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Building an equity millipede

  • #5,241
  • Jul 2, 2012 6:59pm Jul 2, 2012 6:59pm
Quoting ezcurrency
Check out my post #5225 and let me know what you think ...

EZ
EZ,

Glanced at it and might be a nice read for this weekend. Again though, I'm not trying to figure out market turns or anything to do with improving my trading methods (not that I wouldn't benefit from that ) Just talking trade management here.
  • #5,242
  • Jul 3, 2012 12:27am Jul 3, 2012 12:27am
Quoting spyderman
Same two market scenarios...same ending positions and market participation. Only difference is the banked 1500 pips.
Let's see if it is of any difference.

Suppose the market goes north for another 500 pips. Ignore the newly added positions, they would be the same no matter how you handle indecision periods. The value of the "recreated" positions would be exactly the value of the original positions at the same point minus the banked pips. I'm ignoring the extra spreads paid. So in effect you just moved some value from your equity to your balance.

Now suppose the price reversed instead and went down 500 pips. That would close out all of the original positions, for a total loss of 0. Closing the recreated positions would incur a loss of exactly the value of the banked pips. So, once again, you only moved some value from your equity to your balance. This time, only temporarily.

As far as I see, there are no long-term differences between the two approaches. Both yield about the same results (except for spreads). The difference is mainly psychological. Depends if you prefer to see your equity or balance jagged. I suppose the best solution would be to take some of the pips off the table (say, close the smaller 3 positions) and not risk them back. That would increase the balance, reduce the exposure and therefore, limit the pullback on the equity curve. Oh, wait... Graeme called this "diversification", didn't he? Of course, reduced exposure reduces future growth as well. It's a trade-off and I think it's a matter of personal risk tolerance.

Best regards,
Barbossa
  • #5,243
  • Jul 3, 2012 4:45am Jul 3, 2012 4:45am
Barbossa,

Thanks for your input.

Quoting Barbossa
Suppose the market goes north for another 500 pips. Ignore the newly added positions, they would be the same no matter how you handle indecision periods. The value of the "recreated" positions would be exactly the value of the original positions at the same point minus the banked pips. I'm ignoring the extra spreads paid. So in effect you just moved some value from your equity to your balance.
You're exactly right here. The second of my main goals in doing this is to be in the same position as we would have if price continues in our original direction. We have gained nothing by closing the positions earlier, but just as importantly, we have lost nothing (except for spreads)

Quoting Barbossa
Now suppose the price reversed instead and went down 500 pips. That would close out all of the original positions, for a total loss of 0. Closing the recreated positions would incur a loss of exactly the value of the banked pips. So, once again, you only moved some value from your equity to your balance. This time, only temporarily.
Here's the first reason behind doing this.
You bank your 1500 pips. The reason you did this is because the market and whatever trading strategy you are using, has indicated a need to trade in the opposite direction. So your trading short now. You would not at this point have recreated those closed positions yet. So when price moves down 500 pips there are no positions there to incur a loss.

The only reason you recreate those positions is if the market indicates another change in trading to your original direction.

So, yes, there are scenario's where the net result would be the same and that's fine. But importantly, there are just as many scenario's where you would bank those pips (and others as an unlimited number of possible "cycle scenarios" unfold) and continue on.


Hope that makes sense.
  • #5,244
  • Jul 3, 2012 5:06am Jul 3, 2012 5:06am
Quoting spyderman
Here's the first reason behind doing this.
You bank your 1500 pips. The reason you did this is because the market and whatever trading strategy you are using, has indicated a need to trade in the opposite direction. So your trading short now. You would not at this point have recreated those closed positions yet. So when price moves down 500 pips there are no positions there to incur a loss.

The only reason you recreate those positions is if the market indicates another change in trading to your original direction.

So,...
OK, I got your point.
As far as I can see, that's a valid approach as well. You would reduce the losses at the cost of extra effort in logging in closed positions that would have to be recreated. That would possibly increase the profits a bit, or reduce losses, depending on how you see it. Keep in mind you won't avoid all the losses, however, as you would no doubt have wrong guesses on where the market is going next.

Best regards,
Barbossa
  • #5,245
  • Jul 3, 2012 5:27am Jul 3, 2012 5:27am
Quoting Barbossa
Keep in mind you won't avoid all the losses, however, as you would no doubt have wrong guesses on where the market is going next.
Yes I totally agree. Worst case scenario, depending on a person's trading strategy, would probably be a whipsawing, tightly range-bound market. Course that would kill most method's.

But imagine the payday if the pair kept cycling between two points as the g/j often does.

Scenario 1 your net position might be nill.
Scenario 2 ...
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  • #5,246
  • Jul 3, 2012 5:49am Jul 3, 2012 5:49am
Quoting spyderman
Scenario 1 your net position might be nill.
Scenario 2 ...
Well... to get a zero total in scenario 1 you would have to miss your diversifications. Suppose you close part of your positions whenever the Heiken-Ashi change color after several consecutive candles in your chart. That looks like a sensible point for reevaluation of your market exposure, to me at least. The natural choice is to leave only the biggest legs, closing out the smaller ones, which also happen to be at greater danger, as they would need much smaller market movement to get killed. We'll all agree that you should, by all means, profit on each swing. Whether or not you should close all your positions or leave a select few opened, is up to you. Both ways the results would be great.

Best regards,
Barbossa
  • #5,247
  • Jul 3, 2012 6:00am Jul 3, 2012 6:00am
Quoting Barbossa
Well... to get a zero total in scenario 1 you would have to miss your diversifications.
Too true. If you mess up a cycle pattern like that, you might need a new strategy, Equity Millipede or not...
  • #5,248
  • Jul 3, 2012 5:22pm Jul 3, 2012 5:22pm
Spyderman,

In view of what I have said in http://www.forexfactory.com/showthre...17#post4643317 I don't have a leg to stand on in my argument with you http://www.forexfactory.com/images/icons/icon7.gif.

I stil have few feeble objections but they pale into insignificance next to the rescue of 1500 pips http://www.forexfactory.com/images/icons/icon6.gif.
  • #5,249
  • Jul 3, 2012 5:41pm Jul 3, 2012 5:41pm
Quoting karelk
Spyderman,

In view of what I have said in http://www.forexfactory.com/showthre...17#post4643317 I don't have a leg to stand on in my argument with you http://www.forexfactory.com/images/icons/icon7.gif.

I stil have few feeble objections but they pale into insignificance next to the rescue of 1500 pips http://www.forexfactory.com/images/icons/icon6.gif.

Nice post back then. Never saw that...hmm or maybe I did and remembered it subconsciously.

In any case I appreciate your thoughts. The only difference we're talking about here is not just closing positions and immediately opening the "recreated" ones.

Still remains to be seen if this "tweek" has any merit.
  • #5,250
  • Jul 3, 2012 7:30pm Jul 3, 2012 7:30pm
Quoting karelk

Say you have a position worth 5000 pips that you wish to keep open with a s/l at b/e. I suggest you close this position (thus realizing the profit) and open the same trade again with a 5000 s/l.
Wouldn't this cause some chaos with lot sizing on future trades? Because of the large equity jump most traders would increase lot size, especially if your doing this on multiple trades, just a thought...
  • #5,251
  • Jul 4, 2012 4:52am Jul 4, 2012 4:52am
Quoting samarrone
Wouldn't this cause some chaos with lot sizing on future trades? Because of the large equity jump most traders would increase lot size, especially if your doing this on multiple trades, just a thought...

Some trader's who use % of account use their equity balance and some use their actual account balance. Just as some brokers figure margin on equity and some on balance.

Personally I use the actual account balance. Now if I were to implement what we're discussing here then I'd need to make an adjustment to that.

For example, if I closed those positions for 1500 pips and then used that additional balance in figuring future lot sizes, what happens if I do have to recreate those 5 positions. In effect I need to hold that 1500 pips in reserve to offset the large s/l's on those positions. So I shouldn't use that portion to calculate lot sizes for other trades...IMO
  • #5,252
  • Jul 4, 2012 2:50pm Jul 4, 2012 2:50pm
VEEFX has always been a regular and valued contributor to this thread, wish he would post more frequently.
  • #5,253
  • Jul 5, 2012 4:01pm Jul 5, 2012 4:01pm
I wanted to post the beautiful charts of EURAUD and what I believe is a prime example of what Graeme may have done live (and I wish I had).
Attached Image (click to enlarge)
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Twitter: @zusch_ -- Preselecting trending pairs, stocks on a weekly basis.
  • #5,254
  • Jul 5, 2012 5:47pm Jul 5, 2012 5:47pm
For any newer readers I suggest you re-read post 965 by Graeme, it is very important.

"All my personal focal interpretation is done on fly. This is from alot of practice.
If I were to set golden rules about fibs
When price retraces:
33% of previous candle - stronger move that will most likely continue
50% of previous candle - evenly matched buying/selling power
66% of previous candle - stronger opposition power
If you look across any pair, any timeframe, you will notice:
Strongest trend will have less than 33% retrace
Stronger trends will have 33% to 50%
Weaker trends will have 50% to 66% retrace
Basically you are gouging/prodding the selling/buying power to gain a hindsight to what might happen next.
Doesnt happen all the time but most/enough times.
Fibs are not about buying/selling oportunities as most traders believe but it is an indication of buying/selling power. Is the power slowing down or is
the opposite power increasing? That is purpose of fibs.
If trend is downwards and price retraces to 50% and then close at 33% of previous candle. That is a stall and the tredning momentum has halted.
Alarm bells should be ringing and you should be preparing to phase out your positions."
Twitter: @zusch_ -- Preselecting trending pairs, stocks on a weekly basis.
  • #5,255
  • Jul 9, 2012 9:14pm Jul 9, 2012 9:14pm
This sounds very interesting I'm curious as to how many open trades you guys consider safe to have open at any one time. If 1% risked on each open position what would you suggest is a safe number without risking margin call?

Hope this is not too off topic.

Kind regards
  • #5,256
  • Jul 30, 2012 4:45am Jul 30, 2012 4:45am
[quote=Hayden;5826907]This sounds very interesting I'm curious as to how many open trades you guys consider safe to have open at any one time. If 1% risked on each open position what would you suggest is a safe number without risking margin call?


With all due repect to Graeme this is the problem with the millipede idea. You need to make your lot size so small that almost every day you will be making nothing to start.

Graeme had 194 open positions plus he needed room for many more to keep going. If you do the math he probably tripled his account every year (37 pips per week per position x 2 lots x 52 weeks x 194 = $7 mill per year). It certainly helped to start this in 2008 when the E/U dropped 3700 pips in three months.

What we can take away from this is that when the market is due for a major turn or a completion of a pullback in a trend we should be thinking about getting in and holding on for as long as possible.

Feel free to ignore my ramblings since this thread is now deceased.

Thank you Graeme for a very enlightening and stimulating discussion.
Enter Signature
  • #5,257
  • Jul 31, 2012 1:35am Jul 31, 2012 1:35am
[quote=Don M;5887188]
Quoting Hayden
This sounds very interesting I'm curious as to how many open trades you guys consider safe to have open at any one time. If 1% risked on each open position what would you suggest is a safe number without risking margin call?


With all due repect to Graeme this is the problem with the millipede idea. You need to make your lot size so small that almost every day you will be making nothing to start.

Graeme had 194 open positions plus he needed room for many more to keep going. If you do the math he probably tripled his account...
-- Arguably fair point about 2008 being a good time to start any trend-following strategy-- however it is not possible to know either 'when the market is due for a major turn' or when the market is at the 'completion of a pullback in a trend'--- therefore all you can do is look for low-risk entry and participate.
  • #5,258
  • Jul 31, 2012 5:55am Jul 31, 2012 5:55am
[quote=gssintokyo;5889428]
Quoting Don M
-- Arguably fair point about 2008 being a good time to start any trend-following strategy-- however it is not possible to know either 'when the market is due for a major turn' or when the market is at the 'completion of a pullback in a trend'--- therefore all you can do is look for low-risk entry and participate.
Hi I decided that my own attempts in trading this way is to have a millipede with a fixed number of segments. Once the segments have been assembled and cobbled together I just let the millipede wriggle about till it gets home. I must say though I have not been able to put together more that a few segments and the psychological endurance needed is beyond belief

Olu
If you think you can or cannot do it you are correct
  • #5,259
  • Aug 1, 2012 12:37am Aug 1, 2012 12:37am
Hi Guys. some thoughts on this method as a business (unit)

start with 1 currency pair/ eurusd
use 1 signal/ sigA
use 1 timeframe/ H4
lease infrastructure/ vps
develop & deploy ea/ machine places buy&sell orders based on sigA. 2 positions 1 exit at 1R:1R 1 remains
manage cashflow/ on weekly basis cover losses and take some profits by offloading some of the near to close positions
gain confidence/ by repetition
add 2nd currency pair/ gbpusd
add 3rd/ usdchf
add 4th/ usdjpy
add 5th/ audusd
add 6th/ audnzd
add 7th/ usdcad
add 8th/ gbpjpy
add 9th/ eurjpy
add 2nd signal to ea/ sigB, take more positions
manage cashflow/ at end of month or quarter have a reckoning


this will build your bank and confidence. you won’t care how many positions you have open. by the time you get to sigB deployed on all pairs, well you contemplate adding a third signal.

you realise the limitations of mt4 and hire a programmer fluent in the FIX API

flight of fancy?
  • #5,260
  • Aug 1, 2012 1:28am Aug 1, 2012 1:28am
You don't have to limit the start to a single pair. You could simply reduce the lot size 4 times and run on 4 pairs. It should be even safer than running on a single one. Of course, a bit harder to manage, as you need to keep track of about 4x more trades/losses. However, it's the EA that worries me the most. These babies tend to get you in a heavy drawdown during ranges. Otherwise, it seems like the proper approach.

Best regards,
Barbossa
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