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Big wins and losses = slow and steady profits

  • #1
  • First Post: Jul 10, 2011 12:34am Jul 10, 2011 12:34am
Just a quick question as to whether any of your trading methods resemble this.

I'm still working on a basket strategy which in backtest seems to work. However the conundrum that really tests my patience is the large swings it can endure on a day to day basis. Using minilots over 15 pairs, it is not uncommon to see my equity swing 1% or 2% in a day, sometimes several per cent up or down over the course of a week. This can be incredibly nerve-wracking as gains over a month may vaporize in a day leaving me frustrated and convinced that the method is failing. Yet come the end of the month, I find I have ultimately made modest gains, perhaps 1% or so. Of course I have spent much time trying to find the extra element that will filter out some of those drawdowns and just let the gains accumulate, but nothing works; I have to let my equity swing 1% or 2% a day just to make 1% at the end of the month.

So I'm wondering if this is characteristic of many other systems out there? Many talk about R/R and 60%+ hit rates etc, but by using a basket, I'm ignoring indicators and trendlines and trusting the market to know which direction it's heading rather than me. Anyone else dutifully make, for example 1% a month by accommodating 1% or 2% swings on a daily basis? Is this normal?

http://www.fish4help.net/images/confused-fish-bg.gif
  • #2
  • Jul 10, 2011 12:39am Jul 10, 2011 12:39am
Quoting bobsmith
Just a quick question as to whether any of your trading methods resemble this.

I'm still working on a basket strategy which in backtest seems to work. However the conundrum that really tests my patience is the large swings it can endure on a day to day basis. Using minilots over 15 pairs, it is not uncommon to see my equity swing 1% or 2% in a day, sometimes several per cent up or down over the course of a week. This can be incredibly nerve-wracking as gains over a month may vaporize in a day leaving me frustrated and convinced that the method...
Quite normal for my method. But very concerning if your drawdown is more than 1% on a single trade.
The Thief of Wall Street
  • #3
  • Jul 10, 2011 12:41am Jul 10, 2011 12:41am
?

are you saying you end up with 1% at the end of the month, but each day you are up or down 1%? so basically, if you checked the results a day earlier or later you would likely be down 1%? so basically you are going nowhere? if so, does this sound 'normal' or profitable to you?
Congratulations ScalaFX for coming out of the closet!
  • #4
  • Jul 10, 2011 12:48am Jul 10, 2011 12:48am
Quoting nubcake
?

are you saying you end up with 1% at the end of the month, but each day you are up or down 1%? so basically, if you checked the results a day earlier or later you would likely be down 1%? so basically you are going nowhere? if so, does this sound 'normal' or profitable to you?
Not sometimes, but most of the times it looks as if I am going nowhere, rather consistently losing. But this is very much how it is supposed to be.

Its not a day, week or month but a 100 trade unit that decides how I did.
With 1% profit or 1% loss per trade, net result of 100 trades should be profit. If 49 are the losers and 51 winners should generate 2%. But it is very much possible to get into a series of losing trades in this unit of 100 trades. This is where many lose confidence in their method. Just think of a situation where your first 49 trades are the losers and next 51 winners. Many would pack and go home before first 49 trades are over.

ps - Last year I had no winner for three months, 52 consecutive losers despite waiting for the perfect set-up after every loss.
The Thief of Wall Street
  • #5
  • Jul 10, 2011 12:57am Jul 10, 2011 12:57am
i get about the same interest from my bank and i don't have to look at a chart, and it's guaranteed.
Congratulations ScalaFX for coming out of the closet!
  • #6
  • Jul 10, 2011 12:59am Jul 10, 2011 12:59am
Quoting nubcake
i get about the same interest from my bank and i don't have to look at a chart, and it's guaranteed.
Is this rate of interest on USD? I get about 1% pa from my bank.
The Thief of Wall Street
  • #7
  • Jul 10, 2011 1:10am Jul 10, 2011 1:10am
Quoting Chicky
Is this rate of interest on USD? I get about 1% pa from my bank.
australia. truth be told it's probably sitting at something like 5% pa or just under, but in the good times shoots up to 7+%.

so let's say it's 4% pa, then that's 0.3% per month without me looking at a chart or risking a dollar. all of the hours put into this doesn't, for me, justify a 1% return per month... but that's my agenda.

but still, re the OP, a 1% swing in equity each day to maybe scrape out 1% by the end of a month doesn't really look like it's profitable to me. does the next month then sit at 0% or -1%? going in circles.
Congratulations ScalaFX for coming out of the closet!
  • #8
  • Edited 1:19am Jul 10, 2011 1:14am | Edited 1:19am
Quoting bobsmith
Just a quick question as to whether any of your trading methods resemble this.

I'm still working on a basket strategy which in backtest seems to work. However the conundrum that really tests my patience is the large swings it can endure on a day to day basis. Using minilots over 15 pairs, it is not uncommon to see my equity swing 1% or 2% in a day, sometimes several per cent up or down over the course of a week. This can be incredibly nerve-wracking as gains over a month may vaporize in a day leaving me frustrated and convinced that the method...
Personally 1% net at the end of the month seems very small especially with risk involved. With those types of gains it would actually be more profitable and almost zero risk to place in a fixed deposit at the bank with the interest compounded (my bank does 5- 9%).

One question i would ask is how are you managing the draw-downs? Are you cutting the loosing trades in the basket and allowing the profit to run? Or are you closing all trades when a percentage account equity is reached?

Instead of trying to find the extra filter(maybe use Time as possible filter?) I would focus more on trying to working on the basket currencies. Can you hedge? Should you add to the position on favorable accounts? Is my basket caught on in a retracement or is this a reversal? Should i just stay until SL is hit?. Once the trades are placed it should not be a static process(my opinion), tho are different schools of thought on basket methods.. i guess it all depends on the method and type of baskets.
  • #9
  • Jul 10, 2011 1:17am Jul 10, 2011 1:17am
Quoting nubcake
australia. truth be told it's probably sitting at something like 5% pa or just under, but in the good times shoots up to 7+%.

so let's say it's 4% pa, then that's 0.3% per month without me looking at a chart or risking a dollar. all of the hours put into this doesn't, for me, justify a 1% return per month... but that's my agenda.

but still, re the OP, a 1% swing in equity each day to maybe scrape out 1% by the end of a month doesn't really look like it's profitable to me. does the next month then sit at 0% or -1%? going in circles.
What banks do with your money? Whatever interest they pay to their customers is out of their profit.

The logical answer is from the interest earned from borrowers. There was a time when bank's spread was 2% (difference between deposit and lending rates), but now it is way higher than that. What borrowers do with this money? not only paying interest to the bank but also making profit for themselves.

The point is: There is much out there in the economy than interest on bank deposit. Currency trading is one such venture. Its all about risk/reward. Higher the risk better the reward, and vice versa.
The Thief of Wall Street
  • #10
  • Jul 10, 2011 1:40am Jul 10, 2011 1:40am
Quoting nubcake
are you saying you end up with 1% at the end of the month, but each day you are up or down 1%? so basically, if you checked the results a day earlier or later you would likely be down 1%?
In a sense, yes. But to put it another way, after 6 months I would be up about 6%. The gains seem to be consistent, just that I have to be using the system every day and withstanding the swings in order to catch the 1% or so that accrues each month. It's sort of 10 steps forward, 9 steps back, or if you prefer, 9 steps back, 10 steps forward.

BTW I'm in Japan and banks here don't offer anything near 1% a month.

Thank you for your comments Chicky. I think you understand my position.

Cypre3ss: I handle the drawdowns by "trusting" the basket. It works in backtest and it continues to work in forward test. Positions are reversed when I get opposing signals. Basically it's the ranging moves that create the drawdowns, but when price finds a direction and follows it, I get to catch it. It's getting in on these moves before they seem to have happened that I think offers a profitable edge to the system. If I introduce discretion/wait for confirmation etc in my entries, it fails.
  • #11
  • Jul 10, 2011 2:09am Jul 10, 2011 2:09am
Quoting Chicky
What banks do with your money? Whatever interest they pay to their customers is out of their profit.

The logical answer is from the interest earned from borrowers. There was a time when bank's spread was 2% (difference between deposit and lending rates), but now it is way higher than that. What borrowers do with this money? not only paying interest to the bank but also making profit for themselves.

The point is: There is much out there in the economy than interest on bank deposit. Currency trading is one such venture. Its all about risk/reward....
i have to be honest and say i truly don't understand what you are saying. banks lend money, get repaid plus interest, then forward a slice of this profit onto it's customers savings accounts? is this what you are saying?

and then you say that there are other ventures besides dumping cash into a bank account, but then mention the risk / reward? like i said, i can dump my money into a bank account and accrue in the poor times 1/3rd the 1% per month suggested earned by trading, yet my account has comparably no risk of loss in money or time in comparison.

it's almost like working extra hard for a job that pays below the minimum wage. i can understand that if someone has a massive account then fighting for that 1% per month might actually be worth it in terms of the monetary returns the 1% equates to, but in this instance it still seems more logical to just dump it in a bank and let it compound itself that way since the interest earned will still also be comparably significant when compared to working a 9 to 5 job. or even dumping the money into a term deposit which sometimes accrues more interest than a savings account.

i just don't understand the math and / or logic behind fighting hard for such low returns when there are other safer and less time consuming vehicles.

bobsmish : well if your account keeps creeping upwards then that's something, but as per all of the above it still seems like a lot of effort for not much reward. it's like hiring caterers and a town hall and spending a few days putting decorations up for a big party and then having 2 people turn up.
Congratulations ScalaFX for coming out of the closet!
  • #12
  • Jul 10, 2011 2:14am Jul 10, 2011 2:14am
Quoting bobsmith
I....... Basically it's the ranging moves that create the drawdowns, but when price finds a direction and follows it, I get to catch it. It's getting in on these moves before they seem to have happened that I think offers a profitable edge to the system. If I introduce discretion/wait for confirmation etc in my entries, it fails.

"It is simple arithmetic to prove that it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet." - Jesse Livermore
The Thief of Wall Street
  • #13
  • Jul 10, 2011 2:30am Jul 10, 2011 2:30am
just as an example of exactly what i'm talking about, a quick google got me this...

http://www.westpac.com.au/personal-b...m-deposits/#s3

12 - 24 month term deposit yields 6%. i haven't read any of the details, but i think i can safely assume that this is virtually risk free if you can do without accessing the capital for the term period. if you get 1% a month from trading, this means you get 12% a year, this is doing plenty of work and research and learning about trading ect all for only double the return of doing nothing but lending your money to the bank.

i honestly don't get the attraction of trading for these low returns :/
Congratulations ScalaFX for coming out of the closet!
  • #14
  • Jul 10, 2011 2:30am Jul 10, 2011 2:30am
Quoting nubcake
i have to be honest and say i truly don't understand what you are saying. banks lend money, get repaid plus interest, then forward a slice of this profit onto it's customers savings accounts? is this what you are saying?

and then you say that there are other ventures besides dumping cash into a bank account, but then mention the risk / reward? like i said, i can dump my money into a bank account and accrue in the poor times 1/3rd the 1% per month suggested earned by trading, yet my account has comparably no risk of loss in money or time in comparison....
Investment is a bit complex that it appears to a layman. Many years ago I used to teach this subject to MBA students. Let me try to explain in the fewest words possible.

The nature and risk of investment varies based on the Investment Objective. More diverse the objectives, better the investment planning

If the objective is to preserve capital (probably with little compromise on its future purchasing power) then bonds or saving accounts are the right instruements. For example if a student wants to save money for college education, return is compromised for safety of funds. Similarly, some businesses invest a portion of their funds/earnings in low risk instruements for future replacement of assets.

Then a bulk of funds are invested as long-term business assets or as working capital. The objective here is to get a reasonable return with reasonable risk.

Then surplus funds are invested in more risky instruements or projects, the objective here is to multiply the funds taking high risk.

Obviously, if one is trading with surplus funds would take more risk and the one who wants to preserve funds should not trade with such funds because currency trading is a high risk venture.
The Thief of Wall Street
  • #15
  • Jul 10, 2011 2:35am Jul 10, 2011 2:35am
Quoting nubcake
bobsmish : well if your account keeps creeping upwards then that's something, but as per all of the above it still seems like a lot of effort for not much reward.
Yeah, I accept that. That's pretty much why I wanted opinions. I should say it is not every day that I have massive drawdowns. I may gain 1% a day 5 days in a row. The frustrating thing is that could evaporate the following week. But if over time I keep a sliver of the sum of each gain, I feel I must be looking in the right direction.

Quoting Chicky
"It is simple arithmetic to prove that it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet." - Jesse Livermore
Do you want to elaborate on that quote Chicky? I don't know when I am going to win, so don't know when to put the big bet down. I'm just throwing out dozens of lines in the expectation eventually I will catch a fish.
  • #16
  • Jul 10, 2011 2:48am Jul 10, 2011 2:48am
Quoting Chicky
Investment is a bit complex that it appears to a layman. Many years ago I used to teach this subject to MBA students. Let me try to explain in the fewest words possible.

The nature and risk of investment varies based on the Investment Objective. More diverse the objectives, better the investment planning

If the objective is to preserve capital (probably with little compromise on its future purchasing power) then bonds or saving accounts are the right instruements. For example if a student wants to save money for college education, return is...
i'm not sure what i'm supposed to get from this. that's just a basic rundown on how to make a dollar that all people should know, so it's like you are expecting me to not understand such a basic concept.

at the end of the day there is more at risk than just money. there is also energy, effort, and most importantly time (which we all lose a piece of moment by moment until we die). fighting over a dollar seems pointlessly wasteful and not worth the reward.

anyway...
Congratulations ScalaFX for coming out of the closet!
  • #17
  • Jul 10, 2011 2:52am Jul 10, 2011 2:52am
Quoting bobsmith
....Do you want to elaborate on that quote Chicky? I don't know when I am going to win, so don't know when to put the big bet down. I'm just throwing out dozens of lines in the expectation eventually I will catch a fish.
Caution: Remember Jesse was a stock operator and NOT a currency trader. Therefore, his methods are not as effective in currency market as in stocks, however, still valid to a great extent.

Example:

This is what I understand from his statement:

1. Speculate what is going to happen in a big way. Let's say you speculate that Euro goes down from this level to 1.3000

2. Take a small short position and see if it goes in your direction.

3. Do not add to your position if it goes against you. If it goes against you by 400/500 pips, you lose a certain amount.

4. Add to your position when it starts moving down and breaking key supports. Plunge lets say when it breaks 1.4100 support with sl near 1.4600.

5. Now let it ride. If it gets near to 1.3000 you get 1,200 or so pips on your big positions. But if it goes against, you lose 400 pips on your big positions.

6. For any big play, wait until the current long-term trend shows sign of exhaustion so that one goes from end to end.
The Thief of Wall Street
  • #18
  • Jul 10, 2011 3:05am Jul 10, 2011 3:05am
Quoting nubcake
i'm not sure what i'm supposed to get from this. that's just a basic rundown on how to make a dollar that all people should know, so it's like you are expecting me to not understand such a basic concept.

at the end of the day there is more at risk than just money. there is also energy, effort, and most importantly time (which we all lose a piece of moment by moment until we die). fighting over a dollar seems pointlessly wasteful and not worth the reward.

anyway...
Lol.

Nubcake, I was trying hold back while replying for the reason few new traders could be reading this. Don't want them to get some wrong ideas. This market offers much more than bank returns or even retuns better than many businesses generate. But forex business is not easier to operate than any of these businesses.
The Thief of Wall Street
  • #19
  • Jul 10, 2011 3:11am Jul 10, 2011 3:11am
Quoting Chicky
Lol.

Nubcake, I was trying hold back while replying for the reason few new traders could be reading this. Don't want them to get some wrong ideas. This market offers much more than bank returns or even retuns better than many businesses generate. But forex business is not easier to operate than any of these businesses.
k, now i'm picking up what you are putting down. cool cool.
Congratulations ScalaFX for coming out of the closet!
  • #20
  • Jul 10, 2011 3:16am Jul 10, 2011 3:16am
Quoting Chicky
Caution: Remember Jesse was a stock operator and NOT a currency trader. Therefore, his methods are not as effective in currency market as in stocks, however, still valid to a great extent.

Example:

This is what I understand from his statement:

1. Speculate what is going to happen in a big way. Let's say you speculate that Euro goes down from this level to 1.3000

2. Take a small short position and see if it goes in your direction.

3. Do not add to your position if it goes against you. If it goes against you by 400/500 pips, you lose a...
Ok, well that works for me. I'm opening little positions across 15 pairs. However I don't really know what will happen in "the big way". I let the market decide that and my basket will follow it. Positions are (in essence) reversed if price reverses. However additional positions are constantly being added to already winning positions. When a trend starts to present itself, I find I am already in it with an accumulating position. This is the crux of it. I think the wins once price moves consistently in one direction outweigh the losses when it ranges or changes direction unexpectedly. It is the periods of indecision in the market that lead to my drawdowns.
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