Building an equity millipede | Page 340 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Thegman's Journal (Equity Millipede Concept) 102 replies

Trading an Equity Millipede 23 replies

Equity millipede & Flying Buddha trading journal 9 replies

Build an Equity Millipede with the filtered Flying Buddha 171 replies

Application Development - Journal of Building an equity millipede 14 replies

Attachments: Building an equity millipede
Exit Attachments

Building an equity millipede

  • #6,781
  • Oct 27, 2014 6:51pm Oct 27, 2014 6:51pm
Ok guys got a question about hedging.

Both Graeme and vee talked about hedging. Vee mentioned that it is a way to freeze your profits in the market, until then the light bulb about hedging as taught by Graeme did not make much sense to me.

So recently I closed a few positions on the yen, but I am looking to dd more and last week I built up two long positions. One position is currently in profit and the other is in a loss for roughly the same amount. Today was a down day, as a result should I hedge and freeze my profits incase there is further downside.

The trade currently looks like this...

Long 1: +50 pips
Long 2: -55 pips

my feeling is I should do the following.
1. Move s/lot break even on profitable position
2. Add short position, or hedge to counteract long position that is in a loss and to build up a short position should price move low ever
  • #6,782
  • Oct 28, 2014 1:39am Oct 28, 2014 1:39am
Quoting MCRotter
Ok guys got a question about hedging. Both Graeme and vee talked about hedging. Vee mentioned that it is a way to freeze your profits in the market, until then the light bulb about hedging as taught by Graeme did not make much sense to me. So recently I closed a few positions on the yen, but I am looking to dd more and last week I built up two long positions. One position is currently in profit and the other is in a loss for roughly the same amount. Today was a down day, as a result should I hedge and freeze my profits incase there is further downside....
From my understanding, and I could very well be wrong, but Graeme doesn't encourage hedging just to hedge, in fact from my understanding it is not so much hedging but just the addition of a new position based on the rules and the appearance of a hedge is just an opportunity for a future leg. Once the position is in the green by a certain value, that positions SL should be moved to BE.

Using Flying Buddahs as an example, you place a trade based on this candle formation and you continue to do so at each occurence, long and short. Eventually you would build up a number of positions. Some will net you a full 1R loss, some will be BE and over time you can close a few of the last legs to recoup some of the costs of trading. The earliest legs should hopefully build into the massive winners that compound your account greatly.

So looking at your 2 trades, the positive trade should have a BE stop, the negative should have a SL in place and you should only be looking at adding to the trade based on the entry criteria you have, not just a random hedge to stem the bleeding.

RT
  • #6,783
  • Oct 28, 2014 4:46am Oct 28, 2014 4:46am
Quoting MCRotter
Ok guys got a question about hedging. Both Graeme and vee talked about hedging. Vee mentioned that it is a way to freeze your profits in the market, until then the light bulb about hedging as taught by Graeme did not make much sense to me. So recently I closed a few positions on the yen, but I am looking to dd more and last week I built up two long positions. One position is currently in profit and the other is in a loss for roughly the same amount. Today was a down day, as a result should I hedge and freeze my profits incase there is further downside....
Okay, I might be wrong here as I am still reading and trying to understand this method myself. From what I have read and understood (or misunderstood ) so far, should you have a postion at -55pips? If we are meant to have upskilled our entriy methods and take 'razor sharp entries', then two things really should happen with every entry you make:
1) Entry does not work out and you SL that you set (which should not be more than 10-15 pips, or 25 pisp for JPY crosses) is taken out - so that trade is dead, gone!
2) Entry move in your anticipated direction and you move to BE asap. So the worst that can happen is you get taken out at BE - zero loss.

Please, I am not criticising you, I am just trying to understand how you got to the -55 pips and to assist me in my understanding of this method (unless you are setting a had SL of this much for each entry, like I believe Graeme does sometimes when he is not going to be around in front of his PC).

Anyway, I believe Razor T have answered your question. Graeme dose not hedge. It just appears so because he has both long and short trades on a pair, but like he stated, he treates each of these trades as separate trades.
  • #6,784
  • Edited 8:32am Oct 28, 2014 7:57am | Edited 8:32am
Quoting Razor_trader
{quote} From my understanding, and I could very well be wrong, but Graeme doesn't encourage hedging just to hedge, in fact from my understanding it is not so much hedging but just the addition of a new position based on the rules and the appearance of a hedge is just an opportunity for a future leg. Once the position is in the green by a certain value, that positions SL should be moved to BE. Using Flying Buddahs as an example, you place a trade based on this candle formation and you continue to do so at each occurence, long and short. Eventually...
Good point.

I ended up not taking a hedge, just thought I would leave it and wait to what people would say. I didn't have a short setup either, and I think it makes sense to avoid taking random trades - good advice.

I need to think about the situation more, because there are a few permutation here - assuming I did have a short setup. I could have entered a short, brought the profitable position to break even, and then let the market decide which two remaining legs survived (if any). I think that would have been the only truly acceptable way to manage that trade above.

I think there is something to the 'freezing' your profits by hedging, I just can't put it into words about how and when it is useful.
  • #6,785
  • Edited 8:30am Oct 28, 2014 8:08am | Edited 8:30am
Quoting danjuma
{quote} Okay, I might be wrong here as I am still reading and trying to understand this method myself. From what I have read and understood (or misunderstood ) so far, should you have a postion at -55pips? If we are meant to have upskilled our entriy methods and take 'razor sharp entries', then two things really should happen with every entry you make: 1) Entry does not work out and you SL that you set (which should not be more than 10-15 pips, or 25 pisp for JPY crosses) is taken out - so that trade is dead, gone! 2) Entry move in your anticipated...
Yep I get what you are saying. However Graeme was picking intraday spots, in which case a 50 pips stop is quite large, since I am trading mostly off the daily I prefer to have bigger stops. Ideally of course I would have tight stops, but I just don't have a strategy that accurate. I use breakouts, breakouts of any kind really, and the inside bar breakout is of course a set up.

With respect to moving to break even, I actually prefer to let me position run a bit further, I don't have an arbitrary time like eod when I move to break even. Why you might be asking, well, I have seen on more than a few occasions that as soon as I move my s/l to breakeven the market would come down and take it out before running onto a big winner. Of course it works against you too. Basically I like to see some air between my entry and current price before I move to breakeven. I do need to do more statistics on this however.

Also, yes Graeme says he wasn't hedging you are right, so RT is completely correct, and it is useful to be reminded occasionally. But freezing profits... that is a nice idea too I think.
  • #6,786
  • Oct 28, 2014 9:13am Oct 28, 2014 9:13am
Quoting MCRotter
{quote} .. With respect to moving to break even, I actually prefer to let me position run a bit further, I don't have an arbitrary time like eod when I move to break even. Why you might be asking, well, I have seen on more than a few occasions that as soon as I move my s/l to breakeven the market would come down and take it out before running onto a big winner. Of course it works against you too. Basically I like to see some air between my entry and current price before I move to breakeven... But freezing profits... that is a nice idea too I think....
Have you considered the two positions approach as show in P Crowns DIBs method. So you open 2 x say 0.1 lots. Both lots with same SL, 1 x 0.1 lot with a TP of 1:1 RR, the other lot with no TP. So if price moves in you favour and the lot with the TP gets to TP, the other lot in effect becomes a 'free trade', and you do not need to move the SL from the original position. Advantage - you do not need to move your SL to BE. Disadvantage - if your SL gets hit, you lose 2 x positons. So like everything else in trading, it's give and take, there is no one method/strategy that's perfect, you just have to chose one you are comfortable with.
With regards to "freezing profirs/loss with hedging", from my limited experience trying this whilst trialling out the Pit bull trading strategy by brijon, I think this is just a fallacy. Yes your losses seem frozen, but that is it. It just stays like that, it never gets to a situation where you have a zero loss, unless you want to start adding to one of the positions, and do you knowt he position you are adding to won't turn against you, and then you have add to the other position and so on. Before you know it, you are practicing martingale (the begining of the end!). Who knows, I might be wrong and missing something, may be Vee will come on and explain this hedging strategy further.
  • #6,787
  • Oct 28, 2014 9:49am Oct 28, 2014 9:49am
Quoting MCRotter
{quote} Yep I get what you are saying. However Graeme was picking intraday spots, in which case a 50 pips stop is quite large, since I am trading mostly off the daily I prefer to have bigger stops. Ideally of course I would have tight stops, but I just don't have a strategy that accurate. I use breakouts, breakouts of any kind really, and the inside bar breakout is of course a set up. With respect to moving to break even, I actually prefer to let me position run a bit further, I don't have an arbitrary time like eod when I move to break even. Why...
Not sure if it matters but as you're trading daily primarily does this mean that you are also exposing yourself to multiple markets which could potentially have correlations?
  • #6,788
  • Oct 28, 2014 9:57am Oct 28, 2014 9:57am
Quoting danjuma
{quote} Have you considered the two positions approach as show in P Crowns DIBs method. So you open 2 x say 0.1 lots. Both lots with same SL, 1 x 0.1 lot with a TP of 1:1 RR, the other lot with no TP. So if price moves in you favour and the lot with the TP gets to TP, the other lot in effect becomes a 'free trade', and you do not need to move the SL from the original position. Advantage - you do not need to move your SL to BE. Disadvantage - if your SL gets hit, you lose 2 x positons. So like everything else in trading, it's give and take, there...
I have looked at that way, but I don't like it as much. I remember reading somewhere that the strategy is actually more profitable long term if you don't take half profits at 1:1. I think it comes down to how smooth you want your equity curve though. I did testing on just a breakout method, where I moved stop loss and took half positions and the end result was less profitable.

Additionally I am fan on simplicity, define risk from the start and go. Maybe I'm wrong, I don't know but I'm open to data that says otherwise.
  • #6,789
  • Oct 28, 2014 10:05am Oct 28, 2014 10:05am
Quoting danjuma
{quote} Have you considered the two positions approach as show in P Crowns DIBs method. So you open 2 x say 0.1 lots. Both lots with same SL, 1 x 0.1 lot with a TP of 1:1 RR, the other lot with no TP. So if price moves in you favour and the lot with the TP gets to TP, the other lot in effect becomes a 'free trade', and you do not need to move the SL from the original position. Advantage - you do not need to move your SL to BE. Disadvantage - if your SL gets hit, you lose 2 x positons. So like everything else in trading, it's give and take, there...
A solid approach that helps smooth the equity curve whilst allowing for initially the space and time by leaving the sl in initial place which can later on be moved to BE locking in some profits
  • #6,790
  • Edited 10:38am Oct 28, 2014 10:07am | Edited 10:38am
Quoting Razor_trader
{quote} Not sure if it matters but as you're trading daily primarily does this mean that you are also exposing yourself to multiple markets which could potentially have correlations?
I keep an eye on the correlations for sure, but at the same time there is not a lot you can do about it. Right now I am only trading euro, gbp and yen, If there is a breakout I take it generally. Correlations can be good and bad, for example, the euro might chop you out of a position, but the yen might allow you to stay in a position.

Vee said a while back, and I agree with him, that much of the market is simply risk on or off, dollar bullish or bearish. I think there is a lot of truth in that. Right now the dollar has been bullish so there has been some very obvious correlations across the markets.

I think that keeping an idea of the fundamental picture is important too. I think the diverging monetary policies of europe and the us has set the trend the last few months. With that in mind, and as you bias, I think any technical method which agrees with that could have netted you thousands of pips using this method. Unfortunately by then I was only dipping my toes in this method, though my trading had been working its way slowly to ever higher time frames.

Edit - kind of off topic
But by way of example regarding fundamentals.... check this post from July when Euro was 1.35

''So a few charts that I'm watching at the moment

1st is EURUSD vs 1Y implied yield. Recent movements have caused the market (not just 1Y, but fwd starters and x-ccy bs to widen in the USD's favour as shown)

This is nominal yield, and doesn't show the full picture as USD inflation swaps have been bid last few weeks. but definitely worthy of note.

Not at all suggesting EUR$ trades down to 1.27, just that the price action divergence is quite something...

http://www.forexfactory.com/attachme...1&d=1404672478''
  • #6,791
  • Oct 31, 2014 7:07am Oct 31, 2014 7:07am
I suspect that anyone trying out this method had a big day with the boj announcement.
  • #6,792
  • Nov 1, 2014 10:15am Nov 1, 2014 10:15am
Long time lurker on this excellent thread.

I've been trying out elements of this method for some time now with generally a promising level of performance. The one thing I'm not so sure about (like many others I suppose) is the way in which I should exit profitable trades.

I can see the advantage in keeping trades open as per the original method, simply freezing profits by taking both buy and sell signals as they appear.

However, I can't help thinking that some sort of Gann-type trailing stop might be preferable. By this I mean using the lowest/highest price of the three days prior to the extreme high/low, not counting inside days.

As I see it, the advantages are as follows:

  1. The opportunity to gain profits from more individual movements rather than simply freezing profits (meaning that profits are only earned from the market's movement in one direction).
  2. A smoother equity curve resulting from taking profits more frequently.
  3. Retains the ability to catch most large moves as the Gann-type stop is fairly generous and only tends to be triggered when trends change.

The main drawback is perhaps missing out on subsequent moves in the original direction, if the market pulls back enough to take out the stop but does not produce new entry signals (inside bars, engulfing bars etc.) to get back in.

Do other people have experience of using such an exit strategy?

  • #6,793
  • Edited 7:22pm Nov 1, 2014 3:37pm | Edited 7:22pm
Quoting soco333
Long time lurker on this excellent thread. I've been trying out elements of this method for some time now with generally a promising level of performance. The one thing I'm not so sure about (like many others I suppose) is the way in which I should exit profitable trades. I can see the advantage in keeping trades open as per the original method, simply freezing profits by taking both buy and sell signals as they appear. However, I can't help thinking that some sort of Gann-type trailing stop might be preferable. By this I mean using the lowest/highest...
As far as I am concerned the exits can be whatever you want.

Graeme just took his stops to breakeven and let the positions run as long as he could, he took them off at his own discretion I believe. His discretion could have been resistance at the monthly, a change in trend if he had positions deep in profit... or whatever

In other words there are no hard and fast rules, I think the idea of this thread was participation for the longer term and allowing profits to run in whatever way you can
  • #6,794
  • Edited Nov 2, 2014 11:09am Nov 1, 2014 4:42pm | Edited Nov 2, 2014 11:09am
deleted
  • #6,795
  • Nov 1, 2014 4:58pm Nov 1, 2014 4:58pm
Quoting soco333
Long time lurker on this excellent thread. I've been trying out elements of this method for some time now with generally a promising level of performance. The one thing I'm not so sure about (like many others I suppose) is the way in which I should exit profitable trades. I can see the advantage in keeping trades open as per the original method, simply freezing profits by taking both buy and sell signals as they appear.
I don't believe there is any right or wrong way - each trader needs to close according to his/her plan/profit tolerance (it's the opposite of risk tolerance) - although I would encourage keeping something open. A few months ago I built something like 16 legs short on GU, and closed them all at a certain point, becuase I thought the pullback was over - I was happy with what I made out of it (at the time I thought I had done as well as I could). Then price continued to drop significantly further. I should have kept some open and I missed out on what would have been a monster trade. Closing them all also created a bias in me. If I had keptt some open, i would have been more open to the further drop. So not only did I lose out by closing, I lost out by not entering more shorts.

But, I made money and I am happy with that. In the end, you need to find your way of trading, but I think leaving something on the table to grow if price keeps moving is smart.
  • #6,796
  • Edited 5:51pm Nov 1, 2014 5:41pm | Edited 5:51pm
Thanks all for your replies. The reason I find Graeme's exit strategy difficult I think is that I have the desire to codify every element of a trading strategy, and 'diversification' as outlined in this thread has tended to be a bit vague for my liking. Please understand though that I am not trying to write rules for this system - merely to have this discussion so that I can help my own trading. I know this system is very much an individual thing and I'm trying to find what fits for me personally. Your replies so far have been helpful to me in formulating my thoughts.

I realise that others have had success with it and the idea of leaving some positions on the table whilst taking profits on others does make sense to me. I suppose I am just more of an 'all or nothing' type person, and if the conditions are right to exit then I feel that I should be exiting all positions rather than being selective in those that I do. In the same way that TheRealThing and others have argued in relation to taking two positions and exiting one at break even (this was on the DIBS thread I believe), we should be taking actions that maximise profits rather than just making us feel better. So I can't help but think that when we judge the time to exit has come, we should exit all positions in that direction on that market - and if we aren't willing to do that then perhaps we shouldn't be exiting any.

But I'm just thinking out loud here and trying to provoke some sensible discussion. I may be completely wrong but this is an issue I'm trying to get my head around at the moment.
  • #6,797
  • Nov 2, 2014 1:06am Nov 2, 2014 1:06am
Quoting danjuma
{quote} As an example (I am currently demo'ing the .00 strategy, whilst I am still reading the thread to try and find my preffered entry methods), I had 7 legs on GJ, at 170, 171, 172, 173, 174, 175 and 176. These have been running for days, with the largest one (170) now 16 days. When the price shot up on Friday (apparently due to BOJ announcement, I say apparently because I was not aware as I do not follow the news, I trade what I see on the chart), as I was not sure what price might do next, I closed the 3 smallest legs (174, 175 and 176), and...
Danjuma - interesting stuff. I'm also contemplating using .00-type entries. What stop loss are you using? I am also entering and managing solely off the daily chart.
  • #6,798
  • Nov 5, 2014 2:54am Nov 5, 2014 2:54am
Quoting soco333
{quote} Danjuma - interesting stuff. I'm also contemplating using .00-type entries. What stop loss are you using? I am also entering and managing solely off the daily chart.
Hello soco, please refer to this post http://www.forexfactory.com/showthre...58#post7800258
Yonseo explianed it brilliantly.
Just one thing to add. Graeme did state this strategy (.00) will cause huge drawdowns and one should find a way to try and minmise this. One way I am doing this is just by trading it on pairs that are trending.
My entering is not based on the daily chart (as the chart period is not relevant) - you are entering at .00 levels. My using the daily charts to manage is just a way for me to eyeball the market to see whether it is still trending or temporarily ranging.
  • #6,799
  • Nov 5, 2014 9:08am Nov 5, 2014 9:08am
Quoting danjuma
{quote} Hello soco, please refer to this post http://www.forexfactory.com/showthre...58#post7800258 Yonseo explianed it brilliantly. Just one thing to add. Graeme did state this strategy (.00) will cause huge drawdowns and one should find a way to try and minmise this. One way I am doing this is just by trading it on pairs that are trending. My entering is not based on the daily chart (as the chart period is not relevant) - you are entering at .00 levels. My using the daily charts to manage is just a way for me to eyeball the...
Thanks for your reply - very helpful. Will give those posts a re-read to refresh my memory.
  • #6,800
  • Nov 6, 2014 4:51pm Nov 6, 2014 4:51pm
Anyone catching these moves?

USDJPY has been nothing but straight up, it goes against my instinct to want to keep adding as it progresses higher, but that is exactly what I have been doing. When it blasted threw last week I took a few positions off and left one generated down at 107 running. Annoyed that I closed my positions at 103 and 104 on the big flush down mid October, I got scared out of the positions, the stops would never have been hit and had I left them running I would be up serious pipage.

I'm hoping that GBPUSD moves down, starting to building up short positions, and about to have another order triggered.

This philosophy is working very well for me at the moment, though I think it is the kind of market that is hard to lose in to be quite honest so not popping the champaign just yet.
2 traders viewing now