. I encourage people to play around with it as I've said earlier, but I wouldn't start getting in to adding indicators, filters or anything else.. I'll be sticking around here to answer questions, but I would imagine the thread will be winding down much sooner than some others that seem to go on forever with new modifications and interpretations.

Just thinking outloud here, but wouldn't risking 20 pips per day, five days a week, to make 80 pips, end up being a risk to reward of 400 to 80, which is about 4:1?

I wouldn't expect this to work on any other pairs... But, I can tell you for sure that there are similar "patterns" that can be exploited on other pairs at other times of day. I said earlier, I trade manually. I trade high time frames (daily) and am incredibly patient - I only take a few very high r:r trades per month, and am in them for days or even weeks. So I spend a lot of time waiting. Therefore, I have a bunch of time to find these little distractions. EUR/USD, EUR/JPY and USD/JPY also have repeatable patterns that can be exploited in a similar way. I wouldn't be surprised if others do that I just haven't discovered yet. I've been live trading a similar indicator-free, very mechanical system on E/J for a couple of years now, and consistently profiting 3-4% per month from it. So what I'm trying to say is, study charts long enough, and you'll start seeing things. Often, all it takes is good (or CREATIVE) money management to exploit something that occurs fairly regularly.

Can you share your E/J mechanical system, or tell us where to read about it?

While it seems that way at first, no. If I risk 20 today to get 80 and break even, when tomorrow comes, I'm not risking 20 for 0, I'm risking 20 for 80 again. If I lost 20 today, tomorrow I'm risking 20 for 100. So, even though I have a single 80-pip target for the month, there is still a target left (the reward side) every single day. Just as you'd add the risk every day to get the total risk calculated over 20 days, you'd also add the reward every day to get the total reward over 20-days. Yes, it will end up at less than 1:4 (depending on how many days it took to reach the 80-pip total target), or more than 1:4 if you happen to end the month at a loss.

So far this month, I've made 8-trades, at 20-pips risk each. 20x8=160 total risk. My "targets" have been 80, 83, 76, 93, 97, 117, 110, 74. Add them up to get 730. So, for the month-to-date= 160:730, or 1:4.5625.

Also consider that way more often than not, the trade closes in an hour hitting neither SL or TP. Getting a true r:r calculation when you expect going in that neither your TP or SL is likely to be hit is all but impossible. Unlike "normal" trades, we're not expecting ours to close every single time at SL or TP, we are pretty sure it is going to close somewhere in between.

This approach of having a single monthly target and being finished when you hit it requires a different way of thinking. And it's definitely not for everyone. Generally speaking, traders are accustomed to trading 5 days a week, four weeks a month, possibly placing several trades per day. Hopefully, they have a plan that includes what their r:r will be. But rarely, if ever, will their target for the next trade be influenced by the previous trade(s). Every trade is it's own, independent of every other. What we're doing here is treating each trade as a part of the whole.

The original system thread was here: http://www.forexfactory.com/showthread.php?t=181945

I also had a journal that I kept for a couple of months while I was still in demo with it, but things got real busy at work and I didn't have time to maintain it. I wasn't trading full-time yet back then.

It started out as a breakout/straddle type of system that someone else had discovered, and I applied some money management to it. I have no interest in resurrecting that thread, so I likely won't respond within the system thread any further - it was another pretty cut-and-dry type system. Like this one, I don't see much more that can be done with it. I should be able to do a better job keeping the journal for this one up to date now, though.

This makes perfect sense, thanks for the explanation.

One question I have: why do you consider this gambling? If I understand the difference between gambling and trading it would be that gamblers have no edge, they attempt to make money using the house's edge, which in the long-run is an impossibility, whereas traders have developed an edge of some kind.

Your method here has an edge, it seems to me, in that you have an entry based on historically positive probabilities, you have a money management system, and you have well-defined and controlled risk/reward.

So why do you consider this gambling? What am I missing?

Thank you. Are you still trading this one (the EUR/JPY one you mention in the below link)? I understand that you trade for a living, is this your main method?

I'll answer both questions in one, because they're actually somewhat related...

I consider this type of system "gambling" because there really is no fundamental or technical basis for it.

Real trading, to me, is based on years of study. It is having a plan. Studying the markets, analyzing situations, picking your spots. I've been on FF for about 4-years, and have been trading for around 6-years in total. Up until about 2-years ago, I tried every "system" under the sun. Had charts full of indicators, downloaded every robot I could get my hands on, and never got anywhere. Then I started studying. I started to understand global economics. The REAL reason why a currency moves (significantly) is because of some event - be in related to a commodity market, a political event, a change in a country's interest rate, an election, "bailout", etc, etc, etc..... A currency does NOT move because RSI just crossed 50 or because stoch is oversold. That last sentence is the most important one to take from this entire thread. A currency DOES NOT MOVE because of indicators. Indicators tell you what a currency HAS DONE, and can give you a PROBABILITY about what it may do. But if RSI crosses up over 50 2-minutes before some real world "event" causes a shift in the market, which do you think is going to determine where the currency goes? When you make that discovery, and the lightbulb goes off, you've just taken the first step from amateur to professional trader. There are a lot of pretty good amateur traders here (I don't post much, but I read FF almost every day). And frankly, many of them think they really "get it" and are convinced that as long as all their indicators line up, it's a sure sign of what the market will do. And some really are very good at understanding and interpreting the indicators. But even those with the best "systems" based on indicators - how many are really "professional" traders? How many are still here years later, and are still successful with their "systems"? And yes, there are a handful of pros, too, and they're easy to spot. I can promise you, they're not posting charts that look like Christmas trees. There are probably a dozen threads, MAX on FF that are really worth anything to a professional. And I can promise, they're not talking about MA crosses or RSI lining up across timeframes. Sorry if this offends anyone, I'm sure it will. This is just my opinion, and I think I'm in a position to speak to it, since I can call myself a "professional trader".

Trading is knowing the "big picture", and understanding the real reason why EU has been moving up the past two weeks (and it isn't because it touched a weekly trendline). Trading is living and breathing the markets, and how they inter-relate. Being a professional trader is knowing the answer if you ran in to someone on the street and they asked "which has been stronger since the beginning of the year this year, the pound or the yen"? - without looking at a chart, can anyone reading this answer that question right now? I'm sure there are a few... Trading is understanding how currencies affect each other, and how other markets effect currencies. It is knowing that the USD will generally be moving down when the NYSE is moving up, and the reason WHY that happens.

Yes, I made the jump to trading full-time for a living right around a year ago. And it was after the light bulb went off and I had true confidence in my trading not because an indicator told me what to do, but because I finally understood WHY the market was doing what it was doing. Another big part of trading is patience. I am a long-term trader.. I trade D1 and higher (though I often use 15M or H1 for entries). I do make use of s/r, trendlines and candlestick patterns, again more as a tool to fine-tune entries because everyone else uses them, and as a result, there is generally some action around them. However, when I do take a position, I intend to be in it long term. And I'm usually after a r:r of 1:4 or more. I'll occasionally go as low as 1:2, but rarely. I may only take 3-4 trades in a month. So, I spend a lot of time "working", but not a lot of time actually pushing the button and placing trades. That gives me the chance to try out stuff like what I've presented here. I guess I look at it as a hobby (gambling, with an edge).

Well, I guess I was feeling inspired this morning. Probably gave you way more info than you were after... And again, all of this is my opinion. I'm sure many people will have a different opinion than mine, and I can completely respect that. This is what has worked for me, so I'm sticking to it.


(oh, and no... By now you probably have realized the other E/J system is just another one of the little 'distractions' I have in between what I consider to be my "real" trading - though yes, it has been running along on its own for more than a year now and has remained profitable most months)..

Well this is certainly more education than you'd get in a 2 hour paid class on "how technical analysis moves the market!" Nice job!

Ok, let's say that for me the light bulb has gone off (or rather, come on ) and I understand that EUR/USD is going to go up when Europe raises interest rates and US does not. Or a number of other factors. How do I then turn my knowledge into a practical trading system of some kind?

I do understand that fundamentals, news reports, economic data, etc. drive the market, but I do not understand how to profit off of that knowledge.

And on the next subject, isn't "gambling with an edge" trading? In my understanding gambling is gambling, whereas gambling with an edge is trading.

Sorry for all the questions, I'm sure you have better things to do than answer them, no problem if unable. Thank you again.

Sometimes I just get going and can't stop myself. Then I re-read and feel the need to clarify...

About the above post. What I didn't get in to that rant is that there are certainly some people that are VERY GOOD indicator-based traders. It is my opinion that you can only go so far on indicators alone. All the stuff I mentioned about fundamentals is the "next level", as far as I'm concerned. It is what makes the difference between "amateur" and "professional" .. It's the immersion factor, the true big-picture understanding that sets the pros apart.

I'm certain those that are very good at indicator based trading are successful, and they should be proud of their accomplishments. Though it may have sounded this way above, I am not trying to belittle them or think that they're not real traders. For ME, I found I could not make the transition to treat this as my livelihood without really getting heavily in to the fundamental side. For others, they may be just fine. In the end, if you're successful and earning money, you're doing something right. If you're spinning your wheels with one indicator based system after another and not getting anywhere, you eventually need to decide if a different approach is needed to get you where you want to be.

I will give you some answers... I've got a bunch of "family stuff" on my plate now that the weekend is here, so I will be coming back to this.

Some day I will start a thread that has nothing to do with "systems" and focuses more or "strategy" (I believe they are different). There would probably also be some interest in a thread on how to operate a "business" of trading, which also plays a big part in setting the pros apart from the amateurs.

When I get some time to really dig in to this later this weekend, I may just start a new thread and link to it here... Stay tuned.

20 pips SL is nothing for Cable, little kick and you're out of the game..

To win you probably should have 70-80 (unless you are playing M1/M5 scalping)

pips SL at least, otherwise lose to win ratio going to be 5 to1. IMHO.

Good luck anyways.

Dreamliner...

I've given this some thought today while getting some stuff around the house done...

I think we'll be going off in a different direction, so I will start a new thread with some of these thoughts... Truth be told, this is going to be a little tough for me. I am one of those people that can do, and I fully understand what I do and how I do it, but it will really take some work for me to "teach" how I go about applying what is in my head to a "system" or "strategy" (I think "strategy" is a better word for it).

And while I want to answer your questions, I don't think I have it in me to run a thread like J16 or Jacko or any of the others that really "teach" and turn in to thousand-page works... I give guys like them a lot of credit for being able to spend so much time "giving back". So I really need to start giving some thought to how I will present some of this, and not end up with a full time job monitoring my thread and answering questions. I do want to help, and to give back... I will just have limited time for it and want to be careful about starting something I can't, or don't want to finish. So, in a few days I should be able to come up with something meaningful, and find a way to present it.

Thanks cgrey, I appreciate you counting the cost, no problem on whatever you decide.