Building an equity millipede

Hi Nizdraw,

Taking by what you are writing, that you are still working on "getting your millipede on", I wonder ... how can you give advice that "entries don't really matter in this method" and "please don't get too hung up on how razor sharp an entry needs to be." What is the basis of your statements ?

Razor sharp entries are crucial, for protecting your capital, but more importantly, your sanity and focus. After a row of losses (20-30) fear creeps in, and leads to questioning yourself and the method, that's the time when you go looking for another "holy grail".

And... the majority of posts from Graeme in this forum (including hundreds of screenshots) were about razor sharp entries, so I guess he thought they were important as well.

Regards,

Cam

Yup all my opinion, Im a nobody in these parts. And correct still no sucessful millipede yet. But I will say as much as he got derailed razor entries he also said a few times that they dont mater. Your pretty unlucky to get 20to30 losses in a row even with a random entry. Any way over and out from me I dont spend to much time arguing on forums. My trade explorer is open to view my latest
attempt using entries with a 50to55percent chance to be and around 25pip sl depending on pair, so not razor at all.

Good luck to you all.

Hello Barbossa,

Though I perfectly understand the reason you make that statement and, within a certain context, totally agree with you, one has to keep in mind that we are human beings and, as such, react differently to certain situations and circumstances depending on our individual upbringing and life experiences (especially when it comes to money.) Though money doesn't guarantee happiness, the lack of it will certainly get you a lot of free misery.
As traders, we are constantly second guessing ourselves and it is a tough game to win not because of the mathematical/logical part of it but our ability (emotional and financial) to cope with temporary mishaps that could have ended up being blessings had we given chance a chance.
On the technical side, it is crucial for me to define a rigid framework and be able to easily tell where I am standing at any point in time and how that fits in that big plan/project of mine. Certain rules apply, and have equally applied for thousands of years in one form or another, to every business undertaking and are definitely not open to debate.
It is a lot easier to be a spectator/critic than an actor and had a traditional brick-and-mortar business been as easy to set up as a trading account, I can safely state that no business will last more than a week in it original form. Just imagine redesigning the whole highway system every time there's a car accident or changing the laws of the land every time we're in a situation where the existing ones don't apply perfectly.
The harsh reality is this:
In any given for-profit company, there is a huge conflict of interest between the financial/accounting department and the Research and Development one and, as a Chief Operating Officer, one has to fully understand that and be able to “zoom out” and accommodate/manage both since each one of them is necessary but insufficient on its own.

Why wouldn't the rules of commerce apply the same way to individual trading ventures?

At some point, Pipeasy stated that he never diversifies for a loss and that he keeps his profits unrealized as long as possible despite his worries about the risk he is taking with his broker and, to me, that speaks volumes. The two questions that are begging for answers are:

Why does Pipeasy never diversify for a loss?
Why does he keep a six/seven figure dollar amount of profit unrealized?

MT4 can be a bit tricky to read because it was written with the brokers' interest in mind. Nothing wrong with that since, just like the rest of us, they're in it for the dough. But one has to understand that a business can go a lifetime without making a profit (as a company) and still be considered successful while another one could display some very decent runs for a few years and go bankrupt in a matter of days.
The same universal rules apply to a $20.00 micro-account.
The same rules apply to a lemonade stand.
The same rules applied to Enron.
Cheers

Why does Pipeasy never diversify for a loss?
Because then you'll be essentially hedging rather than working to make a profit. Just like in a real business, your objective is to make money by providing product/service to customers, in forex this objective is to make money rather than protecting what you already have.

Why does he keep a six/seven figure dollar amount of profit unrealized?
This is because you can use equity for re-investment instead of balance, and at the same time it's because his objective is to realize as much potential as possible from that position. You can realize your profit, and since it is linear, it doesn't really matter whether to close it or not. It does, however, trains one to look at a grander picture and be in control instead of giving in. Traders like pipeasy are not in a rush to make money so to withdraw them as soon as possible, they're more of an investor, and this is where core difference lies in. Investors look for ways of their money to work for them, day or night, traders on the other hand look for immediate profit of buying low and selling high.

For me this is not so much about instant gratification either, but rather about experience along the way. I started growing my millipede about two weeks ago and through it I managed to learn so much, yet so much more is ahead and I'm shaking in excitement about doing more and more of it! I started trading traditionally, using technical analysis, lost about half the money yet managed to earn it all back and then some with pipeasy's wisdom.

I can compare it to planting a tree in order to grow apples, and then keep planting more and more every day, eventually having an orchard without having it as your goal! And it is a beautiful thing watching anything grow, knowing that you've put the efforts, enjoying the fruits of your labor.

Exactly. I feel I was too focused on the R&D and I need to pay more attention to the accounting. And that it would be much easier to achieve positive results if I did that, instead of doing even more R&D. Not that my entries are perfect, of course.

As of your questions, I'd say he would do both for roughly the same reason. You can't profit from markets if you're not exposed to them. Therefore, you need to maximize your exposure instead of jumping in and out all the time. At the same time, you need to account for the running business costs (in other words - losses), that's where "diversification" kicks in. When each and every diversification produced profit, you only need to keep a closer eye on your groups currently being built or grown. The rest are long-term assets, which you should only review from time to time, when you think the main trend has halted or going to change.

Ultimately the 3x20 exercise is not really about 3x20 it's about forcing people to get INVOLVED in the markets everyday rather than reading forums and books on trading or playing around with spreadsheets. That's why the 3x20 exercise can be modified to whatever you want as long as you're in the markets EVERYDAY for 6 months MINIMUM.

Forums/books/spreadsheets can of course be very useful but only up to a point. The really hard work has to be done IN THE MARKETS. Also remember as G said the 3x20 exercise is as much about finding your entry as finding out all sorts of hidden information about yourself, hidden strengths and weakneses, hidden physcological flaws, that sort of thing. Everyone needs to find this information out for themselves and then build your method around them.

One area where I expect many will have problems is when you've got a big mark-to-market profit which then quickly swings the other way - you need to experience that because you might not be able to handle it, then you'll have found a very important answer, ie this sort of long term position building is not for you.

Summary: The 3x20 is about finding questions and answers which is why it's so important.

This is very topical relating to the 3x20 exercise and in turn GETTING INVOLVED in the markets on a daily basis.

I'm on a few free email lists from trading blogs and this just came through.

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Okay - here's a little pop quiz:
What do race car drivers, fighter pilots, and heart surgeons all have in common?

They all have demanding and exciting professions. They are all highly trained specialists. They all manage risk on a daily basis.

And they all logged countless hours of practice -- "learning by doing" -- on the road to mastering their craft.

Trading is similar. To become a true trading professional, a non-negotiable amount of learning by doing is required.
This is why, in the personal evolution of a trader, books, articles, and so on are not enough.

Quality materials are excellent to be sure -- and can provide an edge in the right hands.

To be maximized, however, all reading materials require and intertwining of theory and practice.

This has to do with how the brain works. We have to experience emotions, and run through actual physical movements, to transform abstract ideas into hardwired elements of "the system" (the brain's representation of a three dimensional skill set). We can thus call books and articles a necessary, but not sufficient, component of the learning curve. More is needed.

This is why professionals of all kinds (pilots, surgeons and so on), on their path to becoming pros, accumulate live-fire experience under controlled conditions.

This means doing things like racing on a test track... running simulated dog fights... operating on cadavers, and so on.
The key factors are:

Making the "controlled conditions" as close to real as possible doing everything with 100% realism (other than taking on full risk)

Traders can do something similar by trading test funds in modest amounts -- real capital, with high enough stakes to feel the emotional impact of ups and downs, yet low enough stakes to count as a "controlled conditions" environment.

It has to be enough to "hurt," so that emotional systems are engaged (to facilitate somatic marker development), while being a modest enough amount not to invite serious financial risk.


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Hello Calculus,
I have found Acolyte's and Barbossa's replies very interesting and I am hoping, together with your insights and a few others, it will help bring this thread back to its original direction. It is interesting to note that, for all the time that Pipeasy was posting, it has never been about EA's, Ipad's or some other form of technological distraction. It was more about structure, guidelines and substance. The technicalities were left to the reader to figure out based on their financial and emotional circumstances and, as you stated, their willingness to put in the necessary time and effort to reach their goal.

What race car drivers, fighter pilots, and heart surgeons have also in common is a graduation day and a very high rate of failure in their line of business even among the ones who put in all the necessary ingredients.

Everything in life is time sensitive and no successful fighter pilot has ever spent his graduation year debating himself whether he made the right choice now that he witnessed a plane crash. At this point, while he is still attending his scheduled classes, it is up to him to start focusing a bit more on that dusty book with the long and unusual title “ Fifty ways to minimize the risk of a crash and how to act while it is happening because it is bound to happen”, which in itself will include various chapters focusing on the different types of crashes, their likelihood, how they relate to his own plane... No need to focus too much on a jet engine if a traditional helicopter is the ONE THING (thank you Graeme) you are going to be flying. Focus and structure are key.
Thanks.

You're getting it, BizFx, pipeasy has given us more than enough advice, examples and tips, describing his perspective of performing successfully in the forex world. At the end, how only serves the purpose of an old fashioned photograph of the world - i.e. it is static - yet the world is dynamic. By studying the examples, we transform our own perspectives and learn to see his. There's a perfect example of such learning given by Raja Yoga, and it does not have just the observation. Calculus has rightfully pointed out about the connection between learning and doing which is the core element of becoming an expert in ANY field, and that is where it all comes to. Some people may come up with "I have no time" excuses which really means that their priorities are in a different order, however they perceive that they'll have to spend as much time later on as in the beginning - and this is where their assumption is wrong. The more you do something - the better you become at it, and it takes less and less time the more you keep at it, allowing you to achieve more and more with less and less.

Don't forget that the other use of the 3x20 exercise (or a vairiant of it) is to practice everything else relating to trading. Making money is more than buying/selling at the right price although that of course helps a lot .

 

1. It gets you used to the software
2. Entering orders, managing those orders
3. Learning to be quick when the markets are moving all over the place
4. Keeping good records, programming up spreadsheets to help etc
5. Gets you into a routine and so on

As always, this one thread has very valuable contributions from various members. I had the privilege of being one of the earlier members to follow Graeme. Managed to hold positions for 1000 pips ride couple of times. However my dilemma about long terms vs short term kept bothering and went back to intra-day and paid the price.

Anyways, the biggest unknown, more than entry methods, to me, is when to diversify.
'Never diversify for a loss' 'Diversify when long term trend stalls' etc., doesn't seem to be adequate guide lines for diversifying. Moreover, the decision as to where you choose to diversify is going to make a huge difference in your profitability.

can we come up with some tangible approach for eg.
We liquidate latest 70% of the positions when price moved say 500 pips since the turn of the direction.

Can we please get some thoughts?

Thanks
TS

Hello TradeStar.

The problem with the approach you proposed is that it is fixed, while the market is not. No matter how you set the target pips, you're going to face all the possible scenarios - the price missing your target by a small amount before reversing, the price shooting through it and leaving you wonder why did you back off so early, etc.

Another issue would be the choice of positions to liquidate. Obviously, you would like to keep the largest positions, since they are the ones least likely to be taken out at break-even. However, that would mean you need to close most of the other positions, losing almost all of your exposure and thus limiting your potential growth.

It really seems like you need your personal discretion for that. And believe me, I've spent quite some time trying to figure out something resembling a set of guidelines (not even rules) on that. Maybe some accounting analysis would be helpful, I've thought about tracking the growth of individual groups at fixed time periods and basing the decision on that data, but I haven't tried it yet for a substantial period.

Cheers,
Barbossa

Trade, Barbs is 100% right, the markets are almost living so to try and put a set of hard rules around them is often not the way to go.

Personally I find the diversying the easist part. Just look for big levels on the day/week chart. Here's a quick example on the current USD-JPY. Note, the bottom of the chart is cut off so look at your own charts if you want the full picture.

3 levels, 2 at old highs, these are my favourite and very easy to spot, I think traders should always take something off at such big levels but take responsibility for your actions, no point saying if price smashes through the level 'oh I wish I'd held on for more' that sort of talk with do your head in and it WILL take something out of you.

The other level is I feel as good as anything, basically a speculative trendline, my orders are already in at 95.20. Note that a line like that increases so as time goes by raise your limit.

Summary: Go or the big levels, get paid for the risk, don't take small ones unless you want small results.

Great responses. Thanks.

TS

Hello TradeStar,

The sad and harsh truth is that we do not and cannot pay our rent/mortgage in pips. I personally find “pip” and “drawdown” to be the most misused, abused, misunderstood and misleading “words” of them all. I honestly despise both with a passion because they are the source of a lot of frustration to so many hard working folks who, after a few years of hard labor, come to realize that they were chasing the wrong rabbit.

Accounting is built around one and only one intangible principle which is the following:
Assets = Liabilities + Equity

Every accounting/financial book ever written revolves, in one way or another, around that simple equation and every financial scandal you've ever heard of can somehow be tied to it (meaning people messing around with it in one form or another to achieve a certain financial advantage/gain, legal or otherwise.)

To Pipeasy, just like Acolyte explained it beautifully, Cash Flow was never an issue. In simpler words, his livelihood did not depend on that trading account and at no time did he feel the need to make a withdrawal (as a salary or dividends) to cover for his daily life expenses (car payments, rent/mortgage, food, comic books and so on...) and could thus afford to turn his trading experience into a highly enjoyable safe and smooth sailing once he reached his breakeven point through a few diversifications.
Another factor that's hardly ever mentioned is TAXES.
In most cases, governments (local or federal) only tax the Realized Profit, not the Unrealized. So when you're dealing with accounts with amounts higher than poverty level (meaning with balances higher that what your government considers to be tax-free) it makes perfect sense to keep your gains unrealized for the two reasons described by Acolyte (one from the accountant's perspective, the other from R&D's, as I see it.)

So, as asked, your question lacks the necessary personal information such as your target/goal, capital to invest ( with proper planning not necessarily all at once), cash flow requirements ( I want to quit my job and still manage to make the same salary through trading after covering all the margin requirements/expenses since I have proved it to myself with mathematical precision that...)

Knowing what I am looking for is the only way I can tell whether I can find it or not. It is hard and merciless numbers we're dealing with here.

Cheers.

Very valid point, BizFx.

Optimum diversification levels for individuals will have to do with one's capital flow, how long one can hold his unrealized assets, taxes etc., I agree, personal situation is the basic criteria. Let me make a separate post on this.

Assuming we are already like Pipeasy not have to depend on this income, what would be the ideal diversification points. For instance EurUsd today's price is almost same as December 2006, roughly six years of unrealized equity would have become negligible.

Letting go thousands of pips accumulation (in both directions), in the name of infinite growth may not be practical for 95% of humans, let alone whether it is sensible to do in the first place.

Therefore, my point is,
While there were quite a few methods / posts for razor sharp and not so sharp entries, not much was discussed reg. diversification.

It may be worthwhile to brain storm some broad ideas for diversification, may be a line in the sand, not necessarily strict rules.

Some of them could be, say, 20 days high /low breach or 5 weeks high/low breach breach of 200ema twice etc.,

Let us bring on any other potential ideas and discuss.

In my opinion, this is one of the reason why folks are not able to stick to this method, in spite of knowing the value.

Thanks for all the quality inputs
TS

Good example there Calculus, what I've noticed is that when I enter the market in the first few hours of the trading or on the crossover, my position is weak and volatile and have little chance of survival if I set hard S/L. This is even the case with new candle opening above last' close, so the 20pip entry method would definitely be an advantage, although if you've mastered your "emotional hurdles" well enough, you can set relatively large S/L (good example there with USDJPY, same with EURJPY, less with AUDJPY), knowing that trend is strong.
TradeStar, I believe that each one of us has to find their own way, you can meld what you know with what's been offered by pipeasy to find your way easier than discovering everything on your own - in other words, take what works for you and improve on it.

Sounds sensible to me. Of course, again it boils down to your personal pain threshold. If you set for aggressive diversification triggers, aiming to capture maximum profits, you're going to get more "false signals". If you set for too relaxed ones, you're going to lose more of your floating profits. It's a trade-off kind of thing.
Still, here's an another idea, this time based on a different dimension:
Diversify after a period of growth, depending on the time scale of your group. E.g. if you have built a group in two weeks, diversify it after a month or two, if you're looking at a group composed of the remaining positions from groups created in three-month period, diversify it after a year or so. Again, I feel these numbers should be treated like a guidelines, not hard rules, and you have to choose them individually in a way you're comfortable with.

Probably you can combine both - look for price signaling a stall/reverse around your target time. Of course, if something happens that clearly tells you the price has reversed, do not hesitate to react.

"Diversify after a period of growth, depending on the time scale of your group. E.g. if you have built a group in two weeks, diversify it after a month or two, if you're looking at a group composed of the remaining positions from groups created in three-month period, diversify it after a year or so. Again, I feel these numbers should be treated like a guidelines, not hard rules, and you have to choose them individually in a way you're comfortable with."

Excellent recomandation. Tnank you Barbossa

Diversification versus "Going With The Flow" in both directions: Several good posts and suggestions on diversification. Let's go over some live examples?

GBPAUD: Would you diversify? I would not. Market will sooner or later decide which positions will survive for long term growth.... so why bother!

AUDCAD: Which position would you diversify/close? I would not close any! Instead, I just made a short position within the weekly range to let market decide which positions will survive for long term growth.

AUDUSD: same deal with the above mentioned pairs.

CHFJPY: Would you diversify? I might look for short opportunities on this pair when it approaches 108 level.

EURCAD: Would you diversify? I just went short (what I would eventually do on CHFJPY). Hint: Weekly FB

EURGBP: Would you diversify? I went short last week what I just did on EURCAD.... and short is growing now. See my point? I can go on and show the rest of positions on the remaining pairs.

So you will ask... when should I diversify to withdraw funds? I would withdraw only at quarter end or at year-end by closing all the shortest running legs in both directions. If you want to live on monthly income, I hate to be blunt but you will never grow a millipede for long term growth. For those relying on monthly income, I suggest you sharpen your entries and aggressive stacking skills for short term explosive growth without increasing risk/exposure.

Barbossa/Goldminer et al: I am not sure I would diversify based on the time duration of legs. A better option would be to do what Joe/Marion does on his FB stacking. He closes half his positions when he sees a H4 candle closing above the open price of previous down candle. Once could apply this simple rule on weekly or monthly timeframe which is more logical and based on price action. Graeme has mentioned this many times in his most recent posts before his departure from this thread.

Next step in my journey:
- Improve my focal interpretation with stacking in long direction...I am able to stack shorts with ease
- consistency - my stats are all over the place. It is primarily because I am not fixated on any particular timeframe nor am I selective on my entries. I do "R&D" on many types of entries in the same LIVE account making it difficult to keep up with "Accounting". I find accounting to be time consuming too!!
- trading/business plan (almost in place but still in "R&D" which encompasses every trading style (scalping, swing, trend-following, rangebound, countertrend trading, tip of week based on price action/technical/fundamental/sentiment/currency strength analysis with atleast 3 different time windows in a 24 hour period giving me the flexibility to travel/relocate anywhere in the world)
- grow trading capital via cash flow strategy
- master patience and not worry about every missed opportunity

It will be 3 years in August since my first post on this thread..... a VERY long and excruciating emotional roller coaster ride for me (and most participants here) but ending both 2011 and 2012 years with profit made it all worthwhile for me.

Let the related discoveries come to you! There is no easy way to make generate income from trading and reading thread and books can only take us so far. I doubled my account in demo last year based on the principles taught by Graeme. This year in January alone, I have already doubled my live account (just to gain self-confidence in my entries, stacking and price interpretation). I have doubled my trading capital atleast 7-8 times since 2007 only to blow the account later in the year. This year I WONT repeat the same mistakes from past and now I know how to curb my greed. I have the realized profits for the remainder of the year to 'invest' in building long term legs and not worry about diversification!

p,s. Screenshots are from my demo account which still has a growing negative balance and exponential equity growth which is now more than 3 times my starting capital of $50K.

http://www.forexfactory.com/showthre...31#post3983931 ... I appreciate newcomers/readers have shown renewed interest in this thread and hope they continue to participate and share their perspectives. I have caused enough clutter on this thread