Building an equity millipede

Calculus,

If both signals were generated with in couple of hours and hardly 50 pips apart, there is a bigger chance of SL being hit on both sides.

Currently, in my practice what I do is, I allow the market to take out the short at the logical stop loss. This is anyway already committed risk. However, I will re-enter short exactly at the same price, if price comes back after taking out your initial SL and cover the long.

Thanks
TradeStar

I'm inspired by this thread and the folks here.

Another good post by someone who seldom posts on forums.....

Great thread so far! I'm slowly reading through it.

Wondering if anyone here trades Flying Buddha that was briefly mentioned here. I took a test trade with this on AUD/USD and have secured 300 pips along with many smaller positions since late January.

Great thread.

I opened an Oanda demo account and have been trading since January 1st.

I have a question. For example, I had a two week old position in gbpjpy and was up about 200 pips but then it retraced 100 pips. So I added another position thinking the uptrend would continue, but instead it stalled. When I tried to exit the new position, it said I had to close my earlier position first. I don't understand why I have to close a previous position first. So, in order to get out of a losing trade, I had to close an earlier trade in the same pair.

Is this the standard among all forex brokers?

Good afternoon to all,
Is anyone using Pipeasy's original method and being successful?

controling risk with time.thats beautiful.time is the main trade.regards

To really make this strategy work you've got to solve some big problems -

 

1. Reading the market
2. Low risk entries
3. Risk management
4. Psychological pressures
5. Stacking
6. When to trade - when to do nothing
7. And probably the most important, how to make sure your stacked positions don't get gobbled up by the market (or at least how to make sure they're given the best chance. The markets are perverse remember, so they're always going to try to get ya)

Some of the above are more important than others and of course all answers are correct only for the individual that answers themselves, ie what's right for me not not be right for you.

The other important point to note is the answers to those questions all blend into each other. For example, stacking is part of entries, stacking is part of risk management, stacking is part of knowing when to trade. Also, when to do something or nothing is part of risk management and it's part of stacking which is also part of the psychological pressures etc.

Over the next week or so I'll try to make a series of posts and offer my thoughts onthe above.

Hopefully starting from the bottom. "how to make sure your stacked positions don't get gobbled up by the market" will be of particular interest (to me) and I have built my edge around it. Low risk entries would be next in the order of preference

If you are based in the US/Citizen/US Broker, the regulation is First-in-first-out (FIFO). Need to close first the first one before the 2nd position.

Hi! Vee,

Glad to know that you are having success with the System. I am still struggling with my trading a little bit. Distructed following development of several EA and I am not going anywhere, until I found a kind of variation in my entry method incorporating idea I got from Graeme's thread on Stacking.

I still have a lot to learn though. For example with GBPNZD, I have established 2 sell positions with 100 pips apart at 1.8830. I only managed to stacked 2 positions as I am afraid it will revert back upward soon. Although the weekly chart shows the general trend is going down, current price is already passed support level from Feb. '12/Jan.'11. If my hindsight is correct on the weekly chart, I am already anticipating the upward trend all the way back to the previous resistance of 2.0850 level. Following Graeme's - that my job as a trader is to enter and follow the market. Common sense is telling me that I have to close my position when the trend will turn arround or am I going to let this 2 soldier die?

In addition, once my equity turns positive from more than 10 initial entries, I stacked heavily even at a margin level below 250%. I have nothing to lost anyway - if I stamped out due to margin, I will still keep my profit yet utilize my capital at the most. By the way what is your safe margin level you are maintaining accross all your positions?

I love to hear your comments guys.

Regards,

Edd

Vee, I want to make some solid posts and don't have time right now, so I'll get around to it at the weekend.

However, to give you a pointer. In order to offer your position (initial probe + more importantly your stacks which are the secret sauce in all of this) the best chance of success, I think THE key is to trade at the edges of price, those are the levels that from a probability point of view the market will find it hard to gobble up your position.

Define 'edges'? It's just another way to describe an extreme. Markets generally move from undervalued to overvalued and it's at those key areas where we should be at our desks looking to put trades on. Yes, anyone can put a probe on when price is not at an edge and can then stack 1 or 101 extra positions but again from a probability point of view the market has a high chance of coming back to that level and stopping out all your hard work.

Never discount the emotional drain of having 7 short trades on say the Euro at 1.3500 to 1.3450 (just plucking some numbers out of the air), seeing price go to 1.3350 and sleeping like a very satisfied baby only to come in the next day to see price gobble up those unchanged stops. Yes, this will happen even if you trade at the edges but it will happen far less than if you trade in the middle of the range. So the less it happens the less emotional pressure you'll feel which means the better shape your mind will be in to analyse/take trades.

Good Day Vee,

Could you pls share Average Buy/Sell consolidated positions indicator ( if of course is for share ).
It is very good idea to group stacking episodes into separate groups and treat such group as one virtual order.

Wish all of you plenty of green pips!
miekra

Hi Miekra, I have yet to modify the indicator to show average price of each group of stacking episodes. I use the same one freely available on the web with a little tweak. Google "Consolidated Position Indicator for MT4".

Most of my indicators and EAs are compiled via mt4 editor a dozen times during my trading session based on my own personal need so sharing what I have may not work for you. I use this approach to minimize the effect of "pre-defined actions/entries" that Graeme advocates. If market is not constant, EAs and indicators should also be adjusted on the fly to reflect the current state of the market/price action.

p.s. all we need is to add a start and end date parameter (or a comment parameter) in this indicator to scan thru open positions. Should be pretty straightforward.

A few posts back I said that in order to really make this strategy work we all have to find answers to some very tricky problems. With these answers in place we can then mould them into the complete trading strategy.

Here are the problems that need answers to -

 

1. Reading the market including when to trade and when not to
2. How to make sure your stacked positions have the best chance of surviving
3. Risk management
4. Low risk entries
5. Stacking
6. Psychological pressures
   
   

In this and my following posts I'm going to show everyone my current through process which I've been working on over the last year or so. Most of that time has been spent thinking rather than trading and it's only in the next few months that I going to start putting the ideas into practice. However, I still need some help, mainly on the mental aspect and I'd love to hear some of the ideas of other members in relation to my main mental problem. More on this in a later post.

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Reading the market including when to trade and when not to.

and

How to make sure your stacked positions have the best chance of surviving

My answers to the above 2 questions are very much related.

Price generally moves from undervalued to overvalued before repeating. This pattern repeats in whatever timeframe you’re looking at, 1m, 5m, 240m, Week, Month or even above that. Pick any chart, any timeframe, can you see the natural ebb and flow from under to over and back again? And it doesn’t really matter if the market is trending or ranging, price still generally moves from under to over.

Understanding this and using the information is potentially a big edge if used correctly.


Example: Undervalued to overvalued – Range Type Market

Example: Undervalued to overvalued – Trending Type Market




In the final move down I’ve noted ‘under???

Will this be the bottom?

It might be, then again it might not be, but it’s certainly heading towards undervalued status. If it is undervalued then probabilities suggest 2 things –

 

1. Price has a good chance of not moving back to that undervalued area for some time, and
2. The next stop, which may be some time away, will be when price goes to overvalued

Another word for over/under is ‘edge’ as in look to trade at the edges. Our edge therefore is literally the edge.


How to find the edges – Quick Method

The spotting of a potential edge in price is easy. Note, I said potential edge, you’re not looking to trade at this time, you’re only doing a bit of recon, which may or not be turn out to be right.

 

1. Pull up a chart in whatever timeframe you’re interested in
2. Bunch the bars up really tightly and see how price has moved previous in the past
3. Say it’s Cable 60m, look at the last 2-3 months and note the general movements
4. Just eyeball the chart, no fancy measurements are needed

Assume price has been dumping for some time, that’s an initial warning that we may either be at an edge or nearing one


Important

No trading at this stage, you’re only looking for potential areas to get interested in. Perhaps you think Cable is near an edge, but then over the next 5 days price dumps even more. You were wrong, big deal, no money risked, nor lost.

Summary: Just get some rough idea of where an edge might be.


More detailed way of spotting edges

I use simple trend lines, parallel lines that sort of thing. I can add my lines to any chart within a few minutes. All I try to do is draw from significant price bars. WRBs, big highs and lows, any bar that looks interesting on the chart.

What you want to try and so it find what’s called the frequency of price, see the following examples.

See how simple the lines are and they’re all drawn off significant price bars. As I said above it shouldn’t take you more than a few minutes to add the lines to any chart. Sometimes, you’ll struggle to find any good lines as price is messy, having been all over the place. If so, draw nothing or go to a to a higher/lower timeframe .

Can you also see the lines generally capture the frequency of price? That’s what you’re trying to log into because if you can find frequency then you’ll have a great chance of zeroing in on the over/under valuation of price.

One final point. In the first chart you didn’t know about the touch 1 and 2 of the yellow line, those were used to draw the line AFTER price traded at those levels. The 3rd touch was tradable.

3rd Touch in more detail

Let’s look at that 3rd touch in more detail because it’s where one of our trading edge lies.

Can you see point x, assume that’s when you started to look at the chart

You’d drawn in the yellow line and it was clear to you in HINDSIGHT that point 2 was overvalued and it’s quite possible that right here at point x, price is undervalued (but for this example, you have no interested in longs)

So judging that price had moved down from overvalued (point 2) to potentially undervalued (point x) logic would have you thinking that IF price does start to move up, the logical place for it to go would be to that line, around point 3 so making it overvalued.

And if the market does prove you right at point 3 then it has a good chance of moving back down to undervalued.

If an area around point 3 does turn out to be an extreme/edge in price then price has a good chance of not returning to the area and your positions (initial probe(s) + stacks) have in turn a good chance of surviving.


Text book example

Yes, of course this was a textbook example and I wanted to show something perfect in order to make my point without complicating matters. Go look around your charts and you’ll see plenty of examples just like this as well as others which are messy and all together harder to trade.


What happens if we try establish positions when price isn’t at a potential edge?

From a probability point of view we get frustrated, or at least I do. The bigger move is from over to undervaluation but inside that there’s often a load of semi random movement. Today they love the dollar because of the trade figures, tomorrow they’ve changed their mind, the next day it’s all love again etc.

Here’s an example of what I call the Gobble zone. ALL positions and ALL stacks, even though they might have looked like really solid trades at the time, got gobbled up within 1-5 days. Try trading in these zones for the next few months, then tell me you’re not getting frustrated with it all.




Go to the top of the class if you’ve spotted something on the chart relating to frequency. I don’t know about you, but a very simple line can be drawn from the top as well as a parallel line off the low. Looks like we might be on to something here, NOT FOR PUTTING ON TRADES, but for defining areas that might be overvalued/undervalued and in turn edges on the chart.

Now, before anyone accuses me of curve fitting those lines, look at them closely, especially where I start the lower line from. Can you see I haven’t drawn the line from the low of that move, instead it’s around the open/closes of the candles. This is fine, you want to try and capture the general area, the lines are not going to be used for entering orders. I often move the lines up or down 1-10 ticks as in this chart to make everything fit a bit better.





Summary

2 questions asked –

When to trade, when not to

and
How to make sure your stacked positions have the best chance of surviving

Answer to both: Only at the edges as these offer the best chance of your position (initial probe(s) + stacks) surviving.

But what about in the middle, after price has started moving down from overvalued to undervalued. Won’t you miss some excellent trades.
Yes, no doubt you will but I’d suggest that for every good trade you miss you’ll also miss 2-3 losing/breakeven ones. Trading as we know is all about putting probabilities in our favour and I think only looking to trade at the edges does just that.

Let the edges in price become one of your trading edges.

Risk Management

Say you put a trade on today, get stopped out and lose $1. How do you feel? Chances are you won’t care one bit. Now make that loss $5, how do you now feel? Again, I’d bet you don’t care. What about $10, $20, $50, $75, $100, $250, $500, $1,000, $5,000, $10,000 and so on.

For every reader, one of those figures above will make them sit up and take note. Let’s assume that my figure is $100.

A basis point as most know is 1/100th of 1%. 10 basis points is therefore 1/10th of 1%. 10 basis points is I think a really good figure to risk per trade and it’s my suggestion for traders to use when utilising G’s strategy. The main advantage about risking 10 BP is it makes trading effortless.

So if $100 is my level and I want to risk 10 BP per trade, that means my account has to be $100,000. Or I’d need a $10,000 account to go with a $10 loss per trade.

Always think about the very real possibility of a long stream of losses, perhaps of 10 or more trades. If you risk 1% per trade as so many books/vendors suggest that’s a 10% loss, possibly within a few days. Most think they can handle that sort of loss before it happens (I still have 90%!) but then find they can’t when the 10% loss becomes a cold hard fact.

Many won’t like such small risks because they think the game is all about making money and small risks generally limit profits. But the game has never been around profits, they come but only after the risk and losses have been effectively managed. The game is also about being able to get up time and time again after having been knocked down a number of consecutive times. Risk 10 BP per trade and the boys stop you out, so what - risk another if price sets up again, the boys again knock you out, so what - risk another and so on.

Conversely, risk say 0.50% per trade, the boys knock you out, risk another 0.5%, the boys knock you out, hold on I’ve just lost 1%, now I’m feeling a bit of fear, perhaps I won’t take the next trade, don’t want to lose too much.

Guess what. The 3rd trade works and you’re not on board. Now a touch of anger might appear, why didn’t I take the 3rd trade, look price is already up 90 ticks, I should be looking to stack here and so on. And all because your risk per trade was so much that you cared….


Stacking

I admit, that on its own a 10BP trade is not going to make anyone’s fortune. But a collection of 10BP trades could. This is where stacking comes into play but I’m not going to talk about how to stack, or when to stack in this post.

G goes on about probes/scouts and he calls them disposable.

Imagine if you were a Russian General in the 2nd world war, the year is 1943 and you’re starting to push the German’s back towards Berlin. You’re in control of 100,000 men and one of your strategies is to send a couple of platoons (100 men) out every night to find weaknesses in the German lines. Sadly many of them get wiped out, but a) this is war, and b) it was only 50-100 men. Those soldiers in effect were disposable.

If one group of soldiers manages to break through then send in more men, build on that initial success. This is similar to stacking, if one of your probes work, try to stack with another basis 10BP trade and so on. This means on a successful trade you may well have 3-10, 10BP trades, perhaps even more if you’re very aggressive.


Summary

The main point in all of this is to find a risk level where trading becomes effortless, ie fear and greed are kept at bay. Risking 10BP a trade is one way to do this.

Whatever you think I’d urge you to always risk less than you think because the important point is being able to continue to trade even when the market/boys keep messing with you. The boys know what they’re doing, they know how to mess with you, so build a strategy which takes into account the fun and games and is able to counter them…

One final point: Is 10BP another edge to add to your overall strategy? I think it is.

Hi Vee,

Many tks for your guidance. I appreciate it very much.

Have a nice day.

miekra

Low Risk Entries

It’s my theory that all market participants make up a pyramid structure. The more competent and skilled you are the higher up the pyramid. We all know the shape of a pyramid which means right at the top there aren’t many people. Right at the top is where the people that control prices hang out.

When I say control prices, I only mean in the short term and even then it’s not always possible. So there’s no James Bond type baddie with a cat on his lap that says ‘now is the time for the Euro to go down 20 big points’ or ‘now I will move one of the Yen crosses 30 points over the next 3 months’. Nobody has that power because the big time trends are guided by nothing more than the natural laws of supply and demand.

So what do I mean when I say the top of the Pyramid control prices. These are the infamous boys, a loose knit collection of very skilled, very competent, brilliant traders who have all the experience and money they need. Maybe some of them know each other, maybe they don’t but they can all read each other’s moves by way of the chart.

The goal of the boys is of course to make money, and lots of it. In its simplest form they do this via –

 

1. Stopping the majority out before the main move
2. Then force the majority to re-enter the move to help fuel it and in turn create big profits for themselves

Here’s a quick example –

You see similar moves like this this time and time again in every market and every time frame from 1m to monthly. This is how the boys ‘control’ prices in the short term, first in the above example they run it up sharply, then it’s smacked down, then the real move happens just as they planned it.

Go look at your own charts, see the big move, what happens before it? Chances are the boys made it hard for the majority to be on board.
One of my biggest mistakes in the past was looking at price as the be and end all. What I never considered, in fact never even realised it was happening, was this – what is price doing and how does than hurt/help the majority of traders. You can also put this far more eloquently by always asking – who right now is getting f***ed by this move.

Following price without taking account of what it’s doing to the majority of market participants sadly puts you right at the bottom of the Pyramid. Even more sadder than that, it means others are using you as they’ve used me in the past.

This is all very interesting Calculus some of you are no doubt saying but what about low risk entries?

The low risk entries come not from some candle pattern, indicator or bounce off a fib level, they come from tracking the boys, realising the game they play, waiting for the fun and games, and then joining them. So in the example above –

 

1. You don’t go long on the first break, instead you watch
2. You don’t then go short expecting price to come back into the range, instead you watch
3. As you’re watching you now say hold on, we’re at an potential EDGE here (look at a 240M USD-CHF chart, can you spot the edge with your simple lines)
4. The boys might be up to their games here you say, if they are they’re going to try to slam it down through that low
5. If they do that then I’m going to be on red alert for longs if the low generally holds because this baby could explode
6. If it does explode then not only am I going to have an initial probe on, I’m going to the 5m to try and aggressively stack risking 10BP per trade

Summary

It’s not so much about a low risk entry, it’s rather finding an area that offers a high probability of not only working but offering the ability to stack AND that area has a good chance of not being re-visited for the foreseeable future. Find those areas and you won’t have to worry too much about the intricacies of a low risk entry pattern.

Stacking

I haven’t really got much to say on stacking because it’s all related to the above post - if you can find areas at EDGES where the boys are forcing people out then that’s a green light to start stacking. But only look to stack AFTER they’ve forced people out and price has started to run in your expected direction.

Remember, you want to tag along with the boys, let them move price and you then follow.

For more info on specific Stacking tactics go reread G’s stacking posts there are plenty of them. Personally I like the mini stall breakout on the 5m but you must demand high trade performance, ie if it doesn’t work almost immediately, get out. Also, only continue to stack if the previous stack worked.

Psychological pressures

The main point I want to make about the Psychological pressures involved with this or any other trading strategy is the necessity of controlling fear and greed. Get those 2 demons under control and that is another big edge to your arsenal as trading can become effortless.

Risking 10BP per trade is my way of taming the beast and I hope some readers will agree.

But that’s not to say I have all my problems under control. If you want to become a trader, and I’m still very much learning, you’re going to have to do a lot of soul searching and doing it honestly and correctly will reveal your hidden and not so hidden personal flaws.

I never really knew I had a problem with the mental side of this business until I did my own soul searching and what I found sadly is a personal menace and something I need to get resolved. I don’t have a problem with making money, I don’t have a problem with losses and I’m pretty chilled when it comes to giving back big mark-to-market profits which is going to happen many times with this method.

The problem I have is being wrong. I don’t like it whether it’s a pub quiz, being proved wrong when I was at school, or buying the Euro which then quickly stops me out. If I go long the Euro and I get that wrong then by risking 10BP the monetary amount is generally insignificant so like I said, it’s not about the money. If anything it’s an ego problem.

I’m sure others have struggled with the fear or being wrong so I’d really appreciate it if some members would post some ideas, tips, tricks, mental strategies they have found useful so I can try and beat this demon. Thanks.