Building an equity millipede

EUR-AUD

 

1. Strong move through the resistance around 1.2490 basis 60m chart
2. I'm not long this one, but will try to put something on if price comes back to test the breakout level
3. It's worth a shot with 10 basis points isn't it?
4. I know my risk, but what about the potential reward? Maybe never looks back from here on it's way to 1.50+ later on this year, if so I'm going to be on it, if the trade doesn't work then I'm going to lose 10 basis points
5. Probabilities suggest that this trade won't work but you don't know unless you bet

And on that EUR-AUD let's not forget the potential support around the open of this 240m bar (it's going to close in 8 mins).

1.2481 is therefore marked on my chart. If we get a bounce on the 5m from that level I'm going to risk 10 basis points on a long, are you?

The USD-JPY trade isn't working out that well, small offside at present at 4-5 ticks. If the setup at around 9.20am UK time was any good it should have worked right now.

Can one use a time stop? Sure, it's often not a bad idea, what I usualy do is cut the trade in half.

Hi Calc and others!

Calculus, do you have something to calculate the trade size, or you do it in your head?

Stopped on my USD-JPY.

Not looking too good am I But at least I'm PARTICIPATING.

1 breakeven and one loss, losing money for the day so far, perhaps all my trades will be breakeven/loss today. That's going to be the norm when you try to be aggressive and not really good on your entries (I'm just OK on my entries). But every now and then you're going to be able to build a monster position and that's all this strategy is about - building monster positions and then holding them for monster rides...

One of the reasons why I don't use bigger timeframe hindsight is because it takes my eye and mind off what is happening RIGHT NOW to price.

Say, big time monthly hindsight down. That means we're expecting further falls OVER THAT MONTH. The potential price decline might be steady, start on day 1 and end on day 20 (20 days to a month). Or it might rally to the 50% level of previous bar before falling, or it could be all over the place, up and down, up and down, before ending down towards the end of the month.

Not only that, if you're using the monthly for hindsight then you should also consider the weekly and possibly the daily. So now my analysis on 9 markets is multi-dimensional. Some hindsights say up, some down, some agree, some look better than others. To me that's a lot of analysis and thinking work that I then have to overlay on the current price action. Believe me, I've tried this, I created a perfect tracking sheet for hindsight, told me where everything was and where to expect movement. The trouble I found myself looking and thinking about this as much as I was looking at the current price.

Now that I ditched all of that I spend 100% of my time looking at the current price action and believe me, it's made my working hours so much simpler. So if the Euro is looking weak, try to enter a short or 2 (or more), if tomorrow Cable looks strong - try to enter a long or 2 (or more). Maybe the trades on both of those market agree with the higher time hindsight, maybe they don't but in either case if the trades are sensible it doesn't really matter as who says your hindsight is going to be right anyway?

having said all of that, whatever works for you is the right thing to do. But if you're struggling with too much information as I was, try ditching the hindsight and instead focussing 100% of your time on the current action looking for sensible trades while risking very small amounts of capital. I look at 5 timeframes, day-240-60-20-5, these are all on one page for each market. What's happening right now is the important point, that in my opinion is where to concentrate your analysis.

calculus,

if you`re suffering from info overload, you might want to cut down on the time frames you`re watching.

look over the weekly/monthly charts over the weekend.
during the week only concentrate on the daily charts for possible entries.

when you see a trading opportunity, only then go to a lower time frame for fine tuning your entry.

Yon, thanks but I 'was' suffering from info overload but then I threw out my higher timeframe hindsight and just concentrated on the current price action.

It's not that the higher timeframe hindsight isn't good, it's just that I was following too many things and that was a) clouding my judgement, and b) diverting much of my time which should have been spend CONCENTRATING on the current price action.

I use the charts, Day-240-60-20-5 to get an overall feeling for the market, following all of them on one page is not confusing.

On the topic of concentration, that can be an edge in itself in this game, the more I concentrate the better my results are, and vice-versa. Concentration is easy to say, we know how to do it, but KEEPING it up is hard . If I can increase my concentration by 100%+ this year, I'd be really dangerous .

Increasing your concentration, why not make that a goal of yours for 2013?

[quote=Calculus;6338832]Yon, thanks but I 'was' suffering from info overload but then I threw out my higher timeframe hindsight and just concentrated on the current price action.

It's not that the higher timeframe hindsight isn't good, it's just that I was following too many things and that was a) clouding my judgement, and b) diverting much of my time which should have been spend CONCENTRATING on the current price action....]

Hi Calc and others!

Calculus, do you have something to calculate the trade size, or you do it in your head?

I wish I could do the calculation in my head. I have it on a spreadsheet but it's all connected to other parts of a bigger spreadsheet so I'll program up a simple one pager over the weekend.

Note, it will be for cash FX, not lots. It also calculates risk in my currency which is sterling but it won't be hard for anyone to change it into say dollars.

Curious if you calculate position size as 0.10% of account balance or floating equity? I hope it is floating equity and not realized balance :-

Also / If entries are upskilled to achieve above 60% success rate (i.e. move SL to BE), I think it is better to keep the position size same for all probes/stacks (like Graeme) to achieve the optimum compounding effect on the legs. The probes that survive are the ones that get you the most profit and to see explosive growth in equity is a wonderful feeling.

OathBreaker / I feel it is ok to stick to MN/WK/D1 timeframe for entries but want to share my experience if you are trading with microlots. I did the same approach in 2010/11 during my journey to get comfortable with this strategy. Depending on your alloted trading capital, you should do fine if your at-risk capital is under $10K but when time comes to move to $50K+ capital, you will have a phycological barrier to overcome with the large 70+pip SLs. Drawdown will affect your trading like it did to me. Low risk entries (like Calculus has described in his recent posts) is the best recipe for success in the long run imho. All the Market Wizards became hedge fund managers in their journey by doing just that. Keeping your loses as small as possible (under 10-20 pips) is the only way to succeed in any trend following system. I also find it quite interesting how Graeme mentally calculates his 'average' loss per position based on the number of positions that have survived in a leg... all part of the bigger ploy to convince his mindset to achieve bigger goals

HAPPY NEW YEAR 2013 to all fellow traders !!!!

Dear Calc,
Thanks for sharing details of your attitude, mindset and tactics/strategy about fx trading. My style is similar to yours (go with the hourly direction and trend then stack on the 5 minute chart) so I obviously think you're on the rght track! I trade the volatile JPY pairs a lot especially EUR/JPY and GBP/JPY but I don't make money with these pairs unless my SL is 25 pips or so. Much as I would love to stack with a 10 pip SL I haven't managed that-- I wonder if you have had similar experiences?

Oarea

Vee

The 0.1% is actually on realised balance, ie only the hard cash inh the account so no mark-to-market profits are taken into account. Personally I have a problem with mark-to-market (MTM) profits in that they're an illusion. If you want proof try getting your broker to wire them to you. The other problem for me with MTM directly relates to this strategy - big MTM profits can disappear, it's not like we use some sort of trailing stop where at least 50% can be retained. THis is why I never take them into account and in fact keep my own balance.

 

1. Say I have an account of £100k (all cash)
2. At the begining of the week I'll allocate £5k for that week, this is the maximum I can lose during any one week
3. £5k is of course 5% and while it's possible to lose 50 x 10 basis point trades over a week it's unlikely, nevertheless it could happen and I want to know where I stand before a major problem hits me
4. 5% also plays a psychological role - I know now the market cannot hurt me that much. Yes, 5% is not a small hit but it's manageable and one I can afford to lose without playing mind games
5. I also assume before the week that I will lose the all the £5k and so my balance on my account is now £95k
6. Let's assume trading went well during the week, I was able to enter 10 trades where the stop was moved to breakeven and are now growing nicely. 20 trades were losses (total 2%) and 20 were breakevens
7. The 20 positions that are growing obviously have MTM profits, but I don't consider this, a profit to me is only hard cash
8. However, the 20 losses ARE hard cash, the past week was a losing one, down £2k or 2%
9. As far as I'm concerned my balance is now £98k
10. Next week is the same, risk 5% which is now of course £4,900

Let's assume that price goes my way on the 20 good trades and I'm able to diversify on 5 of them the following week, that results in a £4,000 REALISED profit. I would then add that back into my balance which would now be £102k. This was then used for the following week so 5% would be £5,100.

This is a conservative approach in that potential losses for any week are taken before the week begins and only realised profits are added, no account is taken of M2M profits becaue they're not real.

My thinking on this is that because 10 basis points risk is so low I better try to soup it up where possible which is why I divide risk by stop amount. For example, risk £100 on the Euro with a 12 tick stop and the trade amount is 103k, risk 19 ticks and the trade is 65k. What's going to happen doing it this way is ever now and then you're going to get a really tight setup that works! This means instead of having a fixed size, say 50k, the position might be 200k, 4 times as large. Yes, as the stop is tighter there's a bigger chance to get knocked out but like I said, every now and then you're going to have a monster position on.

One of these worked well last week (at least 5 of them didn't though). Here's the trade.

 

1. Cable had a chance to look good on the 2nd Jan but it started to fail heading into the close of the day
2. Daily hindsight has to be down doesn't it (yes, I like to use daily hindsight, just not higher)
3. Looking for short opportunities
4. The boys again popped the stops so it would be rude not to risk 10 basis points
5. Shorted at 1.6235, stop at 1.6242
6. If you'd been trading a fixed lot size the trade would have been around 50k (on a £100k account balance)
7. But my trade was 232k, nearly 5 times as big
8. I've still got the trade and as I write it's a big profit but can price rally back next week to stop it out at unchanged, IT CAN DO SO EASILY. Which is why you have to view it as IRRELEVANT otherwise those big M2M profits are going to play games with your mind, and when that happens your trading and execution are going to be effected, and when that happens it's odds on it won't help
9. let's assume this trade works, price never comes back to stop it at unchanged and moves lower over the next 2 months, perhaps I'll diversify it at 1.5500, that's when I'd add the REALISED profit back into my cash balance (the one I keep, not my broker's)

can someone explain to me pipeasys famous saying : "everything works, while everything doesnt work. And vice versa it still applies"
This is one of the few things from him I dont understand (or at least thats what i think) . What is the message of this sentence?

I translate it as -

There is no method because nothing can be relied on all the time. Sometimes price action works great, sometimes it doesn't. Sometimes technical indicators are the things to use, othertimes they're 100% wrong.

The point I think he was trying to get across was don't get attached to any one thing, realise that everything can work, and everything can also fail, so try to keep your analaysis and trading fluid, moving and bending rather than fixed. In effect don't look for a set of perfect rules, one doesn't exist.

Thanks, makes sense !

Care to elaborate how you use time stops? I will share my experience. I started using time stops since August with moderate success...

- mental stops when trade does not move into +ve pips within the first 5-15 mins (depending on the setups) similar to Graeme with no SL order. This requires starring the charts in real time with finger on the mouse... stressful but required to gain experience in gauging compelling momentum
- automated move of SL to BE using an EA... I use this only on breakouts and double/triple wick bounces in anticipation of compelling momentum (mostly on probes)
- open trades without any SL order, walk away from the trading desk, put an hourglass timer on my cellphone to alert me when the next candle closes and then close at the next candle close if the trade is still in loss or move the trade to BE if it goes into profit (based on the TF I used to open the trade)

success rate for each of the above varies and as I grow in my experience, I find myself caring less about keep track of my trading journal/stats. As long as my equity at month end is higher than the beginning of the month (even by a pip!) , I am satisfied with my efforts.

For time stops the 3 period rule is as good as anything.

 

1. Say you entered via a 60m chart
2. 3 periods is therefore 3 x 60m
3. If the move hasn't happened by then, consider covering the trade which will ususallly be a small profit or loss
4. If it's a small profit then perhaps don't cover, but put the stop at unchanged
5. If the trade was entered via the 5m then if after 15m nothing has happened, look for a way out
6. Personally, I like to cover half with a time stop and let the other half play out

Thanks Calc. While we are on this topic, do you or anyone here keep track of "average positive pips" required to move the SL to BE as part of trading statistics for each pair? I think I need to gather this statistic to use in my SL-to-BE EA. It's a trail and error for me ranging from 5 to 40 pips, Some of the GBP and JPY pairs need more room before I move to BE in order for the breakout trade to survive.