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Big wins and losses = slow and steady profits

  • #21
  • Jul 10, 2011 3:32am Jul 10, 2011 3:32am
Quoting bobsmith
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...
Jesse doesn't suggest consistent pyramiding, but gradually additing to the positions at the start of a new trend (i.e. after a break). Then a long wait.

I did it few days ago from 1.4425 with sl above 1.4650 target 1.4250. But got out just above 1.4300 when it bounced from 1.4285. It is much difficult in practice. It gave me huge profits, but will never do it again. Not because its no good, but because my other method is stress free and designed for currency market.
The Thief of Wall Street
  • #22
  • Jul 10, 2011 3:42am Jul 10, 2011 3:42am
Quoting bobsmith
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...
Maybe look at your 15 pair basket. I have cut back on the pairs I trade, due to the correlation effect. I got 10 pairs which all produced nice profits individually, but if you take them into a basket/portfolio, the portfolio performed miserably. Now I tried to find just the right combination that will outdo individual performances. In the end I came up with three pairs that produce just the right results at the right time limiting my drawdowns and boosting my percent return.

Well, and I have to agree that 1% a month is a bit low, although I have to say it depends on the year we are in. You can't expect to make high returns each and every year. Some will be fast and some will be slow years.
  • #23
  • Jul 10, 2011 4:44am Jul 10, 2011 4:44am
Bobsmith, I dont even get the problem here, are you asking for a more consistent profit or are you asking if that trading style is normal?

How many trades do you have a week/month?
  • #24
  • Edited 5:39am Jul 10, 2011 5:16am | Edited 5:39am
Quoting Custos
Maybe look at your 15 pair basket. I have cut back on the pairs I trade, due to the correlation effect. I got 10 pairs which all produced nice profits individually, but if you take them into a basket/portfolio, the portfolio performed miserably. Now I tried to find just the right combination that will outdo individual performances. In the end I came up with three pairs that produce just the right results at the right time limiting my drawdowns and boosting my percent return.

Well, and I have to agree that 1% a month is a bit low, although I have...
The 1% is a fairly arbitrary figure I used to explain the comparison between net gain at the end of the month compared to drawdowns experienced during the month. The actual gain may be greater than that, but the drawdown (worst case scenario) may have reached 2 or 3 times that before resolving itself in profit. I'll admit though that I would prefer the ratio the other way around!

As for the basket, I agree it may need work. It is in effect 5 minibaskets of 3 (eg. EURUSD, EURJPY, USDJPY) which together usually gain over the course of the month. Thus while one pair may end at a loss, the other two in the minibasket will make up for it in gains. Alternately, two may perform at a loss, but one might make stellar gains, again bringing the minibasket out ahead. Also positions are weighted according to the pair. For example where I open 1 minilot for EURGBP, I will open 1.6 for EURUSD to keep the pip value consistent. That said, the different minibaskets will perform differently relative to each other each month. One may good gains while another underperforms, but the next month it may be a different one that performs the best. It doesn't seem to me that particular pairs or minibaskets are more likely to gain than others, but perhaps that's just another wrinkle in my method that needs to be ironed out.

I might add that using minilots across 15 pairs, I can easily find myself with for example 30 positions opened at one time, totalling 3 full lots at a time. However the actual drawdowns I experience may be only 30 pips in total. So the basket does well to limit what could be far greater swings if I was trading only one or a couple pairs with the same amount. Again though, at the end of the month I'm only up a handful of pips. Why I'm persevering though is that each month for the last six has been green, and I have had positions open every hour of every day during that time, with no thought or discretion required for choosing them (completely mechanical entries).

Larseg: I was just wondering whether other traders experienced similar with their methods ie. an equity curve that resembles a yo-yo in action as you scale a staircase one step a month I feel uncomfortable with it at times, but in the end it seems to work. I am opening and closing new positions every day based on Asian and London opens.

EDIT: Maybe if I put it this way. Say 21 trading days in a month. 10 days I am in drawdown, 11 days I am in profit. Gain for the month is 1 day's profit which may or may not be a good one. During that time, price may have swung several times that in either direction.
  • #25
  • Jul 10, 2011 5:37am Jul 10, 2011 5:37am
Quoting bobsmith
The 1% is a fairly arbitrary figure I used to explain the comparison between net gain at the end of the month compared to drawdowns experienced during the month. The actual gain may be greater than that, but the drawdown (worst case scenario) may have reached 2 or 3 times that before resolving itself in profit. I'll admit though that I would prefer the ratio the other way around!

As for the basket, I agree it may need work. It is in effect 5 minibaskets of 3 (eg. EURUSD, EURJPY, USDJPY) which together usually gain over the course of the month....
as long as your method has a consistent edge, which means that it is net profitable over the long haul, I wouldn't worry about intra-month drawdowns.
Larry Hite (in market wizards) gave good categories: there are good bets, bad bets, winning bets and losing bets.
you always want to only take good bets, which are according to your trading plan (which should have been tested to gauge if you have an edge). Now you can't know in advance which of these good bets will be winning or losing bets, so you still should take all of them.
In the end it's all up to testing.
Since you anyways have mechanical entries, you could try to program your strategy and backtest it, then you know for certain how everything performs.
  • #26
  • Jul 10, 2011 5:38am Jul 10, 2011 5:38am
Quoting bobsmith

Larseg: I was just wondering whether other traders experienced similar with their methods ie. an equity curve that resembles a yo-yo in action as you scale a staircase one step a month I feel uncomfortable with it at times, but in the end it seems to work. I am opening and closing new positions every day based on Asian and London opens.

EDIT: Maybe if I put it this way. Say 21 trading days in a month. 10 days I am in drawdown, 11 days I am in profit. Gain for the month is 1 day's profit which may or may not be a good one.

There is plenty of traders with similar results out there, I however would not accept a massive draw down as I have played it like that before.. I like to take few trades, 1-2 a day and go under the radar by taking confirmed trends and ride them for a short time (not picking tops or bottoms)... I like to trade under asia/dax/nyse open or when there is news...

In June I had 36 trades where 5 were losers, I have bigger loss than gains but I made almost 6% in the end (I normally average 2-3%).... This really works for me, and it makes total sense... Its also something I have been doing in the stock market since 2004... The drawdown you are talking of will be very hard mentally when you are making a living from it...

How many trades have you had on those 21 days?
  • #27
  • Jul 10, 2011 5:55am Jul 10, 2011 5:55am
Quoting Custos
Since you anyways have mechanical entries, you could try to program your strategy and backtest it, then you know for certain how everything performs.
It's based on backtesting and so far working in forward testing. Unfortunately I don't have years of historical data to backtest on however

Quoting Larseg
How many trades have you had on those 21 days?
I probably average one trade a day for each pair, about an hour of my time on any given day (not including all the time I sit there staring at candles on my charts)
  • #28
  • Jul 10, 2011 7:41am Jul 10, 2011 7:41am
Quoting bobsmith
It's based on backtesting and so far working in forward testing. Unfortunately I don't have years of historical data to backtest on however

I probably average one trade a day for each pair, about an hour of my time on any given day (not including all the time I sit there staring at candles on my charts)
I am no fan of backtesting but it sounds like you have understood the game with fewer trades as well, just a matter of time before full ejac&%%tion

enjoy the ride
  • #29
  • Last Post: Jul 10, 2011 3:02pm Jul 10, 2011 3:02pm
Quoting bobsmith
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...
Bob,

I have tested various basket systems for over a year, what you are expierencing is not unusual IMO.

Not sure exactly how you are trading but it sounds like your baskets are somewhat hedged? If that is the case it will limit drawdowns but also limit your profits.

Also, 15 pairs may be too many. I think someone mentioned earlier about having too many pair that are correlated and that is true in my expierience. I run baskets usualy 6-10 pairs max.

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.

Yes, this is what takes you over the top to profits, but you need to trade small because, baskets seem to do well in trendy markets like most systems, and not so well in very choppy markets. Im sure you know this. For example the pairs Im trading now had 3 good weeks in a row and not so good last week. Was at around 2% drawdown but came back at end to around break even. So trading small keeps you in the game so to speak and you can ride out those choppy market times.

You sound like you trade very conservative and if your max DD is equal to your percentage gain for a month thats not too bad. Good luck to you.
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