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  • #10,241
  • Jul 29, 2012 3:00pm Jul 29, 2012 3:00pm
Hi Bedayan

I only place one order. If price is below the MA's then i only place a sell. So its actually more like a trend continuation trade. I have tried to have both placed and when u get stopped out then u buy, but if the trend has allready been confirmed then it will only make u loose twice, or then your TP should be very small.

I also let my pending order last 4-5 days, so if i have a downtrend confirmed by the MA's and price breaks up next day and the day after, But then on day 3 or 4 it resumes the downtrend again then my order gets hit. But that is not in the stats above, they dont happen so often as a direct breake, but are very good to trade.
  • #10,242
  • Jul 29, 2012 6:25pm Jul 29, 2012 6:25pm
Words to the wise: For every day that a position entered on the H1 TF is held for more than a day or a week in an attempt to produce a 50R or 100R trade, the H1 trader is paying the “opportunity cost” of not being able to take that same pool of money and turn it over, perhaps multiple times, on the smaller TF (H1) in which he focuses. Of course, this is most evident when holding a winning trade for months or years, which can mean sitting with a position through extended periods of sideways and contra-trend movement. During those periods, the fact that an H1 setup has become a longer-term free trade with a large R-multiple is irrelevant. What is relevant is that the position represents a pool of capital that could alternatively be deployed trading H1 setups each day. And we all know that, assuming % risk and per-trade expectancy are equal, total return is largely a function of frequency, or how often one turns over one’s capital over a month or year. (This discussion does not cover any carry-trade potential.)

So Joel’s 450R trade that he closed about six years after opening it works out to about 6.2R/month, or 0.31R/trading-day. The real issue, then, becomes not how great a 50R or 100R or 450R trade is, but whether the opportunity cost is greater or less than this. In the example of the 450R trade, if a trader's account averages more than 6.2R/month, then he is better off as a trader, not as a trader whose goal is to turn day- or swing-trades into long-term investments.

Bottom line: There is an opportunity cost to holding a large R-multiple winner over a period of weeks, months, years.
  • #10,243
  • Jul 29, 2012 6:53pm Jul 29, 2012 6:53pm
Correct me if im wrong on this.

But from my view opportunity cost does not cost anything due to leverage?

You are still able to deploy your capital as forex offers leverage.

Thus risking 1% per trade, say you have 10 trades on, you still can have another 10 trades on?

Thus i dont see why opportunity cost is an issue. In other words, the capital is not tied up and thus no opportunity cost?

I agree if its for stocks whereby the margin is much higher like 50%, thus there will be opportunity cost in holding it.. but for forex?
Whether you can or you can't, you are both right.
  • #10,244
  • Jul 29, 2012 6:57pm Jul 29, 2012 6:57pm
Yes, the opportunity cost only applies if there is a finite amount of capital.
  • #10,245
  • Jul 29, 2012 7:13pm Jul 29, 2012 7:13pm
Quoting California
[color=black][font=Verdana]Words to the wise: For every day that a position entered on the H1 TF is held for more than a day or a week in an attempt to produce a 50R or 100R trade, the H1 trader is paying the “opportunity cost” of not being able to take that same pool of money and turn it over, perhaps multiple times, on the smaller TF (H1) in which he focuses. Of course, this is most evident when holding a winning trade for months or years, which can mean sitting with a position through extended periods of sideways and contra-trend movement. During...

With the current interest being earned on an interest positive trade basically being zero.... and the fact that many pairs are even interest negative on both long and short positions, I am inclined to agree with your assessment regarding a long term holding period...... however in the past that was not so because you could actually make a very nice additional profit in the interest earned on those long term carry trades.......... there are still a few interest positive pairs you might want to hold if the trade dictates this.
  • #10,246
  • Jul 29, 2012 7:27pm Jul 29, 2012 7:27pm
Quoting tradestar1
there are still a few interest positive pairs you might want to hold if the trade dictates this.
Agreed. I noted in the post that the comment excludes carry-trade potential. There is no doubt that the yen carry trade used to be more profitable than it is today.
  • #10,247
  • Jul 29, 2012 7:31pm Jul 29, 2012 7:31pm
But i do agree on your turnover concept with the DIBS.

Having a 1 to 450 risk reward over a 6 year period, but i could have a 1 to 5 risk reward a hundred times over a 6 year period too.

Thus further analysis is warranted. Thanks for sharing!
Whether you can or you can't, you are both right.
  • #10,248
  • Jul 29, 2012 7:38pm Jul 29, 2012 7:38pm
Putting aside swaps, the opportunity cost is less than 6 years as once the trailing stop (ema etc) passes above BE then opportunity cost is zero. As the capital tried up in this trade can be redeployed. Equity is tried up in margin however.
  • #10,249
  • Jul 29, 2012 7:53pm Jul 29, 2012 7:53pm
Quoting Flash1
then opportunity cost is zero.
There is an opportunity cost to one's capital at all times, whether the capital is in a profitable trade, a breakeven trade, an unprofitable trade, or in no trade and in a cash position.
  • #10,250
  • Jul 30, 2012 7:39am Jul 30, 2012 7:39am
Quoting hanover
Razor, many thanks for your reply and your kind words.

I'd value your view on the same question that I asked 4 years ago. Why do DIBS folk recommend obtaining a free trade by taking 1/2 off at 1:1, instead of moving the SL to breakeven at 1:1? Both achieve a free trade, while the former gives the remaining position more room to move. But if the philosophy behind DIBS strongly prioritizes the long-tail returns (as in Joel's post here), surely it's better to have the...
Its funny but I was adamant for doing the 1:1 all the time, today it is more circumstantial and along the lines of Peter stating there will be times when he knows a stronger move, or a move in general has a stronger chance of working out, today I treat each the same. There will be times when a move justifies the 1/2 off at 1:1 and others when it doesn't. The other aspect is the mental belief early on that a trade can go 50:1 and back again without any emotional scaring because it 'was a free trade'. The same belief can be held by moving the SL to breakeven, something that became apparent after doing it for sometime.

Today I don't do the 1:1, instead if I am looking to unload a portion then I will do so either at an area that looks like it could be trouble to get past, price action tells me too, the trade has moved a considerable distance and taking some profit is good for your account or a combination of the above. All this said, it is hard to imagine going back and doing things differently in the beginning. The endless trades, the endless testing is what gave me the conviction to continue and learn so to an answer I think it is more the early on aspects gain trades that don't net too many losses but more Breakevens.

Taking alot of trades early on, you are unlikely to find moving your SL to breakeven at 1:1 helping the long tail cause and you would be stopped out more often than the 1/2 off scenario however I have learnt over the years to trade your signals, the SL is a measure of risk you are prepared to accept and the difference between a 10:1 trade in the 1/2 off vs the full is like night and day. Peter mentioned the difference in PF from either situation and the latter having a better factors but a less smooth ride. Early on traders are interested only in profits and limiting losses and drawdown. These early on traders don't stick around long enough to see the long tails if a system nets them 4-5 losses in a row, but 4-5 breakevens, with maybe a full 1R loss mixed with a 10:1 winner is a better outlook, even though mathmatically taking the full losses and have a full position hit 10:1 is more profitable than the BE and 1/2 off option in the same conditions.

Essentially it is an individual thing and growth will come at the rate that a person ultimately is happy with. Everything being magical in hindsight but after reading and implenting things over the years I am happy with the way things have gone for me and I am sure others will work things in the way that works for them which essentially is the beauty that trading brings, everyone is different which reflects market movements.

RT
  • #10,251
  • Jul 30, 2012 8:12am Jul 30, 2012 8:12am
Quoting California
[color=black][font=Verdana]Words to the wise: For every day that a position entered on the H1 TF is held for more than a day or a week in an attempt to produce a 50R or 100R trade, the H1 trader is paying the “opportunity cost” of not being able to take that same pool of money and turn it over, perhaps multiple times, on the smaller TF (H1) in which he focuses. Of course, this is most evident when holding a winning trade for months or years, which can mean sitting with a position through extended periods of sideways and contra-trend movement. During...
It is not possible to conclude that without knowing the % risk represented in that R.

For example I could have a 5% 1R and a 1% 1R so essentially a 400R could represent 2000% or 400%. Yes over a period of time you could conclude why hold a 200R position over X years as it only equates to XR over a day, but that XR over a day could represent a greater % gain (or loss) than other trades taken that make 1.5R in a day.

Does that make sense?

RT
  • #10,252
  • Jul 30, 2012 8:23am Jul 30, 2012 8:23am
Quoting tradestar1
With the current interest being earned on an interest positive trade basically being zero.... and the fact that many pairs are even interest negative on both long and short positions, I am inclined to agree with your assessment regarding a long term holding period...... however in the past that was not so because you could actually make a very nice additional profit in the interest earned on those long term carry trades.......... there are still a few interest positive pairs you might want to hold if the trade dictates this.
Interest swaps only become an issue if the position/s you are holding are not growing for a period or they are in decline and the value of the decline/stagnant position coupled with the long term accumulation of the swaps makes the position no longer of value to hold.

If a position is continually moving in a trend then negative swaps are not a real issue and the value they represent are very minimal compare to overall position value.
  • #10,253
  • Jul 30, 2012 9:32am Jul 30, 2012 9:32am
true enough.... but positive interest is still money in the bank......
  • #10,254
  • Jul 30, 2012 10:23am Jul 30, 2012 10:23am
Quoting lehmann
I have backtested AND forward tested the DIBS idea, with many different filters.
Lehmann

Thanks v much for sharing the results of your research with us.
  • #10,255
  • Jul 30, 2012 12:21pm Jul 30, 2012 12:21pm
Quoting hanover
Razor, many thanks for your reply and your kind words.

I'd value your view on the same question that I asked 4 years ago. Why do DIBS folk recommend obtaining a free trade by taking 1/2 off at 1:1, instead of moving the SL to breakeven at 1:1? Both achieve a free trade, while the former gives the remaining position more room to move. But if the philosophy behind DIBS strongly prioritizes the long-tail returns (as in Joel's post here), surely it's better to have the...
Hi David,

I read all Peter Crowns posts and sometimes (maybe many times) he did not take half of his position at 1:1, he wait longer and get a much better result.

http://www.forexfactory.com/showthre...18#post1980318


Best Regards.
  • #10,256
  • Jul 30, 2012 1:04pm Jul 30, 2012 1:04pm
Quoting Razor_trader
It is not possible to conclude that without knowing the % risk represented in that R.

For example I could have a 5% 1R and a 1% 1R so essentially a 400R could represent 2000% or 400%. Yes over a period of time you could conclude why hold a 200R position over X years as it only equates to XR over a day, but that XR over a day could represent a greater % gain (or loss) than other trades taken that make 1.5R in a day.

Does that make sense?

RT
Thanks for your comment, Razor. An R-multiple allows one to compare apples with apples. If I target 1.5:1 using an H1 strategy and my daily expectancy is 0.5R, it will be more advantageous for me to trade this approach than, say, a long-term investment approach that holds a position for six months and has a daily expectancy of 0.3R. The value of R has no bearing on this comparison. It is the R-multiple that is key. Note that for the six-month example, daily expectancy is calculated each day based upon that day's starting capital balance, not the capital balance that was allocated to the trade six months ago. This may be what you are referring to, Razor (if not, please PM me).

Most traders who use a good amount of leverage may never have to deal with the opportunity cost issue, since they can afford to warehouse a number of different positions in an account without tying up equity. This was Fartist's excellent point.

Otherwise, each trader needs to use what best fits his personality. What I have found best fits mine is discussed in a prior post.
  • #10,257
  • Jul 30, 2012 7:14pm Jul 30, 2012 7:14pm
Firstly, many thanks to those who replied to my question. Just to let you know that I've read your replies.

An interesting discussion about R multiples and opportunity cost is developing. Perhaps another underlying question is — which is more important: return vs time (RVT), or risk-adjusted return (RAR)? I used to believe it was RAR, but these days I see merit in both views.

For those who favor the 'textbook' RAR view, the beauty of the extreme RR trades (e.g. Joel's 450:1) is that risk is apparently minimized. In other words, it can be reasonably argued that the total risk is only ever 1R, whereas if we had placed (say) 45 trades over that time each of 10:1, the total risk would have been be 45x as great. However, nowadays I see that view as being arbitrary, because the pips that are being risked are the same pips that are being 'lost' during retracements along the way, during the progress of the 450:1 trade. Or alternatively, we could reasonably argue that the risk in each of the 45 trades is being covered by the overall gain to date. Hence it comes down to whether you choose to view the 45 10:1 trades as individual trades, where each trade carries its own risk, or as a total entity, just as with the 450:1 trade. Either way is valid, IMO.

The RVT aspect also merits consideration. It could be argued that the 45 10:1 trades give the trader the opportunity to compound his gains more frequently. But then the 450:1 trade doesn't have to be the only trade over that 6 year period. The millipede approach teaches us that we can pyramid the position by adding several more legs during the 6 years, and have all legs profiting simultaneously, which I expect would compensate handsomely enough for any lack of compounding. The drawback being that all legs also lose pips simultaneously, during retracements, whereas with the 45 x 10:1 approach, profit on earlier positions has been safely banked.

Over time I've broadened my view. RAR still makes perfect sense — especially as the priority of every prudent trader is risk management — but I see the notion of basing risk on a trade-by-trade basis as an arbitrary one. Overall account risk incorporates not only the risk per trade, but the probability of losses exceeding wins over time.

Ultimately the only way to profit is to be net long heavily/frequently enough when price is rising, and net short when price is falling, to overcome costs; I don't believe that RR or MM considerations can overturn that fact. Many folk apparently believe that MM can turn a system that delivers a negative pip count into a winning one; I see that as being a myth.

David
  • #10,258
  • Jul 30, 2012 10:34pm Jul 30, 2012 10:34pm
For those wanting to know how to build a risk model, including a discussion of expectancy, R-multiple, etc., and how these things can help a trader determine R so as to reach his/her monthly/annual return objective, this is highly recommended:

http://fxevolve.com/blog/how-to-buil...ng-risk-model/
  • #10,259
  • Jul 31, 2012 1:12am Jul 31, 2012 1:12am
Quoting California
Thanks for your comment, Razor. An R-multiple allows one to compare apples with apples. If I target 1.5:1 using an H1 strategy and my daily expectancy is 0.5R, it will be more advantageous for me to trade this approach than, say, a long-term investment approach that holds a position for six months and has a daily expectancy of 0.3R. The value of R has no bearing on this comparison. It is the R-multiple that is key. Note that for the six-month example, daily expectancy is calculated each day based upon that day's starting capital balance,...
Understood and to be clear I have never being able to successfully sit on my hands long enough to achieve super high end returns. I am more accustomed today to choosing entries and having logical exits that are bound by either a set targer or having price action dictate when it is time to exit. I have found my account has been much healthier over the past 12-20 months by doing so and from a psychological point of view it is easier to accept a profit (or loss) on the balance sheet, not whilst it is floating around wildly in the unrealised column.

Vouched you, I think you have earnt it.
  • #10,260
  • Jul 31, 2012 2:15am Jul 31, 2012 2:15am
Quoting Razor_trader
Understood and to be clear I have never being able to successfully sit on my hands long enough to achieve super high end returns. I am more accustomed today to choosing entries and having logical exits that are bound by either a set targer or having price action dictate when it is time to exit. I have found my account has been much healthier over the past 12-20 months by doing so and from a psychological point of view it is easier to accept a profit (or loss) on the balance sheet, not whilst it is floating around wildly in the unrealised column....
Using your own exit, how many R on average do you achieve a month?
Whether you can or you can't, you are both right.
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