'Vegas Wealth Builder Part II'

Quoting vegas

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Michele,

Worse than a newbie? Is this possible? HAHAHA

Trading from strength is a concept ingrained in successful floor traders. Before I explain this, though, let me first mention that no matter the method, the use and number of filters, the number of news feeds, chatter from a bank desk, 25 technical indicators, etc., etc., at some point the market is going to get you. It's going to take your stop out, or it's going to force you out with a loss [hopefully small]. It's just part of the process of a trading market.

Having said that, everybody should operate from a position of letting your profits run and cutting losses to a minimum. But not everybody does that. Most new traders do just the opposite. Ten trades; 9 winners, 1 loser and down $1000. Now the key is [obviously] how do you know when a winner is a winner and to let it run, and when is a loser a loser so I know to get rid of it.

It has everyting to do with equating price action = to information. I said in VWB that when I trade I want very small variances in price to yield me information that is more valuable than the number of pips over a short period of time is worth. When I get this, I know what type of situation I am in regarding my position. Is it always right? No, of course not [see first paragraph], but most of the time it is. This is why I tell new traders and those having a hard time making money to concentrate ALL their efforts on their method BEFORE they trade. It erases doubt about what's going on and allows you to concentrate on implementing your method.

In GBP this usually means somewhere in the 20 -50 pip range from an exhaustion fib level. It's trickier at the lower fib extreme [233] and much more powerful at the outer two fib levels [377 and 610].

This is how I define winners and losers. 2 things are important here. 1) My risk/reward is very large because I operate at exhaustion extremes, and 2) my losers [or not being in a trade, the opportunity cost] are low [20-50 pis] and my winners are much larger [200 -1000 pips]. Would you like to play the marble game?

So in this context, trading from strength is identifying, through your method, those trading situations where you enter the market with an advantage, get up on the trade [20-50 pips] and then come in with the breakeven stop. This is also called the free trade.

Hope this helps.

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Quoting cici

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Thanks Vegas. Compounding is something I've got a good handle on. You mention 40% per year.

In your opinion, what is a reasonable maximum MONTHLY return achieveable for the V1, the V4 and the VWB? I am particularly interested in what is the maximum monthly rate of return I could expect to see if I was trading the V4 with total discipline and position sizes that were not extreme in terms of leverage. I personally know of two people trading systems other than yours who are consistently bringing in monthly returns of 20% and 45% respectively. Is this possible with the V4? How about the V1 or VWB?

Thanks you kind sir!

cici

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Quoting RogueTrader

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cici,

Two traders can trade the same exact strategy, but have two different percents of return. Your return will vary based on your risk tolerance and management.

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Quoting MikeG

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Is Worse than a Newbie possible? Hee hee! You should have known me before Dial straightened me out! I was a mess!

Okay, your answer to my question earned you a hug, but not a kiss. I understand the moving stops to breakeven on 20-50 pips profit. But, I am even more confused by your stops than I was. In another post, you said you set your initial stops to 10-15 pips beyond the recent hi/lo. This is often larger than 20-50 pips. Where does the 20-50 pips come from?
Do you set your initial stop and just leave it there and if it gets hit, it gets hit? I'm seeing initial stop, and I'm seeing moving to breakeven, but what happens in between? Answer this and you'll earn a kiss to go along with the hug!

Michele UU

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Quoting cici

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Thanks RogueTrade,

Yes, I understand that, but what I'm getting at is what is the greatest monthly return that can be pushed for without being suicidal?

I might as well say it. I want 50-60 percent returns as my monthly average. I know this is possible with 500 to 600 pips per month at 10:1 leverage. Possible? Yes. Prudent? That's what I want to know. What is the maximum on the V4 that is possible, prudent and non-suicidal.

cici

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Quoting vegas

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Michele,

Let me start by saying that there is no cookie-cutter one-size-fits-all for stops. It really depends on the market and the entry of the trade. If I enter a trade near perfect, I am very likely to be near the high or the low of the move. In this case, my INITIAL stop would be about 10-15 pips above the recent high [if I'm short] and about 10-15 pips below the recent low [if I'm long]. I leave it there until I'm up about 20-50 pips on the trade, at which time I will adjust to breakeven or something else based on technicals.

In the case of a large reversal day when GBP could have a 200+ pip range, I might not enter the trade until I see the reversal, which would more than likely put me 100 pips from the high or low. In this case, I am not willing to put my stop 115-120 pips away and sit. I will watch the market and see if in fact the reversal day does happen. If it doesn't, I will treat the trade as a losing day-trade and try again later. If it is a successful reversal then my stop gets moved up to breakeven [or very close depending on technicals] so that I now have the free trade going.

So you have 2 different scenarios with different initial stop levels because each trade was set-up differently.

Hope this answers your question. Do I get kisses now?

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Quoting vegas

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cici,
You may be able to get 50%-60% returns per month on a very small account, but as your account grows there is no way this can continue. As I have stated before, when you trade big numbers you enter a whole new ballgame with respect to the banks. Things you never even thought of before suddenly become issues.

From an experience level, I have had traders stand next to me in the pits and shoot for the stars. Don't get me wrong, I'm all for it as long as it's a free trade. The problem, though, is that to get very large returns like you want on an account size that is NOT small [100K +] requires a risk profile that allows no room for error. It just takes 1,2, or 3 double-ups or triple-ups that go wrong to send you back to a very small account. I have seen it with my own eyes many times and it is not pretty.

From a logic level, if what you say is not impossible, then why don't the large banks and hedge-funds [Billion $ +] trade this way? They can't because the market simply will not allow it. If somebody were able to do this regardless the account size, he/she would have all the money in the world within 2 years and there would be no market because nobody would play.

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Quoting cici

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Thanks Vegas (and RogueTrader),

I'm beginning to see the light. I had not even considered the structural limitations of the market.

Okay, let me tone it down by asking this, and please tell me if I'm still aiming too high.

If (when) I have a $300,000 account, would it be reasonable to get 10% per month without running into the markets structural limitations or the brokers putting a stop to it?

Thanks for helping me Vegas. (And Michele thinks SHE'S worse than a newbie? Huh! I've got her beat big time!)

cici

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Quoting MikeG

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Is Worse than a Newbie possible? Hee hee! You should have known me before Dial straightened me out! I was a mess!

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Quoting vegas

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Michele,

Let me start by saying that there is no cookie-cutter one-size-fits-all for stops. It really depends on the market and the entry of the trade. If I enter a trade near perfect, I am very likely to be near the high or the low of the move. In this case, my INITIAL stop would be about 10-15 pips above the recent high [if I'm short] and about 10-15 pips below the recent low [if I'm long]. I leave it there until I'm up about 20-50 pips on the trade, at which time I will adjust to breakeven or something else based on technicals.

In the case of a large reversal day when GBP could have a 200+ pip range, I might not enter the trade until I see the reversal, which would more than likely put me 100 pips from the high or low. In this case, I am not willing to put my stop 115-120 pips away and sit. I will watch the market and see if in fact the reversal day does happen. If it doesn't, I will treat the trade as a losing day-trade and try again later. If it is a successful reversal then my stop gets moved up to breakeven [or very close depending on technicals] so that I now have the free trade going.

So you have 2 different scenarios with different initial stop levels because each trade was set-up differently.

Hope this answers your question. Do I get kisses now?

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Quoting dice

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Vegas, really appreciate your help. Read your 1 & 4 hour tunnel, and VWB. Awesome reads! Been quiet but now I have a question.

You said to Michele that you might not enter the trade until you see the reversal which would more than likely put you 100 pips from the low. In this case, you are not willing to put my stop 115-120 pips away and sit. You will watch the market and see if in fact the reversal day does happen. If it doesn't, you will treat the trade as a losing day-trade and try again later.

By this, do you mean that you will enter the trade, with the 115-120 pip stop and watch price action until you manually determine that it's a losing trade, and manually close out the position? Or do you mean that you will not hold a position all together, opting to wait and watch?

Let's say it's Feb 14/06 and GBP/USD is at 3rd Fib line on the daily at approx 1.7280. The daily high is approx 1.7445. You're looking to go long. Suddenly on the hourly you see the kind of price action demonstrating reversal at roughly 16:00 GMT. You wait til it reaches 50% retracement from low. GBP/USD is now at 1.7360. You are now approx 80 pips (50%) from low. Would you enter this trade with a stop set at approx 1.7265, THEN watch the rest of the day unfold? Then, if it's a losing trade you manually close before it reaches your stop? I hope I'm not beating this to death. I have the same concern Michele has with stops (and yes I'm a newb). Thanks for everything!

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Quoting 5MinuteStudent

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Vegas,

Thank you for your response. I gathered from your explanation that near the 610 fib level you will play it by ear, and see how the trade develops before confirmation.

You have mentioned somewhere before that the trading day begins with the close of the market at 5 PM Chicago's time.

However, you have also mentioned that you do not recommend trading during Asian hours unless I am mistaken.

Would I, therefore, be wrong in assuming that available hours for trading are from 12AM to 5 PM NY's time (with an adjustment for daylight savings time)?

Do you use the Asian hours mostly for watching how the market will develop for the European session and to monitor existing trades?

Regards,

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Quoting vegas

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5 minute student,
No, that was only with the 1 hour. Those rules do not apply in VWB.

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Quote

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dpatloll,

I will explain.

First, the market is trading at the extreme fib numbers. This should put you on alert, because this satisfies the first condition of putting on a trade. The second condition is some kind of candlestick or bar chart reversal pattern. I go over the most reliable reversal patterns in VWB.

I now shift my focus to the day's trading. During the course of the trading day which starts in Asia, the market will obviously have a range between the high and low of the day. Whatever this number of pips is [high-low] I am interested when it starts to get close to 50% or mid-point.

I probably could write a book on 50% retracements, but suffice it to say it is an important day-trading tool on reversal days. Why? Because by its' very nature reversal days have to penetrate this level before they can continue. If this level is NOT violated, a reversal day is a moot point.

When markets violate this level during Europe or US trading, the probability of the original move continuing the rest of the day is very low. Well, if that's the case, then we have the "perfect storm" brewing for a reversal day.

In my book, this is worthy of partial early entry for a position. More can be added later in the day or the next day if I am right. If I am wrong, I treat this early position as a day-trade and exit. This gives me superior pricing, on my position, relative to just entering on the close.

I hope this clears up the concept.

Quoting Vegas

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During the course of the trading day which starts in Asia, the market will obviously have a range between the high and low of the day. Whatever this number of pips is [high-low] I am interested when it starts to get close to 50% or mid-point.

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Quoting 5MinuteStudent

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I am a bit puzzled...you mentioned the increased chance of entering the market during non-Asian hours while observing the market action that occurred during Asian hours for the creation of the range.

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