Building an equity millipede

Hi Yonnie,

Reading your post one more time and thinking about what your mentioned in bold, determining the change in trend is one of the hardest thing to do in my experience. More than 70% of my failed probes result from either trying to stack or to go in the opposite direction and freeze floating profits. Something that has been my focus to improve

Any suggestions other than the usually cliche "wait for confirmation" ?

My personal opinion is as follows:

If there is a LOW RISK entry before the potential confirmation that the majority of other traders are waiting for, you can participate.

If the potential confirmation turned out to be true, then you are in a better position to set your stop to BE as you piggyback of off other traders that particpate after confirmation.

One could argue about unnecessary losses despite how small. But what if the confirmation that YOU and other traders waited for turned out to be wrong when you participate AFTER confirmation?

The losses would certainly be larger than the person who participates beforehand when the risk was smaller.

Being able to take trades that the majority of trader are unable to take due to psychological factors. That in itself is an EDGE in trading because it keeps you one step ahead of the majority.

Of course not many traders have this EDGE. Including myself.

Yon

so should we attempt to list all the characteristics/setups that qualify for a LOW RISK entry? I feel I have some room for improvement in the area of Risk Management.

In this particular scenario, at the end of Flag formation or Support tuning resistance etc, we are at the crossroads and making a decision of continuation vs reversal is the real struggle (for me!) as there is no quantifiable method that would hint price would go one way or the other at that very pivotal point. This is a real dilemma for me as I have to deal with this scenario when price stalls at daily/weekly/monthly high/low levels resulting in either a breakout or bounce (eventually).

The only option is to participate (which does not constitute as a low risk entry in my opinion as assessment of being right/wrong is quite conflicting when you flick timeframes to make an informed judgement.

One alternative is to take both buy and sell positions with a 'predefined' loss on one side of the direction post confirmation.

EDIT: Also want to confirm my definition of "LOW RISK entry".... to me it means hunt for a setup/price level that requires a relatively small movement in price to negate the direction of the entry. I use the term 'relatively' within the context of timeframe as NOT all entries on shorter timeframe would constitute a low risk entry just because the scale is small.

Just my 2 cents: get a sheet of paper and a pen. Draw an idealized uptrend channel, a symetrical triangle, a falling wedge, a horizontal range, a bullish flag.... What can you see? Two lines with price bouncing several times on the lines and breaking out once (to me a fakeout is an overshooting bounce).

Those two positions are frozen at -2 times the spread until one SL is hit. So it is equivalent at setting a buy stop above and a sell stop below the current price where you would have set your two SL (+ you save 1 spread). Now you are late in the move which makes it a high risk entry. Indeed if the price breaks out you enter when it is ready to pullback and in the swing scenario you have a position in the middle of the range where you clearly don't want to be. On top your SL is huge because it has to be the other side or the S/R line. And that's bad per your own definition of risk.

Perhaps this picture will reflect what I am trying to ask (assuming you are implementing the Millipede strategy as your response seems a bit too general to me)

At the current price level on H4 TF, would you go long or short on Eurcad? i took a buy on H1 thinking it was a retrace (a 50 pip floating loss as I could not monitor this probe from work)

Now, looking at H4, I am in the same predicament.... is it just a retrace on H4 or reversal? My daily/weekly hindsight is still long and under 33% retrace but a bad pair to trade looking at monthly which is a range for ever. I am leaning towards opening another long or stay on the sidelines for now.



EDIT: Sorry, now I recall I went into this pair with the anticipation of breakout as price broke previous month's high of 1.28. With this in mind, I think this is still a retrace :-

Fancy spread indi VEE, can you attach it please?

Hmmm i was reading the topic back 10 months ago when the OP started it.

After reading a few pages i was very impressed with the system but then again i didnt test it becouse im a day trader and this one requires too much patience

I wonder if this method has worked good for anyone?

yes that`s a tricky question.

non-technical pointers:
is any major news coming out which will affect your position long-term?
are other instruments pointing to a change in trend?

if we firmly believe that one or both factors will reverse the trend, we will be able to close our position without much damage to the floating profits.

technical pointers on the chart:
we dont want to close out our position prematurely and watch the trend continue without us.
that means that when we finally close out, the changing trend will have made a serious dent in our floating profits.

generally a long position could be closed out when price closes 100-200 pips below the last swing low depending on where the swing low is on the chart.

if the last swing was shallow, you might look at the swing low before that one. if that one is too far away, you could look at other retraces and decide where to exit the position.

before you push the button, take a last long look at the chart: is the down move stalling and maybe ready to move up again?

we can only make an educated guess as to where price will go next, so never beat yourself up if you get it wrong. the market will do what it wants.

your 1,000 pip stop sounds reasonable.

in post 5390 I describe the best trade for G`s system......

you can trade the breakout from a range, but the probability is quite high that the trade will be taken out @ BE later.

but if you take a trade near support in the range and after that price breaks out of the range, the chance that this trade will survive is very high.

so be aggressive when the opportunity comes around.

another advantage is that if the trade turns sour and price heads south, your loss is smaller than if you had taken a trade higher up the range.
a little move back up might take that trade out @ BE.

just something to think about

Yes, I can understand exactly why a trade using this method holds separate Longs and Shorts as in effect he's really managing 2 separate positions.

However, we all know that 99% of the time the trader is going to have either a net long or net short position with this method (even if it's just by 1 lot).

So being long 10 lots of EUR-USD and short 15 lots is the same as a net short 5 lot position. We all know this. But what hasn't been mentioned before on this thread is that doing it this way is extremly inefficient and it might even cost a trader up to 10% in dead money via the daily interest charges (the 10% is a estimate) over a year. Folks, 10% in today's climate is a hell of a risk-free return, some might even kill for it.

G has said many times that 10% is a small price to pay when you're making 100%+ a year and of course he has a point. But then again, for somebody who has $1,000 in their pocket, you never see them throwing a few $10 and $20 bills out the window do you?

To me the better way is to manage your positions through the one broker yet keep your own 'virtual' positions. So in the above case although your broker would show you short 5 your figures would actually have you long 10 and short 15 in your records. Yes, it's a little bit more work but you're getting paid for it.

Most points on this thread have been debated backwards and forwards over and over again, but not this one. Yes, there's been some talk of sub accounts and the like but nobody has spoken about the inefficiency of it all hence this post.

Vee, how have you for example handled this problem? And how about others especially the Americans who (in the Land of the Free) are somewhat less free than many of us around the world especially when it comes to trading accounts

interesting observation: it crossed my mind too when people start talking about not being able to go long and short in 1 account.
My immediate thought was to just close out your long when you want to take a short trade and write down the short trade in your book.
But I have no experience with this set-up and I haven`t really investigated it.

I`m with the American broker Interactive Brokers and you can place long and short orders at the same time in the same pair.
The good thing is that they dont charge interest on the long trades or the short trades separately, but on the balance of long and short.

however you`ll have to keep records of the trades, because only the average price of longs and shorts is displayed.

do you think that some brokers charge interest on long or short positions separately?

Hi Calculus and Yonnie,

The point you raise about Hedging is an interesting one and has been discussed to a certain extent in this thread. Good time to address it one more time as I have some perspective to share (being an American and the regulatory restrictions enforced by CFTC and NFA).

Firstly, let me address the issue with brokers and regulation. I also trade with Interactive Brokers and they are still my broker but no longer for spot FX. They have the worst FX trading platform and their universal/single account setup requires a PhD to understand their back-end accounting and net liquidations in each currency. Your profits would stay in the traded currency unless you request IB to convert to our account base currency. Trading this strategy with IBKR would be a HUGE pile of mess. Maybe non-US versions of IB are much better. Unless you trade/hedge multi-assets like Futures, options, SSF, bonds, T-bills etc, I see no value in trading with IB for just spot FX. As Yonnie mentioned, IB will always club all positions in a average position making it very hard to manage positions and they do NOT allow trading in both directions on the same pair for US customers. To bypass these restrictions, I implemented a very elaborate Multi-Asset Portfolio trading 'system' in Excel. I would manually and 'virtually' keep a daily log of all my trades across multiple sub accounts and it was VERY labor intensive. What Calculus is suggesting is VERY hard if you are taking 10-12 positions on a daily basis (but certainly doable).

All this was before I got introduced to this thread. Since then, I have struggled to implement this strategy big time due to FIFO and hedging restrictions. FIFO is not really discussed much here but it has the biggest impact for folks in US trying to succeed in this strategy. Think about it.... one simply cannot implement stacking with FIFO restriction as the most recent BE trade will close out the longest running leg! There is NO way to circumvent this by using sub-accounts. Say, for 10 stacks, we would need 5 subaccounts in order to close trades at BE causing an administrative nightmare. I have tried this live by opening FIVE FXCM sub-accounts last year but the effort was just not worth it.

Fast forward into this year, I am using a broker that does 'netting' of positions in their back-office. They do allow FIFO and Hedging for US customers and life has become much easier building millipedes with a netting broker.

Now back to the importance of hedging to the Millipede strategy raised by Calculus. It is no secret that opposing positions cancel each other out as evident in my back-office statement.

There are brokers out there who do NOT charge Swap for hedged positions. There are brokers out there who do NOT charge twice the Margin for hedged positions.
There are brokers out there who do charge $0 Margin for both hedged positions.
There are brokers out there who do not close ALL open positions upon Margin Call.

I am using one such broker that fits all the above criteria suitable for this strategy. Please do your own research as I am not going to recommend any broker here.

I have thought a LOT about this and have tried all the possible options out there. Both FIFO and Hedging are key ingredients required for this strategy ... Period! One cannot achieve the same level of success as Graeme with two sub-accounts or managing a virtual portfolio or whatever. Think about all the scenarios that could bite you in the butt when you are unable to hedge large 5000 pip legs or small 100pip legs. One has to follow the market and doing it all in the same account is a KEY requirement in my opinion to avoid margin calls.

Hedging can also be suicidal to this strategy as it encourages
- freezing your losses
- letting your losses run indefinitely
- ignore using StopLoss
- Over Leverage.. yes! freezing floating profits allows you increase your exposure. This is powerful in the right hands but detrimental for newbies or folks who lack good MM/position mgmt/math skills. The argument that you pay twice the spread for hedged position is bogus and insignificant in the grand scheme of things! There was ways to avoid paying spread/commissions with some creative thinking

The list can go on but hopefully you got the picture where I am headed

EDIT: I personally appreciate the ban on Hedging for US customers. It does not belong in a retail trading environment where investment scams are galore to take advantage of newbies. However, I do not understand the reasons why NFA has a ban on FIFO.

For your EUR/CAD H4 chart, based on the flying budah, that would be a good Short in the area 1.2843 to 1.2853, and a potential profit to your yellow moving average line.

Great discussion on the portfolios here guys, thanks.

IB FX obvioulsy has a lot going for it with the ECN access a major major advantage (the abhility to buy the bid or sell the offer). But as with most things in this game it comes with some disadvantages.

Vee, I agree with what you say about IB's platform and overall 'universal account', it's trying to do so much that in the end it becomes a mess. I've used IB for a long time (stocks, not FX) and have never really liked their software but the ease of access to markets and costs make them the choice for me.

I've never really had a problem with IB's software as far as entry and exit are concerned but then I haven't used it for quick buying/selling. Right now I'm test out some order entry software called Button Trader. So far it looks good and it has the feature where you can run separate long and short trades together. For example, if you placed 5 different long positions this week and 5 sepaate short positions it would hold them all no problem. Say in 4 weeks you wanted to cover 3 of the Longs you could choose which one's.

It works by making the positions 'virtual' rather than relying on what IB says although of course the net position of Button trader and IB will be the same.

I've probably got another week or so of testing on Bracket Trader and will report back here.

What's interesting about this topic is it proves a point I've long been making about success in this business - there's more to success than buying low and selling high.

A lot of time has to be spent setting yourself up correctly, getting the right equipment, knowing how it all works, understanding your broker's limitations and designing workarounds, getting spreadsheets programmmed correctly, learning to keep costs down, building a proper trading plan and so on.

Buying low and selling high is not enough, although it helps a lot

Dear friends,

Please let me talk about some crazy thoughts.
Maybe I´m out of time, concerning actual topics in the thread.

I watched and followed this thread from the beginning 2010.
I do not agree in certain details, what “G” has posted in former time and I don´t like to start discussions in repetition.
Maybe there are actually missunderstandings concerning some topics here and that is the point I´d like to talk about ingenuous.
There are no secrets.

My favourite pair is EUR/USD and I trade longterm scenarios also with other pairs (Basket) and markets, since I startet trading long time ago.
I´m not only convinced that longterm-trading performs constantly capital-growth,
I know and confirm, it will works, considering some aspects in detail.

One of the topics here was the discussion, how to handle positions, when the market will turn in the opposite direction?

Basically spoken, at any time every position has to die/close.
I `m in doubt, that pair-positions will actually survive more than a year or even half a year.
The FX-markets have changed, temporary retracements of 500-600 pips did occur.
Therefore any strategy has to be proved and updated from time to time and we should not handicapped by paradigms of former concepts.
Having in mind, that large retracements could damage almost any longterm-account, if no reaction and precautions will taken place.
By the way the question arised, what will be happen with the profit of intermediatly closed positions?
It’s part of almost any strategy, that in the scenarios the fictive profit will be immediately reinvested in terms of compounded interests or using the fixed-ratio-method to increase the lotsizes, but not to to fast and in regard to the portfolio.

The longterm scenario by a simple EURUSD-example:

The monthly Candle indicates long and the weekly candle indicates also long.
We notice, that the overall direction is still indicated actually long.
That´s what we see in the Chart and what we have to consider and there is nothing to decide by ourself.
The market shows what´s going on. No more no less.
No trader knows, in what direction the price will move in the future.
The chances for long or short are always and basically 50:50.

But we have a little advantage, because we know in average, (also considering tolerances caused by trading-hours, -days or news), how many pips (ATR-Indi) the price will move, be it daily, weekly, monthly, halfe a year or yearly.

As far as the price will not break through the weekly- and monthly-candles in opposite direction, no panic.
We can open and close positions every day, whatever the market perform based on our risk-mangement.
With other words, we have to guard the positions and movement of the market in the portfolio (ref. below).

We know in addition the daily-pip-movement of actual appr. 80-140 pips/weekday.
We know the average of the weekly-pip-movement (appr. 250-400 pips) and we know the monthly-movement by average between 600 and 700 Pips.

We see the monthly-movements over years and we can measure, that the last monthly downtrend of e.g. of EURUSD was appr. 2,900 pips (over a period of 14 month).

Actually and since 08/ 2012 the monthly Candles are located in an uptrend of 1,100 pips. It is also posssible, that the market can also move sidewards for a destinated period as indicated in the moment by weekly-candles.
But for longterm-positions, there is no danger, if the market will furtheron move sidewards.
I will not mention in addition fundamental or technical analysis, that´s yours,
to locate critical ranges.

Anyway we know and even we can calculate for each position in our portfolio the risks in reference to the a.m. pip-movements.
Within these pip-movements, respectively ranges, the price will move up and down and we can locate limits, where BE, respectively SLs has to be considered in reference to our money- and risk-management.
But considering, that starting-positions will get enough space for breathing.

For daily entries there are only common recommentations.
”Buy cheap, Sell expensive”.

If the market moves with high momentum in trend direction, we should well prepared e.g. by pending-orders, to catch such spikes, which will occur occasionally, not only on trendy days by daytrading.
Anyway EOD-Traders would have place pending-orders by using a grid in advance.
If daily entries will not hit the best-price at the low or high, no headache, it will get compensated in the future.
Longterm we do not think about minor pips concerning spread, slippage or swap.
As long as the market goes in any destinated direction, we place daily orders and we have to wait and watch what will happen. Some orders have to be closed immediately, if we bet randomly the wrong direction, other orders will survive for a week, maybe for months. We do not have stress, we cannot view in the future.
We can only catch the Market movement from his actual and overall perspective and view, not by prediction.

Many traders do not like longterm. It seems to be to boring. Longterm traders must have patience during long periods maybe over months or even years.

Some friends here talked about account scenarios, refering equity and balance.

At the longterm beginning, I did start an account with micro-lots longterm and a second account for daytrading.
In an excel-worksheet (portfolio) both accounts cooperates together.
In my point of view not the equity, but the balance has to be considered, because the equity does not contain the floating losses of active orders along with other important criteria.
In reference to risk-mangement, I´d like to know at every time, how much money is already performed and protected in take profit (by SLs), considering also the floating of temporary loss-trades in the shorterm area.
MT4-terminal does not supply these information for analysis. I cannot immediately recognize and calculate, where the stops of each orders are located and safeguarded for an actual realistic balance result.
However the Excel-portfolio supplies me the real balance in summary.
Brokers policy and MT4 will not support such features.

For daytrading, I would need this portfolio information to calculate the lotsize and stops and to evaluate the risks for new positions in general, depending of the market pip-movement mentioned above. In the portfolio, I can simulate (worst case and drawdowns) in that sense, what will happen, if the price moves in the opposite direction, which will influence all positions, as also concerning the pendings contained in the portfolio. I can recognize in advance, how many and which of the pending orders would be opened or orders would be closed at Sls and how the remaining longterm orders will interact in different scenarios of market movements.
The portfolio-scenario is the most important point and key to success, which influence my strategy and the entries.

The goal not only of longterm-trading is capital growth and this needs very much patience. The first and most difficult step at the beginning (by low risks) is to get profit in the account for a positive balance.
If your profits in summary gets higher than your invest in the account, than you will drive in line with the winners.
Please take into account: 90% of the beginners will lose their account, because they are impatience and greedy.

If the account is stable in profit and growth, we have to save at the first our private invest and we will need in adition reverses > 25% of the account to survive drawdowns.
At this point, we will continue trading only with capital performed from our profits.
The next step will be increasing the lotsize in reference to capital growth.
The balance and worstcase scenarios by simulation in the portfolio will tell us, what we can invest and risk to avoid burning our account.

I´m only occasionally here in the forum.
You can disassemble and discuss my thoughts critically.

Wish all friends here sucessfully trades

Over60

Over60, you make some good points in your thread, thanks.

The trouble is there are no hard and fast answers. What's right for me might not be so good for you and vice-versa.

G's 3x20 exercise is probably a must for most people here, including myself but I think there should also be another 3-6 month exercise that being to test the ins and outs of this strategy because when it's traded real-time you can be sure things are going to happen which you never thought of.

The second exercise is basically about building your trading plan during live markets and can be done either on a sim or better yet by risking small amounts per trade (less than $50).

If someone were to get on OK with the first exercise and then jump into this method after having read this thread (the thread is the theory) without any real practice into how the method works and what needs to be done real-time risking proper money then I think they're probably going to run into some unforeseen trouble.

Building a successful trading career like building a successful law career can't be done in a few months. Time is a key element...

Hi all, Vee and Calculus (as u guys brought up IB Platform etc)

At one time i was into Options Trading and used Think or Swim platform which was really awesome and their rates were gd as well. They have a segment for FX Trading as well and judging fm their ease of use interface in Options i am sure it wd b 4 FX as well. Check them out...Great Platform.

Another is VT Trader (Visual Trading Platform) which is engineered with the Professional FX Trader in mind n is a World Acclaimed (Global Standard of Excellence that is) platform the past decade. Do check that out too.

BTW i am no longer doing Options and am very much into FX now. So, no, i am not selling d idea of Options here juz in case some1 out there misunderstood my intentions. I hv bn following tis thread and puttin some extensive hrs into G's methodology n doing the foundation work to succeed. I m stil far off but persistence and doing wats 2 b done is the KEY. Cheerio. My 2cents worth.

@Calculus,

what kind of trouble should it be?

Who is telling you, that you should master 3 x 20 Pips per day.
That is nonsens and waste of time.

Make trades by a demo-account day per day in overall trend direction as described in my previously post, without TP and SL (in the start period) and watch about some weeks, what will happen with the daily trades in the account.

This is the best training in association and in conjuction with a portfolio.
You will only find the dynamics of any market, if you are in the market and you will get control, what will happen in your account.

Anyway, I do not share and will discuss , what “G” has proposed to do.

The master-key is the portfolio, it will tell you instantly, what do to.

Over60

Graeme did.

In fact it's probably one of the most important quotes and bits of advice in this thread. To quote him directly -

"It is because of the 3x20 exercise that I became the trader I am today...."

my 2 cents on 3x20. It is absolutely critical for long term success. It improves your focal interpretation in identifying price action, low risk setups, tunes your brain in gauging the strength of compelling momentum during breakouts/bounces, close positions prior to your mental or hard SL and get out with a small loss, helps minimizes drawdown, enforces discipline and patience to avoid overexposure etc etc

It allows you to be a scalper/intraday trader if it fits your lifestyle. I also think it would take YEARS for average trader to get to the level of Graeme but one has to start somewhere :-

I did my exercise last year for 3 months or so and thinking of starting one more round of practice next month. There is always room for improvement.