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  • #6,281
  • Mar 29, 2014 4:20pm Mar 29, 2014 4:20pm
So much worth noting in this article:

http://www.investopedia.com/articles.../04/051904.asp
tradewith60
  • #6,282
  • Mar 29, 2014 6:45pm Mar 29, 2014 6:45pm
Quoting jmn5611
{quote} yenseo thank you for your perspective. It is always good to hear an alternate perspective.
Your welcome. No two traders can think exactly alike in all aspects. It really comes down to what reasons you have to back up your perspective.

Two traders may ENTER opposite positions at the same time and yet both could either be profitable or at a loss. Because its the EXIT that determines the outcome afterall.
  • #6,283
  • Mar 29, 2014 11:32pm Mar 29, 2014 11:32pm
Some simple math

Swing trading/Position trading:
Win rate 30% RR 10/1 over 10 trades may make 30R - 7R in costs = 23R

Intra-day trading
Win rate 90% RR 1/1 over 10 trades may make 9R - 1R in costs = 8R

Which traders has more margin for error? which trader makes the most profit?

which approach can handle a random market and a month where the strategy does not perform as well, imagine both trades experienced a dramatic 50% drop in win rate... who is better positioned to deal with these rare but completely possible events?

Test results starting with 5k - position trading with small accounts
Attached Image
tradewith60
  • #6,284
  • Mar 30, 2014 12:40am Mar 30, 2014 12:40am
Quoting 60minuteman
Some simple math Swing trading/Position trading: Win rate 30% RR 10/1 over 10 trades may make 30R - 7R in costs = 23R Intra-day trading Win rate 90% RR 1/1 over 10 trades may make 9R - 1R in costs = 8R Which traders has more margin for error? which trader makes the most profit? which approach can handle a random market and a month where the strategy does not perform as well, imagine both trades experienced a dramatic 50% drop in win rate... who is better positioned to deal with these rare but completely possible events? Test results starting with...
Thank you for finally sharing sharing the mathematical side of position trading. Doing so allows a very meaningful disagreement for other traders to see and draw conclusions for themslves.

I would like to first address whether it is realistic to attain a 30% winrate with a R:R of 1:10. Interesting point because I know even G cannot achieve this kind of consistent result. If there is any trader who can achieve this kind of result, I am sure other traders here would be interested in your results.

One sample however is the kind of results one could find in http://www.forexfactory.com/showthre...=56907&page=19
Peter Crowns offered one of the most simple yet powerful position trading approach in this forum. You will find a sample where a trader made a table for a period of 7 months taking inside bar trades.

"Pair__ ____#T __1:1__1:2_1:3_1:4_1:5__1:10___%1:1
EUR/USD - 137 - 66 - 41 - 29 - 25 - 23 - 17 ------48.1%
GBP/USD - 125 - 72 - 52 - 43 - 32 - 26 - 12 ------57.6%
USD/JPY - 139 - 61 - 37 - 27 - 23 - 19 - 7 --------43.8%
USD/CHF - 138 - 57 - 35 - 27 - 23 - 21 - 14 ------41.3%"

Joel Rensink who is another professional position trader later comments about "15:1, 20:1, 50:1, 100:1, 200:1, 300:1" returns available for the long term trader. Real hardcore position traders (including G) actually aim for 1:X which is more than likely greater than 1:10 R:R. Because your biggest winner tends to cover ALL your small losses. Hence I would say your 1:10 hypothesis actually better resembles a swing trader.

However getting to the point, if you look at the table based on even a robust position trading method such as DIBS, you will notice that the R:R or 1:10 has a winrate of roughly 10% more or less. So realistically speaking, doing your kind of math of a sample of 10 trades of a position trader actually leads to
10R - 9R in costs = 1R profit which is infact less than 8R profit of a skilled short term trader.

Another point that needs to be addressed is how much risk one can afford to take. If you have a winrate of 90% or better with a R:R of 1:1 or better for a short term trader you can afford to take 5~10% risks. Since position trading also involves protection from drawdowns due to the low winrate they will usually take risks ranging from 0.25%~2%.

So EVEN with the math you outline above

If the short term trader takes 5~10% risks and the position trader takes 0.25~2% risks then the math is as follows on a sample of 10 trades:

Lets say 1% risk = 1R

For the short term trader your profit potential is 5R*9 - 5R = 40R if you risk 5% and 10R*9 - 10R = 80R if you risk 10%.
For the position trader your profit potential is 0.25R*30 - 0.25R*7 = 6.75R if you risk 0.25% and 2R*30-2R*7 = 46R if you risk 2%

Hence the profit potential for a short term trader ranges from 40R~80R
and the 1:10 R:R position trader has a profit potential of 6.75R~46R

Lastly, you have to factor in the number of trade opportunities available for both the short term trader and the position trader on a duration of X days, weeks or months. We all know short term traders will have more trading opportunities available given the same X duration, thus further increasing the amount of R.
  • #6,285
  • Mar 30, 2014 1:02am Mar 30, 2014 1:02am
Quoting yonseo
{quote} Thank you for finally sharing sharing the mathematical side of position trading. Doing so allows a very meaningful disagreement for other traders to see and draw conclusions for themslves. I would like to first address whether it is realistic to attain a 30% winrate with a R:R of 1:10. Interesting point because I know even G cannot achieve this kind of consistent result. If there is any trader who can achieve this kind of result, I am sure other traders here would be interested in your results. One sample however is the kind of results one...
1.More risk is just that, more risk.

2. strange that you didn't even question the 90% win rate of the short term traders.

3. DIBS - although the concept of DIBS had some good elements it failed massively in 1 respect, inside bars have no inherent quality that will place them at a good location for swing or position trading. The price action of an inside bar is just a consolidation/range on the lower timeframe. Unless you have some way of placing these trades at extremes then you will struggle trying to hold them... Also very poor use of trend.

anyway, we can agree to disagree.

But I think most people here would like to continue with discussing ways and techniques to trade at least in some way like Graeme outlined, and really if you are so passionate about helping others see a different approach then you would start a separate thread on the subject, as this is just distracting and the point from both sides has been made.
tradewith60
  • #6,286
  • Mar 30, 2014 1:08am Mar 30, 2014 1:08am
Quoting 60minuteman
{quote} 1.More risk is just that, more risk. 2. strange that you didn't even question the 90% win rate of the short term traders. 3. DIBS - although the concept of DIBS had some good elements it failed massively in 1 respect, inside bars have no inherent quality that will place them at a good location for swing or position trading. The price action of an inside bar is just a consolidation/range on the lower timeframe. Unless you have some way of placing these trades at extremes then you will struggle trying to hold them... Also very poor use of...
So getting back on topic then, here is a relevant question. How do you know when to diversify? The trouble with millipedes I have found is that you give back a lot of pips trying to hit that home run. So how many pips in your opinion would qualify as a home run?
If you are good at something, never do it for free--Joker
  • #6,287
  • Mar 30, 2014 1:31am Mar 30, 2014 1:31am
Quoting jmn5611
{quote} So getting back on topic then, here is a relevant question. How do you know when to diversify? The trouble with millipedes I have found is that you give back a lot of pips trying to hit that home run. So how many pips in your opinion would qualify as a home run?
Hi Jmn...

The simple answer is when you open profit is much greater than the costs to achieve those profits. If your losses were 200 points and your open profit is 3000, take some profit, sounds stupid but think about it, what are we trying to achieve?
In all aspects of trading there is a large percentage which is just trader skill and judgement, elements that can not be quantified, if we decided that we would always diversify after a double bottom on daily, because that worked well last year, then the next year it may be terrible.

Traders hate the uncertainty of that, they want an answer, they like if A and B then do C and you will win, but that is totally unrealistic, markets are random.

If I had to suggest a technical approach I would say this:
If your entry is daily at the daily extreme (high/low of the day) - enter until you have a series of surviving positions on daily then diversify and leave the weekly extreme, then when you have a series of surviving weekly extremes diversify leaving the monthly extremes....

I don't have a right answer, but my gut feeling is that it's a skill and a judgement call and you will make good calls and bad ones, what do you think?
tradewith60
  • #6,288
  • Edited 5:37am Mar 30, 2014 2:23am | Edited 5:37am
Quoting 60minuteman
{quote} 1.More risk is just that, more risk. 2. strange that you didn't even question the 90% win rate of the short term traders. 3. DIBS - although the concept of DIBS had some good elements it failed massively in 1 respect, inside bars have no inherent quality that will place them at a good location for swing or position trading. The price action of an inside bar is just a consolidation/range on the lower timeframe. Unless you have some way of placing these trades at extremes then you will struggle trying to hold them... Also very poor use of...
1. Agreed. But then risk isn't just how much your going to lose when your wrong, but there is also the likelihood that your going to be wrong. This is where winrate is has significance to risk.

2. The traders that can achieve 90% winrate with R:R 1:1 or better infact do exist and of course they are the extreme minority. If you question the existence of such traders then, "Martin S. Schwartz" and "Mark Weinstein" from the Market Wizards are such examples. If you need a more specific example then even G vouches for "Greg Wilson" as seen on http://www.forexfactory.com/showthre...50#post4583250 . Of course not everyone can reach such high level of skill and hence it just happens to be easier for most retails to position trade, given that they have the patience to wait for their positions to ride the trend if any occurs.

3. The real power of DIBS comes from stacking when trends do occur, thats when your profits become amplified. One of the several flaws I see in DIBS is that you cannot get a position on the wicks of daily charts. Since you buy above daily open and sell below, the positions CLOSEST to the 6am GMT open has the highest potential to survive. However you may sometimes get positions near the wick of Weekly and Monthly charts. These are the positions that have potential "long tails"

Lastly, it is not my job to help others see a different approach. Trading is a SOLITARY business and hence the only person that can help you with your trading is no one but yourself. I just happen to disagree with your mathematical claims regarding position trading and gave my reasons. It is up to you or someone else to give theirs and up to the readers to draw their own conclusions.

I do not see any reasons why my posts are distracting here but if you find it distracting then all you have to do is not read my posts. But you already put me on ignore anyway so it shouldn't be any concern to you anymore.
  • #6,289
  • Edited 2:54am Mar 30, 2014 2:36am | Edited 2:54am
it's human nature to gravitate to short term gratification and what appears to be the easier route, hence the popularity of short term trading.
tradewith60
  • #6,290
  • Mar 30, 2014 2:56am Mar 30, 2014 2:56am
Quoting 60minuteman
{quote} Hi Jmn... The simple answer is when you open profit is much greater than the costs to achieve those profits. If your losses were 200 points and your open profit is 3000, take some profit, sounds stupid but think about it, what are we trying to achieve? In all aspects of trading there is a large percentage which is just trader skill and judgement, elements that can not be quantified, if we decided that we would always diversify after a double bottom on daily, because that worked well last year, then the next year it may be terrible. Traders...
That's actually a very good template to start with.
If you are good at something, never do it for free--Joker
  • #6,291
  • Edited 5:04am Mar 30, 2014 2:58am | Edited 5:04am
Quoting jmn5611
{quote} So getting back on topic then, here is a relevant question. How do you know when to diversify? The trouble with millipedes I have found is that you give back a lot of pips trying to hit that home run. So how many pips in your opinion would qualify as a home run?
One of the biggest difficulties of position trading is deciding when to EXIT. There is a good reason why G could not give a clear answer to this.

This is perhaps why the most powerful trading methods cannot be backtested and it happens that position trading the bigger trend happens to be one of such methods. Traders have different ways to define a continuation or reversal of a trend and usually you have to be willing to give back more pips from the very top if you want to catch the bigger trend. An example of this is where some people use moving averages to trail their stops and diversification occurs when their stops get hit. When trends do occur then obviously longer term moving averages tend to capture bigger profits but it takes more time and you give back more pips from the very top. People like G on the other hand just leave their stops at BE and have rules like never exit that position unless it is AT LEAST 500, 1000 or 2000 pips in profits and decide to close out the positions based on his own personal focal intepretation that the monthly trend has reversed. Hence a "homerun" is nothing more but successfully closing those profitable trades based on your own trading plan.

What is worth noting however is that.

1. Position closest to wicks of candles or closest to open price of wickless candles have the greatest potential to survive.
2. Your previous surviving position always has a higher probability of surviving than your next position.

On top of this. Another obvoius but important observation worth nothing is that if you draw a horizontal line on the tip of a monthly wick, it should also be on the tip of a weekly, daily and any timeframe lower. However the converse is not true. Even if you have a position on the tip of daily confirmed after the day's close this will not guarentee that the position will also be on the tip of a weekly and/or monthly.

However this also tells us that if we do get a position on the daily candle wick then it has the potential to be on the tip of a weekly candle wick, and a position on the weekly candle wick also has the potential to be on the tip of a monthly candle wick. This means that when it comes to potential survival:

1. position on monthly wicks
2. position on weekly wicks
3. position on daily wicks
4. position on wicks of any timeframe lower

In that sequence, will your positions have either higher or lower probability of surviving.

Hence if you factor in the probability of your position surviving relative to your other surviving positions, you should be able to figure out how to PRIORITSE your probes so that you can decide which position to hold longer for bigger home runs and close the other positions earlier for decent profits before the breakeven gets hit.
  • #6,292
  • Mar 30, 2014 3:02am Mar 30, 2014 3:02am
Quoting 60minuteman
it's human nature to gravitate to short term gratification and what appears to be the easier route, hence the popularity of short term trading.
Agreed. Hence they try to trade the approach that actually requires the highest calibre of skill and fail miserably in the long run. They also become food to contrarian professional short term traders and long term position traders.
  • #6,293
  • Mar 30, 2014 3:07am Mar 30, 2014 3:07am
Quoting jmn5611
{quote} That's actually a very good template to start with.
I should add that I trade a double lot money management strategy, I take 2 entries for every valid set up, 1 i treat as medium term closing that week, 1 I use as a position trading entry. It solves a lot of drawdown and psychological issues (for me).

I think Graeme offered some similar suggestions, I was always anti the idea but I tested it and it worked well, more importantly it worked well forward testing and it felt good too
tradewith60
  • #6,294
  • Mar 30, 2014 4:21am Mar 30, 2014 4:21am
Quoting yonseo
{quote} One of the biggest difficulties of position trading is deciding when to EXIT. There is a good reason why G could not give a clear answer to this. This is perhaps why the most powerful trading methods cannot be backtested and it happens that position trading the bigger trend happens to be one of such methods. Traders have different ways to define a continuation or reversal of a trend and usually you have to be willing to give back more pips from the very top if you want to catch the bigger trend. An example of this is where some people use...
That's a good post yonseo. Do you build millipedes?
If you are good at something, never do it for free--Joker
  • #6,295
  • Mar 30, 2014 4:33am Mar 30, 2014 4:33am
Quoting jmn5611
{quote} That's actually a very good template to start with.
here's an example:

here's current EA daily chart, showing a simple MA to define trend and a period we would of been looking to buy the lows of each week
Attached Image (click to enlarge)
Click to Enlarge Name: Screen Shot 2014-03-30 at 12.20.33.png Size: 31 KB


here's the h4 chart with lows that survived... see how many opportunities we often will get to diversify, all offered good rewards compared to the costs
Attached Image (click to enlarge)
Click to Enlarge Name: Screen Shot 2014-03-30 at 12.27.00.png Size: 67 KB
tradewith60
  • #6,296
  • Mar 30, 2014 5:01am Mar 30, 2014 5:01am
Quoting jmn5611
{quote} That's a good post yonseo. Do you build millipedes?
At this present time, I don't. However I do have reasonable amount of experience stacking surviving positions to discern the pros and cons of building a milipede.

Also my personal exchanges with G both online and in person was more than enough to convince me that position trading is the most ideal method that a trader should evolve into in the long run given that the trader wants a steady return with minimal initial risk. Short term trading becomes less viable when your trades become so large that it has a significant impact on market price and hence becomes harder to get a fill or get out. If you read the book "Pit Bull" written by one of the Market Wizards "Martin Schwartz", you will understand why a professional trader with such a high winrate didnt perform so well when he started running a fund of his own trading a much larger position size.

My primary interest in trading these days are discerning price areas that other mass majority of traders are NOT willing to place a trade. These kinds of trades offer the best R:R whether it is short term or long term.
  • #6,297
  • Mar 30, 2014 6:16am Mar 30, 2014 6:16am
Quoting yonseo
{quote} At this present time, I don't. However I do have reasonable amount of experience stacking surviving positions to discern the pros and cons of building a milipede. Also my personal exchanges with G both online and in person was more than enough to convince me that position trading is the most ideal method that a trader should evolve into in the long run given that the trader wants a steady return with minimal initial risk. Short term trading becomes less viable when your trades become so large that it has a significant impact on market price...
Retailers will not catch falling knives as a general rule. So there you go.I tend to doubt that anyone smaller than GS could impact the currency markets due to a trade.
If you are good at something, never do it for free--Joker
  • #6,298
  • Mar 30, 2014 6:39am Mar 30, 2014 6:39am
Quoting yonseo
{quote} ... My primary interest in trading these days are discerning price areas that other mass majority of traders are NOT willing to place a trade. These kinds of trades offer the best R:R whether it is short term or long term.
Can you show us an example.
Thank you in advance.
  • #6,299
  • Mar 30, 2014 7:14am Mar 30, 2014 7:14am
Quoting bodypip
{quote} Can you show us an example. Thank you in advance.
I think he might be referring to consolidation zones - area's where price does nothing - just ranges - you wait for it to break out and trade in that direction.
  • #6,300
  • Mar 30, 2014 7:23am Mar 30, 2014 7:23am
Quoting 60minuteman
{quote} here's an example: here's current EA daily chart, showing a simple MA to define trend and a period we would of been looking to buy the lows of each week {image} here's the h4 chart with lows that survived... see how many opportunities we often will get to diversify, all offered good rewards compared to the costs {image}
I might be missing something here but I thought we move sl to b/e as soon as possible. If that is right nearly all of the trades in your example would be stopped out now apart from the diversify(hedges??) trades or am I mis-reading this method?
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