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Building an equity millipede

  • #5,941
  • Jul 28, 2013 1:28pm Jul 28, 2013 1:28pm
Quoting VEEFX
I am trying this for the 3rd time to see if I get any meaningful responses from those who now fully understand all the key aspects of this trading style. I don't want to hear your opinions but facts around what YOU do. What prompted this post is the fact that I experienced a 82 pip spread widening on eurnzd a minute before NZD interest rate decision last week taking out several of my BE trades bringing me very close to a margin call. During volatile markets, price can drop a 100 pips in a few seconds... we all know that. Massive Weekend gaps occur...

Try this. Go back and look at the last 24 daily ranges for your pair. Do not add to a position unless your profit exceeds the largest candle range of the last 24 days. In other words if you trade EURAUD, you should not add another leg until your prior leg is 370 pips into the black. Also remember that Gramae goes both long and short, and this is key to this strategy.
If you are good at something, never do it for free--Joker
  • #5,942
  • Jul 28, 2013 1:33pm Jul 28, 2013 1:33pm
Quoting markmm
{quote} If a 82 pip spike is putting you account in danger then you are over leveraged for your account size. This is one of the reasons I like to avoid the smaller time-frames you could have a 20 pip stop at 1% of your account (or no stop) then a news spike comes and wipes 5% of your account. The way I am currently trading a 200 pip spike wont even be 1% of my account, sure I won't be doubling my account every month but I prefer to play the long game and build up slowly. [b]Thankfully by adding mutiple legs and spreading risk over pairs you can...
eh... typical response. If you didn't have atleast a dozen legs across several NZD and JPY pairs this month alone, you are not exploiting the true growth potential. Risk is ALWAYS there regardless of whether you trade one pair or multiple pairs or whether all your trades at moved to BE.

Pairs trend because of fundamental currency strength of a country. To avoid over-exposure, I send one probe across several NZD pairs (or whichever currency is showing strength/weakness) and then stack heavily only on one or two pair (in my stacking account) that is moving the 'fastest' into profitability. This way, I can bypass FIFO and hedge/freeze/diversify at will. A true trend follower is inevitably exposed over time to strong/weak currency.
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Staying in my lane...
  • #5,943
  • Jul 28, 2013 1:53pm Jul 28, 2013 1:53pm
Quoting jmn5611
{quote} Try this. Go back and look at the last 24 daily ranges for your pair. Do not add to a position unless your profit exceeds the largest candle range of the last 24 days. In other words if you trade EURAUD, you should not add another leg until your prior leg is 370 pips into the black. Also remember that Gramae goes both long and short, and this is key to this strategy.
I must be missing something as I don't see a whole lot of logic here. I don't see any correlation between length of one day candle in past 24 days to allow room to grow your leg. Growth in millipede terms is NOT just how many floating pips you have earned in a position. Account Growth comes from Stacking... either conservatively or aggressively. I have one position in UJ still from the 80 handle which is nothing (in %growth) compared to some of the 10x pip movement extractions I have encountered (with same risk of moving SL to BE upon each stack!)
Staying in my lane...
  • #5,944
  • Jul 28, 2013 5:36pm Jul 28, 2013 5:36pm
Quoting VEEFX
{quote} I must be missing something as I don't see a whole lot of logic here. I don't see any correlation between length of one day candle in past 24 days to allow room to grow your leg. Growth in millipede terms is NOT just how many floating pips you have earned in a position. Account Growth comes from Stacking... either conservatively or aggressively. I have one position in UJ still from the 80 handle which is nothing (in %growth) compared to some of the 10x pip movement extractions I have encountered (with same risk of moving SL to BE upon each...
You asked how to avoid adverse moves on the weekends and the widening of spreads. This is how you do it. You are too anxious to stack. Relax. The stacks will come.

As far as the rest, you need to be willing to trade in both directions. If you trade both long and short, as Gramae suggested, then you will find that you will not suffer a maximum loss most of the time.
If you are good at something, never do it for free--Joker
  • #5,945
  • Jul 28, 2013 5:38pm Jul 28, 2013 5:38pm
Quoting VEEFX
{quote} eh... typical response. If you didn't have atleast a dozen legs across several NZD and JPY pairs this month alone, you are not exploiting the true growth potential. Risk is ALWAYS there regardless of whether you trade one pair or multiple pairs or whether all your trades at moved to BE. Pairs trend because of fundamental currency strength of a country. To avoid over-exposure, I send one probe across several NZD pairs (or whichever currency is showing strength/weakness) and then stack heavily only on one or two pair (in my stacking account)...
This a problem. Get a 1000 pip stack in ONE pair, before consider expanding. This is my humble opinion.
If you are good at something, never do it for free--Joker
  • #5,946
  • Edited 6:04pm Jul 28, 2013 5:54pm | Edited 6:04pm
Quoting VEEFX
I am trying this for the 3rd time to see if I get any meaningful responses from those who now fully understand all the key aspects of this trading style. I don't want to hear your opinions but facts around what YOU do. What prompted this post is the fact that I experienced a 82 pip spread widening on eurnzd a minute before NZD interest rate decision last week taking out several of my BE trades bringing me very close to a margin call. During volatile markets, price can drop a 100 pips in a few seconds... we all know that. Massive Weekend gaps occur...
Here are some ideas that I can think of:

*more leverage (this will reduce the margin you're using to hold the legs). If you're able to increase the leverage right now, it will be the best solution as of right now. But you'll encounter this problem again later on though (but with a lot more legs).

*stop adding new legs until there is x free margin in the account by letting the existing legs build up equity.

*prevent yourself from adding legs if your margin level isn't above a certain level.

*closing existing legs to free up margin.

*reduce the frequency of your entries to allow the equity to build up in the account from the existing legs. (Essentially, trade less often.)

*let it margin call, closing all your trades, pocket the money and start again.

*a weird idea, but position sizing might have an interesting effect. Trading a valid entry which has a small stop loss when position sized (a fixed risk, regardless of stop loss size) will mean a larger trade size (and thus a larger $/pip). As a result you'll get more money for each $/pip that it moves in your favour than your normal trades. This will help to add up equity much faster if they stick.

*find an optimum balance between entry frequency, position sizing, and how frequently the currency pair moves in order to keep the equity growth ahead of a margin call while you're still adding new legs. I think this would require a lot of research and experience, but it will probably be the best long term solution imo.

That's all I can think of atm.
  • #5,947
  • Jul 28, 2013 7:37pm Jul 28, 2013 7:37pm
Quoting Cujo2
{quote} Here are some ideas that I can think of: *more leverage (this will reduce the margin you're using to hold the legs). If you're able to increase the leverage right now, it will be the best solution as of right now. But you'll encounter this problem again later on though (but with a lot more legs). *stop adding new legs until there is x free margin in the account by letting the existing legs build up equity. *prevent yourself from adding legs if your margin level isn't above a certain level. *closing existing legs to free up margin. *reduce...
thx for all your responses. Being in US, I am bound by 50:1 leverage (which is the only regulation that I bitch about!).

"x free margin", *prevent yourself from adding legs if your margin level isn't above a certain level" >>> the 'optimum' level of free margin is precisely what I am trying to figure out as part of my trading plan. If anyone here is trading this approach for a while (atleast 2 yrs!), you must have a free margin % check before entering a probe/stack as part of your trading plan. I am looking for someone to share their real experience in building their milipedes and how close did they ever come to getting a margin call based on their trading plan. OK...I will share mine. I won't send a probe if I have used 75% of my available margin. In my stacking account, I go all the way up to 85% of used margin to maximize the output of my time and effort.

P.S. Not sure if you guys realize this or not but EVERY pair is connected with USD. a minor blip in USD index will affect all legs in a major way, especially crosses.
Staying in my lane...
  • #5,948
  • Jul 29, 2013 6:40am Jul 29, 2013 6:40am
Quoting VEEFX
Reading some of the recent posts , this quote from FTI seems appropriate to post here.... "When you are young in the trades, start small build slowly and prudently. It an ants job. If you think that with your money you can come into forex and take as you wish, I emplore you to think again, carefully. Draw a line , ride the trend moves, Truly easier said than done. To ride day positions, is good when you have already nested big profits as foreign capital to risk. Unless you can make good decisions, in the short term, I would wonder, how longer term...
Thanks for this, it makes sense. I have been going back and forth over how to enter and I think to fully realise growth potential one has to get good at 5min low risk entries in order to build a decent sizes position. Entering as per ones entry method in either direction and then move to BE. Let the market distill our orders and after a few surviving legs are in good profit close most but promote one to next level. After a while you might have a few on the this higher level in good profit then close some of them for profit but leave 1 on next level. Always leave one leg on at the highest level.

So the main thing to get good at is entering and marshaling that trade into a risk free position (BE or take half profit and leave stop). All else is management of the leg levels and keeping our equity curve smooth. Growth takes care of itself. I know this is basics to the experienced millipeders however I just wanted to post this to get it correct in my mind. I was trying to convince myself I didn't need to do the hard work and just enter almost at random in the direction of the trend from the daily chart, but it's clearer to me now the key elements to this method in order to capture the growth potential
Economists have forecast 9 out of the last 5 recessions
  • #5,949
  • Jul 30, 2013 4:38am Jul 30, 2013 4:38am
Quoting markmm
So the main thing to get good at is entering and marshaling that trade into a risk free position (BE or take half profit and leave stop).
I would suggest to you, that "the main thing" is accurately identifying the areas of interest where to trade. Graeme's entries on 5 minutes seemed to work like magic because he was trading in the right area on the bigger timeframes. It is critical to always keep the big picture in the back of your mind, and not to trade 5 minute charts without having a context.
  • #5,950
  • Jul 30, 2013 5:23am Jul 30, 2013 5:23am
Quoting cameron1st
{quote} I would suggest to you, that "the main thing" is accurately identifying the areas of interest where to trade. Graeme's entries on 5 minutes seemed to work like magic because he was trading in the right area on the bigger timeframes. It is critical to always keep the big picture in the back of your mind, and not to trade 5 minute charts without having a context.
Thanks, this is something I need to work on. So this can be horizontal S/R, Fib levels on bigger swings, trend lines, 200 EMA, big round numbers etc all from higher time frames?
Economists have forecast 9 out of the last 5 recessions
  • #5,951
  • Jul 30, 2013 10:17am Jul 30, 2013 10:17am
Quoting markmm
{quote} Thanks, this is something I need to work on. So this can be horizontal S/R, Fib levels on bigger swings, trend lines, 200 EMA, big round numbers etc all from higher time frames?
I personally do not use any of the items you listed ... regardless, you have to choose your own beliefs. Start with a simple theorem, like ... when price reaches the vicinity of the 200 EMA on the 4H chart, depending on the price action, see if there will be a bounce... or a breakout of the 200 EMA on the 4H chart. Once that's determined, go to the lower timeframes and trade in the chosen direction. If you see that positions stick easily, then you are trading in the right direction ... if you get losses, then you might have to go back to the 4H chart and see if the direction you thought was true .. is still valid.

This is just a summary, Graeme has explained in far more detail how to build your trading strategy... and I would encourage you to read directly his posts.
  • #5,952
  • Jul 30, 2013 10:25am Jul 30, 2013 10:25am
A very busy thread to start with, then goes slower and slower, then almost stops for weeks at a time.

What does this tell us? The most logical conclusion is the strategy isn't as good as it first looks. Sure, it's probably a money maker, and no doubt a big one for a few people, but for the majority it may even result is overall losses. Like all trend following systems it makes a fortune when price makes a big move, but in sideways trading it either loses money or makes a small amount but with incredible frustration, ie you get 10 good stakcs on, price moves 300-400 ticks in your favour before coming back, stopping every one of your trades out for breakevem.

So what's the solution?


As other posters have suggested, if you can get good at entries on the 5m, that's all you need.

So why not practice 5min entries for several months (clue: try to enter after there's clear evidence the stops have been taken out, then go the other way), use a 5 tick stop (if the stop is bigger, don't take the trade) and take profit at 35 ticks, ie 7:1 risk reward.

EXPECT PLENTY OF LOSSES. But if you can get a 30% win ratio you're going to make all the money you want/need.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #5,953
  • Jul 30, 2013 10:39am Jul 30, 2013 10:39am
Quoting Calculus
A very busy thread to start with, then goes slower and slower, then almost stops for weeks at a time. What does this tell us? The most logical conclusion is the strategy isn't as good as it first looks. Sure, it's probably a money maker, and no doubt a big one for a few people, but for the majority it may even result is overall losses. Like all trend following systems it makes a fortune when price makes a big move, but in sideways trading it either loses money or makes a small amount but with incredible frustration, ie you get 10 good stakcs on,...
I don't think you can judge a method or trading framework based on the posts in the thread. The issue with a stack going to breakeven is something that can mitigated by talking profit a percentage of the stack earlier than Greame would suggest, say 30% at 200 pips, then 30% at 500 etc. This way in ranges you are still making a little and have some in for the potential trend.
Economists have forecast 9 out of the last 5 recessions
  • #5,954
  • Edited 11:14am Jul 30, 2013 10:56am | Edited 11:14am
Quoting markmm
{quote}The issue with a stack going to breakeven is something that can mitigated by talking profit a percentage of the stack earlier than Greame would suggest, say 30% at 200 pips, then 30% at 500 etc. This way in ranges you are still making a little and have some in for the potential trend.
True. But a 30% success rate taking 7:1 trumps all the mental hassle of G's method.

I tired this strategy, backwards, forwards, in and out. Got some great results when things went my way, but got frustrated when the markets went sideways, and FX goes sideways a lot.

Then I switched to the method above, steadily rising equity balance, no frustration over building great position then giving it all back etc.

By the way I risk 20 basis points of account per trade, no more than 200 basis points risk per day (never been hit yet, but it will be one day), no more than 500 basis points risk per week (never been hit, but I'm sure it will be at some stage), never more than 1200 basis points risk per month (never been hit). Profits are in the 500-1000 basis points per week. Win ratio is around 20%, but I do use a lot of breakeven trades and if a trade goes 5:1q in my favour I stop out at 2:1.

But realise, as it's the 5m, you're going to have to take a lot of losses and you're trying to position yourself against the bone (ie, near the high or low). If you like to trade with a high win % then it's going to be very hard. Better I think to trade for a low win and a high potential profit. 7:1. 7:1 might sound like a lot, but it's not with a 5 tick stop. 7:1 trades happen all the time, you should be getting at least 1 a day, if you get 2 you're heading for the big time.....

My last 2 posts are something to think about anyway.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #5,955
  • Jul 30, 2013 12:34pm Jul 30, 2013 12:34pm
Quoting Calculus
{quote} True. But a 30% success rate taking 7:1 trumps all the mental hassle of G's method. I tired this strategy, backwards, forwards, in and out. Got some great results when things went my way, but got frustrated when the markets went sideways, and FX goes sideways a lot. Then I switched to the method above, steadily rising equity balance, no frustration over building great position then giving it all back etc. By the way I risk 20 basis points of account per trade, no more than 200 basis points risk per day (never been hit yet, but it will be...
I'm glad you have found a way of trading that works for you Calc. Can I ask how long you tried the millipede strategy for, the reason I ask is G mentioned is a few posts you could spend a few months just being stopped out at BE or even longer. I think it would be very difficult to deal with that and Im not sure I will be able to, I will give it a try though.
Economists have forecast 9 out of the last 5 recessions
  • #5,956
  • Jul 30, 2013 1:57pm Jul 30, 2013 1:57pm
Quoting markmm
{quote} I'm glad you have found a way of trading that works for you Calc. Can I ask how long you tried the millipede strategy for, the reason I ask is G mentioned is a few posts you could spend a few months just being stopped out at BE or even longer. I think it would be very difficult to deal with that and Im not sure I will be able to, I will give it a try though.

If you're worried about months of being stopped out, you could start on lower timeframes. Using "higher timeframe hindsight", picking an "area of interest" and entering on the M5, then stacking more if it plays out according to your expectations. Then, once the movement stops, close the whole bunch of trades, leaving only the largest one on breakeven. Promote it to a higher level and move to another pair. Graeme talked about this and claimed that once some legs start to grow, we would be shifting our trading more towards longer timeframes. Personally, I'm inclined to agree. The short-term bursts of profit, while nice, are simply on a different scale. They wouldn't matter anymore.

Actually, reading again what I have written as an answer to your post, I realize it's very much what I'm planning to do.
  • #5,957
  • Edited 3:13am Jul 31, 2013 2:02am | Edited 3:13am
Quoting Calculus
{quote} True. But a 30% success rate taking 7:1 trumps all the mental hassle of G's method. I tired this strategy, backwards, forwards, in and out. Got some great results when things went my way, but got frustrated when the markets went sideways, and FX goes sideways a lot. Then I switched to the method above, steadily rising equity balance, no frustration over building great position then giving it all back etc. By the way I risk 20 basis points of account per trade, no more than 200 basis points risk per day (never been hit yet, but it will be...
I saw one of the stop runs yesterday on the euro at the prev days high, then it dropped down to the prev low. 500-1000 bp is excellent, might try these on the days I am at home during the London/US. I guess this is suited to the majors where the spread is very low, or are you using ECN?
Economists have forecast 9 out of the last 5 recessions
  • #5,958
  • Jul 31, 2013 2:50am Jul 31, 2013 2:50am
Mark

I follow -

1. Cable
2. Eur-AUD
3. EUR
4. EUR-JPY
5. USD-JPY

5 tick stops on 1, 2, 5

5-7 tick stop on 2.

5-10 tick stop on 4.

G said that he looks for trades that go 20-25 ticks in his favour, then move stop to breakeven. If you can do that then you can shoot for 35 ticks (7:1) with a 5 tickstop. 7:1 is really really powerful as a) it pays back a lot of losses, and b) hides a multitude or trading errors. And if you get a small run going, 2-4 winners then the profits REALLY start to add up. My best day has been nearly 500 basis points profit. These days happen, probably once a month. Losing days are normally lesss than 100 BP. As for brokers, I use IB along with Button Trader which I think is excellent.

LOok to position yourself near the highs and lows of the 5mchart, yes you're taking some risk, yes, you'll get stopped a lot, but you'll also get plenty of winners, if only by default (throw enough crap at the wall, some will stick). Use plenty of b/e stops, if it goes 5:1, get stopped at 2:1.

BUT YOU HAVE TO CONCENTRATE. Concentration is a real edge in this game, he who concentres the best, makes the best money in my mind.

G's strategy if you think about it was always about taking small losses, and bigprofits. 7:1 trades give you big profits, so all you have to do is create small losses when wrong.

Also, I only ever go long. Not that I have anything against the short side but on the 5m chart there's so much up and down that even on big downdays there's plenty of up movement as well. The reason I only go long is I find the market easier to read from the long side. It also keepsmy brains thinking only one way. Something to think about anyway.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #5,959
  • Jul 31, 2013 3:24am Jul 31, 2013 3:24am
Quoting Calculus
Mark I follow - 1. Cable 2. Eur-AUD 3. EUR 4. EUR-JPY 5. USD-JPY 5 tick stops on 1, 2, 5 5-7 tick stop on 2. 5-10 tick stop on 4. G said that he looks for trades that go 20-25 ticks in his favour, then move stop to breakeven. If you can do that then you can shoot for 35 ticks (7:1) with a 5 tickstop. 7:1 is really really powerful as a) it pays back a lot of losses, and b) hides a multitude or trading errors. And if you get a small run going, 2-4 winners then the profits REALLY start to add up. My best day has been nearly 500 basis points profit....
Thanks for that Calculus, excellent information, enough to get running with. The quick feedback loop of profit/loss trading this way would let you know quickly how you are doing, and you would also be able to have enough trades to create stats on your trading fairly quickly.

Regards

Mark
Economists have forecast 9 out of the last 5 recessions
  • #5,960
  • Jul 31, 2013 3:39am Jul 31, 2013 3:39am
The 5M is my main chart but above that I have a 1M as this often gives the clue to enter.

GET TRADING. Get involved in the markets, stop reading all the books and websites, playing in the market will give you far more than those, ie real experience.

Don't go to unchanged stop at less than 15 ticks, better 20 ticks, price often moves back down to the entry level so do the HARD THING - don't move the stop to b/e too early.

I don't use any indicators and I always ask - is price making it hard for the longs to get onboard, if yes, then that's an area I should be looking to go long. Onbig spikes down, the stop will be too large, if so, don't take the trade.

Another thinkl I look for, which is related to the above, is this - are they (the boys) forcing price lower against a generally flowing higher market? If so I want to try to get long. So if you see 3+ bars downbars (each has a bit of thrust) then around the low of that move try to get involved on the long side.

Forget about trying to be good, ie win, win, win. That will happen, but not much, normally it will be lose, lose, lose, win, b/e, b/e, lose, lose, lose, lose, win, 2:1, win, lose, lose, lose, lose, lose, b/e,b/e, b/e, lose, lose, lose, win, win, lose, lose, lose, lose etc. Moral of the story - EXPECT PLENTY OF LOSSES, but also a fe wins and at 7:1 you'd be amazed how quickly the past losses disappear.

However, what I've found is that this method (basically 5m trading) requires plenty of liquidity, ie everybody at their screens working. Right now, the markets are tough as the liquidity is not there. So better to not trade in August or any UK/Euro/US holiday.
Road To Wisdom? To err and err and err again, but less and less and less...
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