Building an equity millipede

Hi Calculus,

Long time reader of forex factory but first ever post! i've read this thread several times and I do believe this is the way to trading success certainly for my style of trading, to suit my personality and time commitments etc.

The reason I address this post to you is that I think you're based in the UK same as me, but I would value opinions from anyone. My main issue with forex and building an equity millipede is time! I work 8am-7pm and have no way of trading during the day. My interest in forex is not to replace my job, as I enjoy what I do but to supplement my income.

I do trade a successful variation of this strategy by entering trades at round numbers in the direction of the main trend although this requires quite large stop placements. I have done a lot of work on risk management so my trade management is good and although the stops may be quite large my risk is limited at all times as I value capital preservation.

As I say this is a successful method but I feel by not stacking I am possibly missing out on some profit potential. For example say I open positions at whole round numbers and the market moves 1000 pips and all legs survive I would only have 10 positions. Now these 10 positions may be worth multiple times my starting capital but it reduces my scope for diversification due to wanting to keep all the positions on the table with the possibility of making further gains.

I have considered opening positions closer together say 25 or 50 pips apart but then I do not have the opportunity during the day to move stops to break even. I then have the increased chance of being whipsawed out of positions and thus higher risk and capital erosion. I have thought long and hard about ways of improving my method and entering more trades during prime opportunities i.e. stacking but I cannot see a way.

Any help, advice or opinions would be gratefully accepted and appreciated.

Many thanks.

Suntan

If you cannot look at the markets intraday then you can't look below the Daily for entries. What I would do in your situation is look for stack on the daily chart with my outlook really long term, ie holding trades for 1-10 years.

So continue your present entries and then look to stack via the daily chart. 20 trading days in a month and if the market is moving I think you'd have a shot at stacking 1-5 new positions.

Fire up your charting program right now, switch to Quarterly charts, look at the last 1-20 years worth of movement, big big trends to latch on to. Will the future be any different? I doubt it. Sure, ZIRP might play a role in dampening down movements (for a year or two), but then again it might not - we really don't know. ZIRP has been going on for years in Japan but the Yen has been a monster mover.

Stops will have to be bigger, but I'd try to limit my risk to around 50 ticks maximum. If the stop is too large, either don't take the trade (as G says - there will be others) or try to enter but only via a retracement which of course may or may not come. Trading via the retracement lowers risk at the expense of not guaranting an entry.

Overall I think you're right to focus on the stacking element. Stacking is really one of the main relevations on this thread. Before the thread I like most people used to view the markets as 'enter a position, take profits or get stopped out'. Now it's about 'enter a position, if it works and looks ok, try to enter another and so on'. By default we're big when right, and very big when very right but tiny when wrong. In such a situation you don't have to be right that often, just once every now and then.

Stacking, don't discount its importance - IT'S CRITICAL.

[quote=suntan;As I say this is a successful method but I feel by not stacking I am possibly missing out on some profit potential. For example say I open positions at whole round numbers and the market moves 1000 pips and all legs survive I would only have 10 positions. Now these 10 positions may be worth multiple times my starting capital but it reduces my scope for diversification due to wanting to keep all the positions on the table with the possibility of making further gains.[/quote]

Suntan,

from your post it appears you do stack: entering @ 00 - having 10 positions in a 1000 pips move.
that is nothing to sneeze at having 10 positions open for an enormous floating profit.

have a feeling you would like to have more open positions by entering @ 25 50 and 75 as well.

in an uptrend you could place buy stop orders at these levels. the drawback is that your risk will go up greatly seeing that you have quite large stops.

in your present system you enter a buy @ 1.3200 with a SL @ 1.3100.
at 1.3300 you bring your last trade to BE and enter another buy @ 1.3300 with SL @ 1.3200.
always 1 trade at risk.

by entering @ 00 25 50 75 and with the same 100 pip SL, you will have 4 trades at risk, unless you bring your trades to BE sooner.

I prefer to have every trade @ BE before opening the next one.

I haven't forgotton the spreadsheet, it's still coming!

The curse of the unchanged stop!

Losing on a trade is no big deal, it's what we as traders expect some (or most) of the time. But putting a good trade on, seeing it 35 ticks in our favour (now move stop to breakeven) and then the market quickly moves to stop you at unchanged before roaring away on the original direction - This is one of the most infuriating things in all of trading, in such a sitiation a hard money loss seems the better result!

Is there a way to combat this problem?

As with anything in this game there isn't a simple answer. Anything we do to give us an advantage usually comes with a new associated disadvantage. But this is my soluation to the problem -

 

1. Go long Euro at 1.3100
2. Sell stop at 1.3080
3. Market moves up nicely to stand at 1.130
4. Instead of moving my stop to unchanged I divide the initial stop amount (in ticks) by 2 then subtract that from my entry level
5. That would mean my stop now gets moved to 1.3090
6. It's not perfect but it does offer a lt of protection from the unchanged level being busted and if the stop is elected then the risk is small

I'm not shilling for 0anda, but just pointing something out regarding calculating risk and position sizing. The fxTrade platform uses "unit" sizing as opposed to lot sizing. This allows for more precise position sizing based on the entry-stoploss distance. For instance 100 units of EURUSD on fxTrade (in a USD account) is $0.01 per pip. The minimum size you can trade is 1 unit which works out to $0.0001 per pip (!) So you can probe the market with micro-sized positions and pyramid into positions completely stress-free.

Also, the platform has a profit calculator that tells you what your profit/loss would be based on entry/exit prices and units traded. It also takes crosses into account. For a USD account the EURGBP cross presents a headache for calculating risk ($ per pip). This calculator takes the present cross currency value into account for the calculation.

If you've been trading with MT4 for a while you may find this an alien concept but it's actually more flexible than MT4 lot sizing.

That's the key, that's why 10 basis points risk per trade can make sense for some traders. However, you need to try and do a fair amount of trades a day using such a low risk, let's say somewhere in the 4-10 region. Stacking is THE KEY, when you get something working and everything looks ok, and the market as G says is 'buzzing' ATTACK - what do you have to lose if it all goes terribly wrong, only 10 basis points...

Hi,

Thanks for the replies.

Yes my view is long term, trying to enter positions with the big trends that can last for years. I enter new positions at intervals but as Yonnie pointed out as soon as I try to enter more positions to increase my stacking I immediately increase my risk. I'm loathe to reduce my stop size as I feel I would end up loosing more positions. As Graeme pointed out in one of his first posts more positions doesn't necessarily mean more profit potential if you are increasing your risk. I don't use any indicator or price action to enter a position because I think participation is key and price action and indicators always tend to give me more reasons to not trade than actually take a position.

So although I appreciate the importance of stacking I guess I will carry on as I am for the time being.

What does everyone think about time? One thing that helped me greatly in my trading was when I removed time from everything. Might sound strange but let me explain. My trading used to revolve around time - what does the monthly chart say, does this align to the daily, what about the hourly and 15 minute chart. I then wanted to earn 1% per day, 5% per week (time again). Then I wanted x number of trades per day to meet these goals. What happened if I met my daily, weekly, monthly goal? Do I stop trading and risk missing some opportunities or do I continue and risk my gains. What if I am behind target? Do I then start forcing trades or taking non 'A' grade trades.

Now I have removed time things are so much easier. I don't trade a timeframe, 1.3000 is the same on any timeframe. If price moves from 1.3000 to 1.3100 all I need to know is that price is moving upwards. It may take 15 minutes to move from A to B or it may take a week, it is completely irrelevant to me. I don't care how it got there or the reasons behind the move all I need to know is that price moved from A to B. What are your thoughts?

Hi Suntan,
Your timezone is actually perfect for this method (and a few other variations) and a lot of traders will pay to have your problem no matter what strategy they use. Since you are already aware of the reliability of breakouts at round numbers and that most breakouts happen around the time you get to work, assuming you work regular business hours, one can easily see that the hour between Frankfurt open and London open is the best time for a breakout setup ( the third four-hour candle of the day, as Pipeasy calls it.) By the time you are done showering and for the time it takes you to read an email, you can place one correctly-sized trade using stop orders and let the market render its verdict while you are busy doing your “regular job”. Your goal will be to trap the price around lunch time with a similar but smaller trade, if possible, or let New York hit it one more time (double shuffle.) This way the stacking is made automatic and could go in any direction. You could also attach a limit order at the next round number in your favored direction before you leave for work and never have to worry about moving anything to BE. Name your trades and group them when you see fit so that your exposure is never more than necessary to generate an average daily income. Did you know that a big number of breakout traders in the Eastern timezone set their alarm clocks to get up around Frankfurt open to place their stop orders? I am certainly one of them.
Cheers.

Save your hard earned money and invest in a decent Android or iPhone with unlimited 3g/4g data coverage. It is ALL you need for those working 9-5! I do this all the time during bathroom breaks /meeting room/coffee break/lunch time and every minute I can spare in between.

All you need is to be creative with setting your indicator alerts at important levels, a SL_2_BE EA, another EA for loss protection if you want and simply monitor open positions on the top of every hour or two. The additional pip or two in slippage is worth the convenience.

As an avid follower of this thread since week one, I have come to find you as the most prolific and interesting contributor to this thread for many different reasons.
If there is one single discussion I wish I have had directly with Pipeasy around the end of 2010, it will be about this whole moving-to-breakeven thing and whether he believed the thread followers got it right in [B]terms of the purpose behind it[/b]:

“I do not care about ‘moderate’ small losses that occur when trying to establish my positions that will survive.As long as I do not try many times in one single day (and this is very important).This is also similar to my business, as I need to order an inventory before sourcing out distribution. Taking pain for gain.

If today is going to be a bear candle then whereabouts is the higher price? If we are in a downtrend (which is also in lieu with down weekly trend) and (unknowingly) today is going to be another down day. THEN tomorrow when we look back today, where is the most likely place for a position to survive?

It is at the near the top…Nearthe open of the daily candle. This insures that you catch the major move of the day + highest probability that the position will survive the pullbacks of next day (and the next 2-3 years hopefully).

A position that survives for extended weeks, months turns into a tremendous profit and you will be very pleased that you risked a very small fraction of its gigantic return to establish that position. I cant help but smile.”

Couple that with ...

“If I asked you, ‘lets play a game. Every time you roll this dice, you need to pay $100. This is the reward: you win $1000 every time you roll 6 and lose your $100 on 1,2,3,4,5. Would you play?’

Some will say no, cause they cant see the bigger picture. Looking at indicators probably forecasting the next 2 or 3 throws.

Smart ones will say yes. Obvious reasons.But, how long will you last? Can you handle streaks of 20 or more losses? Perhaps you have the will to handle the stress but maybe not the capital?

I found my dice game. It wasn’t in any forum or paid advice. It was just doing what I was already doing in my business.”

...then ask yourself the following questions:

-What purpose does my monitoring through state-of-art tools really achieve in terms of bottom line?
-By intervening (or augmenting the chances to intervene) so often in the same day (while the jury is still deliberating) am I not maximizing my chances of losing those $100 bets while reducing my chances of milking the 6's?

Less is more is the spirit behind the very first few posts in this thread. Moving-to-BE, as I believe Pipeasy meant it, is more of a way to reduce exposure after reaching a satisfactory equity level rather than being satisfied of being stopped out a few pips lower than what was "agreed upon" a few hours earlier.
Cheers.

Hi VeeFx,
The above message was mainly directed to you and I truly believe that one of those "One Thing" elements to have and build upon lays right there. Everything else after that, regarding that specific point, will be a technicality, be it efficient enough or otherwise.
Cheers.

yep.. i understand what you are trying to convey. Apart from few cons, this strategy is flawless! By no way I was advocating sending probes more than 1 or 2 per pair per day. I keep hearing complaints from 9-5 working folks about how difficult it is to miss out on good trades while at work and their geographic location not convenient to London/US etc. London open starts at 11pm for me and I work 12-15 hour days and yet I know everything is possible once we open our mind to possibilities.

Advocating a use of smartphone will eliminate all those unnecessary roadblocks. My experience with smartphone has been very positive contrary to common misconception about using a wireless device. All those multi-monitor setups used by professionals is just not a requirement if you participate in the market with the mindset of sending probes and not worry about every pip lost or price coming to BE and taking the probe off the table, spreads, slippage, commissions etc. it is perfectly fine to TP at 400-500 pip trades and no worry about diversification or what not. It's up to the individual trader how they want to mold this strategy to their own benefit. that's the beauty that have kept me focussed for past 3 years on this thread :-

EDIT: if you are trying to implement placing probes on tip of wick on monthly/weekly/daily, then multiple probes on any given day with tiny risk (under 5-10 pips) is the key.

Well said VeeFx

I attempt to implement this strategy via the daily timeframe. By best depth has been 5 legs. I am one of the 9-5 army.

Thx Olu. I just noticed MT4 Mobile version just added Weekly and Monthly charts (on Andriod version) over the weekend. Not advocating or recommending any software platform here as there are way better mobile trading stations out there. I felt MN/WK charts was a huge limitation on MT4 mobile for trend traders hence thought of mentioning it for folks using it.

Almost all brokers offer some mobile platform for us to make use of. If they don't, one could use GotomyPC instead of the 'free' VPN hosting services solution so conveniently funded by brokers to attract new suckers. Quit using SL orders for low risk entries... they will be taken out. Look up the max ABS(open, close) on M5/M15/H1 candle in 2012 and use time based stops for manual execution as an alternative approach. I will let you all figure out why use ABS(Open - Close) and not ABS(High-low) :-

Hope this helps some doors to creative thinking.... after all, our minds only chooses to believe what we want to believe :-

Cant wait for the weekly and monthly timeframes on ipad...

Olu

Hi Olu,
Could you please elaborate why?
Thanks.

Nothing much BizFx. At the moment I can only see up to the daily timeframe on the ipad. The weekly and monthly on the ipad will complete my ability to analyse on the go. I do the millipeding on the daily timeframe the weeklys and the monthlies will be superb

Olu

Hi Olu,

Can you please tell if you can use custom indicators on the Ipad version of MT4?

Thnak you verymuch, Happy trading!

As far as I know you cant. I have to make do with what came with the system. I dont use a lot of indicators anyway so I dont miss them much

Olu