Building an equity millipede

Here's a really quick and easy way how to diversify.

Diversify when you account hits say 10% or 20% net liquidation balance, ie close ALL your positions and start again with the higher cash balance, starting balance + 10%.

Hi Vee,

I have actually closed few of my short positions on GBPAUD, I do that when Weekly/Daily charts show consolidation and when there is some uncertainty about the direction.

The way I reached the conclusion was like this: one evening, I was looking at my positions on GBPAUD and thought "uhm, I will let them live for a bit longer", then in the morning I thought "Hmm, I should close some and get some realised profits in", then after few more hours I thought "Ok, if I feel uncertain about it, best to make some money and close a few of these legs" :-)

Some were 20:1 R:R, two were 70:1, I'm satisfied with that.

There is always an intellectual fight to keep the legs longer, but we tend to forget that the end game here is to make money and fund the more interesting parts of life (hobbies, vacations etc)

Cheers,

Cam

yep Cam. It is really hard (for me) to have patience with a pair that is stuck in a stall for days especially when I see opportunities in a lot of other pairs. I am always concerned about opportunity costs (which I still need to work on). One of the reasons why I don't like or prefer trading majors. Too much liquidity pushing the pair back and forth in both directions.... just like E/U as a live trading example. It took be 3 days as shown in the screenshot to add just 3 position (and only 150 floating pips or so) and I was far too desperate to close all and trade other pairs in order to deploy my available margin efficiently.

I think you are justified in closing legs that are stalled on daily/weekly.

Good Luck !

This is great. Lots of interesting proposals for diversification, including not diversifying at all.

I agree diversification should not be necessity or need driven. Even assuming that we don't need monthly income out of this, closing the shortest positions after a year, is it the optimum way? We are going to need tons of statistics to verify that.

I feel (I could be wrong), in majority of the cases, we lose the efficiency by holding positions beyond a reasonable period of time, given the examples like EURUSD where price came back to 2006 December..

Cameron1st closes GBPAUD legs while Vee lets it run further. May be both are right.. Hence this diversification stuff is quite interesting.

Fabulous ideas. Thanks to everyone for participating.

Finally one question to Vee:
Let us say you do short term sharp entries and aggressive stacking to make profit on monthly basis and reinvest this every month with proportionately increased lot size. .Would you make more by the end of the year compared to holding positions year long?

Thanks again,
TS

"beyond a reasonable period of time".. I would replace 'time' with key extreme price levels on WK or Monthly TF. 99% of the time, price can never go up or down forever as we all know (we are not trading company stock that can file for chapter 11 with relative ease unless you are trading exotic pairs). I agree, diversification is based on your own personal emotional threshold you can spare to see several weeks or months of legs go to BE. There are many other creative ways to deal with and fine tune exits but any solution you implement will be a give-and-take scenario between profit taking and long term growth. no matter how much research you do, it will always remain a subjective decision making process instead of statistics. I fear it will drive you nuts and more frustrated in the process :-

Regarding your question, I am definitely not promoting aggressive stacking as it could only work for me and not others. It is 'my' way of getting ahead of accounting (and emotional balance) of collecting pips FIRST before you dispense them on long term position building. I would NEVER increase my lot size until I balance my books at year end and update my trading plan for the next year. I have gone thru that rat hole many times only to blow my account. With that said, I DO use a MM strategy in my aggressive stacking episode which I rather not share and cause further confusion. The key is to ALWAYS limit your risk exposure or keep it constant as much as possible. With the confidence I have gained with stacking, I could potentially make more than long term position building but I will be getting burnt out very soon as I do not use SL or TP or pending orders during stacking.... it's all momentum based in real time with trigger on the mouse ready to exit at a rapid pace (not everybody can make this happen every day for years). If you want sharp entries, focus on MAs on tick charts... a LOT could be revealed on the behavior of price action ahead of time on M5, M15 or whatever your chose timeframe is. I will stop as I am causing distraction on the core principles of this thread.

Hi TS,

When it comes to diversification there is no absolute right or wrong in my opinion, there is only what feels right to you.

Please, for your own sake, stop trying to find definitions in other people's trading, what you need to do, is to trade ... diversify when it feels right to you, and keep some basic stats that you can evaluate over 6 months or a year. Only then you can answer questions like "Would I have made more profit by holding more onto the positions ?", "Is my Stop-loss large enough ?" and whatever other questions you may have in mind.

There are no answers to be found in other people's suggestions about what you should do. Only your own stats can guide you to improvement, everything else is going to hinder you.

It took me a while, but I certainly realised that only the first five or so pages of this forum where the strategy is outlined are everything required to trade successfully. After that it's mostly details from the way Graeme trades, but his entries are not my entries, and his diversification points are not mine. You can't wear someone else's leather jacket (biker here ... heh), you must have your own. The sooner everyone around realises that, the sooner they will progress to the next level... but ... that also doesn't mean that you have to be a smart arse and think you are too good for the 20x3 exercise (or some form of that) ;-)

Regards,

Cam

Like someone said "If you don't know where are you going, you may end up some place else", most traders start with a basic calculation which is so true but they soon forget that basic objective and try to earn consistent profits. The outcome of this is logical, that is, small profit or loss or big loss. You don't get rich by taking small profits or aversing risk by diversifying (adjusting legs). Diversification is done to minimize risk and not to increase profit.

Now go back in time and think what tempted you to trade. Do you still remember? If you do, do you remember what that thought was? That is still valid and much much useful in any business. But if one wants consistent profits, should think like an employee, that is, in terms of income and not as a businessman who thinks in terms of networth.

A worker's income always keeps on coming (addition), but a business' networth keeps on fluctuating (addition, deletion,.................. and multiplication)

A rackless trader's networth my also attract division.

Hello everyone,

There is always an intellectual fight to keep the legs longer, but we tend to forget that the end game here is to make money and fund the more interesting parts of life (hobbies, vacations etc) cameron1st.

Somewhere at a local bar in Farmville , after a few drinks:
- My milk producing cows generate enough income for my survival and then some. I'm thinking about investing some of my income in the tree-growing business. No rush here. Getting rewarded handsomely every five-six years is all I'm looking for. The weather conditions are not always favorable around here but time is not an issue for me. I have my back covered, just in case. My kids' seasonal help will also be a great asset. What do you think, Dave?

- Easy for you to say, Joe! I wish I was in your situation. To be honest, I can hardly afford the few beers I had the last couple of hours. Five years ago, I was all excited about opening a hardware store in this town and, for some time, I truly believed that I was doing very well. Every season had a few good runs when I could hardly keep up with the demand. The more I've made, the more inventory I acquired. Now my sales can hardly cover for my costs and the banker keeps reminding me that, in my situation, I should have considered both short and long term growth since my well-being depended 100% on that store. Only now do I realize that I was bleeding one drop at a time. It sure didn't look that way while I was at it. Damn Walmart...

No matter how we look at it as individuals, diversification is nothing more than profit-taking (not to be confused with TP'ing.)
One could either be Dave, Joe or somewhere in between but never both. That might sound obvious but, as humans, we do tend to go against our plans the minute we face a hardship and, before we know it, denial sets in (in the form of a distraction of some sort.)
MT4 provides us with the possibility to print out a detailed statement in our chosen time period and, no matter how we slice it, the proof is always in the pudding:
Profit = Revenue – Expenses
or
Profit= Gross Profit - Gross Loss (in MT4's correct but slightly misleading lingo.)

Now Dave needs to make withdrawals every month to cover for his bills outside trading (deep down, it is no different than his hardware store.) A monthly withdrawal is a necessity ( and I wouldn't call that an instant gratification) so his starting capital needs to match his expectations of a few months worth of salaries, margin requirements, and a set dollar amount for his trading expenses for years to come. He does not need to have it all-in at once if his strategy makes his expenses static for the long run (which makes or breaks the whole deal since the proceeds, “TP's”, need to be managed and re-budgeted in a timely manner.)
Joe, on the other hand, will hardly need a statement. His proceeds, without him doing anything except focus on his trading strategy, Pipeasy way, are automatically reinvested and his diversifications will only serve the purpose of “smoothing out the equity curve.”

On July 26, 2010, Pipeasy posted the following:


“...
Good evening, all

Even though I have just posted an entry system, I still strongly urge you to practicing your entries to perfection. When you practice entries you are practicing so much more. You are building your very own focal interpretation of price action, market sentiments, areas of mass interest, momentum, price stalls. You can actually hear the market from the repetition of the exercise. You are training to be a very effective trading machine who can bend the will of the market into your own subconscious beliefs.

Once you perfect your entry, you can be, swing, intraday, position, scalper with any sensible method and still make alot of money.

Once you perfect your entry, you can be, swing, intraday, position, scalper with any sensible method and still make alot of money.

Once you perfect your entry, you can be, swing, intraday, position, scalper with any sensible method and still make alot of money.

Sincerely,

Graeme

Right bang in the middle where it belongs, Cam, couldn't explain it better myself. Even though history is there to be studied, it's up to you to find path to success
- you've got the goal, so go get it!

diversification

as a business man I look at long term profits and minimizing risk, not smoothing out my profits in the short term. after all I dont depend on income, but solid profits.

E/U is in an uptrend and at 1.6400 I have 100 trades @ BE.
the last swing is from 1.5600-1.6400 and the price is falling; by the time it reaches the low of the swing at 1.5600 I have 10 shorts and 90 longs @ BE.

wow price breaks down through the swing low of 1.5600 and the next day it is 1.5500.
what is this? the end of the up-trend or just a strong reversal?

what to do.....in this case I would say we really dont know what will happen.
risk is higher. every 100 pips down is a drain on our "long" profits, not made good by our "short" profits.

I say: diversify

Cameron1st,

Thanks for your excellent post.

Though, I don't need monthly withdrawals to pay my bills, I am still working on my temperament to hold on to positions longer. I started this conversation on diversification to see how other traders are doing it and this ended up to be an excellent material addition to this thread, thanks to all of you who contributed.

However, my intention was not to simply copy someone's approach to diversification.

In fact, I think we need to personalize not just diversification but every aspect of this millepede trading approach. Like you said, after all this millepede idea is Graeme's leather jacket

Similarly, if I were to define and copy your diversification approach that would your leather jacket and if you are anywhere near like your avatar, sure it won't fit me

I really like your analogy

Thanks again for your efforts and contributions. Appreciate it.

Regards,
TradeStar

Thank you
Calculus, BizFx, Barbossa, VeeFx, Goldminer, Yonnie, Cameron1st, Chicky and Acolyte for your participation.

Regards
TradeStar

Here's a question I'd like some guidance on.

 

1. Say your entry method has a good probability of working
2. At 9am you get a short signal and take it, let's say Cable at 1.5765
3. Price moves lower, stop is moved to unchanged
4. However,at 11am you get another entry but this time long at 1.5725 which you again take

Question:

Would you leave the initial short, and get stopped out an hour or so later as the long entry works?

Or would you cover the short at 1.5725, the same level the long was established?

I know there's never any proper answer to this type of question, but how have others been handling the situation? Note, I'm talking about positions established within a short period of time and not a short taken one day and a long taken 4 days later. Thanks.

TS,

Actually, you don't have to work against your temperament, trade short term as you feel, but keep some stats that will show you the way:

To give you some idea, I use a simple Excel sheet, and besides the standard entry, exit, profit etc ... I have a Comment column, and, let's say I closed a trade at 4:1 R:R, I would write a short comment "Trade closed at 4:1" and colour the cell with Orange. Then, when I have time, once a month or so I go through my trades and check on the Orange ones (the trades that I closed):

- some of them, I find closing was the right decision because the price came back to entry and I extracted most profit I could, so then I change the Comment cell colour from Orange to Green, and that's a closed trade from me, I do not think much about it again.

- others, I find that came back to entry, but I could have kept them significantly longer, so then I change the Comment cell colour from Orange to Red, and I write how much R:R could I have made if I held longer.

- and finally, the last category, I find that the trade has not returned at the entry yet, so I do nothing (I leave the Comment cell to Orange, so I can check it again next month or so).

And then, sometimes, I check my percentages, consider the trades marked with Red (the ones that I haven't exploited to full potential), and make changes if I feel they are required, and so my way of doing things evolves based on my own stats and my own ability.

Regards,

Cam

Hi Calculus,

I usually have no interest in closing positions opened in the same day, so I would leave both long and short running, the stronger will survive. :-)

Cheers,

Cam

I would leave the short at the mercy of the market. Reason: the price could go either up or down and I couldn't know for sure where, as there is no entry method that works all the time.

Let's say the price moves up and eventually closes out your short. Both ways you retain your long position, all you lose is the small unrealized profit accumulated on the previous short.

Now assume the price moves down instead. Both ways you lose your long position, but instead of a small static profit you would have a growing short. So essentially the whole difference is the outcome for the short. You're deciding whether to trade the uncertain large growth for a certain small floating value of the position. Hence, I choose growth over a small realized profit. It's the very core of the millipede building philosophy in my opinion.

Yes, that's the way I've been doing it, but I was starting to think of the possibility of covering the short rather than letting the market decide. That's the key point isn't it - the market will decide....

Barbs, Like Cam, you make an excellent point - potential growth over small realised profit. You never know do you, the short could turn out to be a 500+ tick move, do enough trades and you're going to get your share of them. Thanks.

Good afternoon everyone,

Thank you everyone for your experience and knowledge on building this equity millipede. I read this thread last year aka January 2012 until Feb-march 20012. I thought I was king of the world with what he was showing us. But until I realized I was just beginning my journey to success. I have made 700$ in some weeks and in others lost over 200$. Breaking even pretty much. But what I've learned from Graeme's method is that trading is your own business. Trading someone else's system is like opening a franchise: but in forex there is no such thing as a franchise.

Graeme did say razor sharp entries were good, but then he also said they didn't matter; well that depends on your capital. Can you withstand a weekly fluctuation or a daily fluctuation. Someone with a billion dollars can withstand a yearly wick fluctuation. Fluctuation is the a traders nightmare. See I trade mostly on daily candles, using hindsight of weekly,monthly, and yearly. For the daily I will see what the market is saying then I will look at 4hours and see if there is a reversal aka higher highs and higher lows turning into lower highs and breaking out to lower lows. The secret is the information within the information. 'When its up buy and when its down sell' - think about the true meaning behind that. its always been about HH, HL, LH, and LL. The smaller time frame will tell you if your anticipation of the higher time frame is probable. However even if you understand that you wont be a professional trader. Low risk entry is the main thing that will keep your capital alive. Do you understand what a low risk entry is? okay so you understand what it is, but can you pull the trigger on low risk entries only and only low risk entries. See to build a millipede takes a long time, especially if the market is moving sideways like it did for the past 2-3.5 years. Why do you think almost all of you didn't have a surviving millipede(correct me if I'm wrong) a millipede being many legs of course.

When dealing with entries or life... did you ever ask yourself, how long or what will it cost you before you figure out whether your decision was right or wrong. when your driving, how long will it take you before you find out you speeding was a wrong choice? is it when you miss something? or after you hit a pole? or someone? Trading is a lot simpler than life decision. You either have negative pips or positive pips. A real man admits he is wrong when he is wrong. So a question for all of you... How many pips does it take you before you figure out your trade was wrong? Now you start thinking like a real trader. Scenario goes like this 'If I enter here how many pips will it take me before I know this was a bad trade?'.... Now obviously the less pips the longer your account and emotions will last. So next time your about to enter a trade ask yourself 'how long will it take me to know that I was wrong?'.

I never cared that I was wrong because life is uncertain and we're all predicting something that only the Lord knows. The real question 'WHAT AM I DOING THAT'S WRONG?'. and there is a lot of things. But what I was doing wrong was I was trading naked(no indicators) but yet I wasn't using all the factors of trading naked aka the HH, HL, LH, and LL. After that I knew when to enter and how to enter and when I knew I was wrong aka my s.l. Yes I use stop loss and move it to B.E once the day is over and in profit. If day is over and my s,l not hit and i'm negative I close the trade out. Thats that. NO FEELINGS just EXPERIENCE. And I need More experience

Another thing I wanted to add is screen time. Someone on here said that the 3X20 exercise was to add screen time experience. You want screen time experience. GO pick a currency and go into the 5minute chart and watch it everyday for 30 mins. That's 6 candle formations a day. Watch it before bed time if you can't sleep that will put you right to bed. Screen time makes a trader who he is. Just like any other career. With out the experience your slow and not good at what you do. With experience your a valuable person.

Diversification should not even be thought about until you can enter more than 2 trades and have had them open successfully for a few weeks(considering your trading daily candles using weekly, monthly, and yearly candle hindsight).

A)So understand a method that works around HH, HL, LH, LW.
B)Understand the meaning of razor sharp entries; How long(many pips) as a professional trader will it take you to figure out you were wrong
C)Diversify when main hindsight you use is changing its Higher Highs, Higher Lows, Lower Highs, and Lower Lows.... that means something is happening and the trend is dying out. Time to take profits.

I hope I helped some of you out that are new and maybe a few who are old to this thread. Once again thank you all who have posted along with Graeme, it was a great read and I learned a lot. Thank you.

Kind regards,
Jacob