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Multi-Lot Multi-Timeframe Position trading

  • #541
  • Dec 3, 2014 5:37pm Dec 3, 2014 5:37pm
Quoting AlbinaGrande
{quote} Hi G, I guess that I am having trouble letting go of a soldier that I have worked hard to bring into the battle. In a strong Trend I am fantasizing that he can survive until Diversification or at least one position per week let's say if I held 2 or 3 that week, harvesting the most vulnerable first. For example, at present I have a Sell position on GU that is trying to keep his head above water with an EO Stop 30 pips back. I do not think of this as a Hedge but rather a lull in the action by way of Freezing the position to give me time to...
I really don't want to mess up anyone's profitable trading. I can only say that from a statistical point of view, hedging a loss, or freezing the position, does not really change the probabilities that the trade will win or lose. It only delays taking the loss. Of course, that is better than doing nothing and allowing the loss to grow larger. With that said, if you are more profitable because you are more comfortable using the tool of hedging when a trade is in doubt, then by all means do what makes you most comfortable and profitable. The only downside I see from hedging is it ties up margin and complicates the trading. I just would rather exit bad trades and add to good ones and keep things simple. But if you are trading with adequate margin and are able to keep up with the complexities of all the hedges, it should make no difference at all in the statistical expectation of the trade. I'm not sure if I answered your question completely?

G
  • #542
  • Dec 3, 2014 5:44pm Dec 3, 2014 5:44pm
Quoting Graviton
{quote} Very good question MarshalMax. Adding to a losing trade, essentially averaging down, is a very slippery slope that I would tend to avoid. While it will work when the major trend direction kicks back in to save your trade, when it fails it fails miserably. The vast majority of my profits are generated from adding to winning trades. If you do average down and add to a losing trade, you should do so with a tight stop loss right at the point you believe the trade has already turned back in your direction. At least doing it that way, you are...
Thanks mate. It did turn out good for me this time but in future I will be more reluctant to do this.
Winners add to winning trades!
  • #543
  • Dec 3, 2014 5:48pm Dec 3, 2014 5:48pm
Quoting Nefser
{quote} This is a significant point - any additional trades put on below another one which has gone negative, generally need to be shut off sooner (potentially manual SL, as auto-SL can be hit with a flicker of the market) than normal, to avoid having to deal with two trades now going against you. Or at least you need to carefully re-assess your margin requirements, capital available and comfort level if you're going increase your overall trade size. [ No SL for first trades - As I've mentioned before, I have an overall trading plan to hedge a trade...
I understand what you are saying. It's just another signal and stands alone as every signal should. Makes sense. I guess the worry is as G put above. If you're wrong then you lose 1 x risk but if this is a 2nd trade as you already have a trade open at -50p then you are now 2 x risk if wrong. Having said that there must be a middle ground somewhere here. Maybe more boxes that need to be ticked for that 2nd trade? Seems a shame to lose all those pips that went against you and caused concern.
Winners add to winning trades!
  • #544
  • Dec 3, 2014 5:57pm Dec 3, 2014 5:57pm
Also just wanted to share a major milestone for my live trading occurred today.

I opened my live account mid september with $1000 and as at today I am at $2012 having doubled my account.

This was my 1st target to achieve within 6 to 12 months and so I am very happy about that. One of the major tips to help me get there was G's suggestion to take profit when I see a larger than normal candle close. Then re enter if this progress as per my normal rules. Up until then I have trades open for more than 1000p and would often see them consolidate sideways for days on end and even give back a few hundred pips before resuming my trend or reversing altogether. Those were sad and stressful times. Now when a daily candle closes bigger than recent average, I close all my trades except for the oldest on that pair and lock in the profit. Let it go sideways and re enter when I can or let it reverse, let the stop do its thing, and then enter where I can in the other direction if all my rules line up.
Winners add to winning trades!
  • #545
  • Edited 8:52pm Dec 3, 2014 6:34pm | Edited 8:52pm
Quoting marshalmax
Also just wanted to share a major milestone for my live trading occurred today. I opened my live account mid september with $1000 and as at today I am at $2012 having doubled my account. This was my 1st target to achieve within 6 to 12 months and so I am very happy about that. One of the major tips to help me get there was G's suggestion to take profit when I see a larger than normal candle close. Then re enter if this progress as per my normal rules. Up until then I have trades open for more than 1000p and would often see...
That's great MarshalMax! Now, steady as she goes. Look for ways to manage your risk and hold onto those hard earned pips. In the end, making pips is easy, holding onto them is hard as hell. I'll go through some risk management techniques over the next day or two. Employ the ones that seem to work best for your style of trading. Of course, employing good risk management will reduce your gains somewhat, but the joy of keeping those hard earned pips is more than worth the cost of employing good risk management. All successful traders employ good risk management, knowing it will reduce their profits somewhat.
  • #546
  • Dec 3, 2014 6:52pm Dec 3, 2014 6:52pm
Quoting Graviton
{quote} That's great MarshalMax! Now, steady as she goes. Look for ways to manage your risk and hold onto those hard earned pips. In the end, making pips is easy, holding onto them is hard as hell. I'll go through some risk management techniques over the next day or two. Employ the ones that seem to work best for your style of trading. Of course, employing good risk management will reduce your gains somewhat, but the joy of keeping those had earned pips is more than worth the cost of employing good risk management. All successful traders employ...
Agreed!

I got a large Daily candle close on GJ yesterday so I closed all my trades on this pair except for 2. The oldest I kept open with my usual 2 candle low stop. The 2nd oldest I left open and put my stop up to half way down yesterdays large candle so if that day was part of a multi day run I could capitalise on it and close it after a day or 2. Then back to the H1 to look for new entries. Although I am thinking of keeping out of that pair for 1 or 2 days following that larger than normal candle. Backtesting shows it tends to retrace or consolidate a few days after a large candle so it could be a good idea. We'll see.
Winners add to winning trades!
  • #547
  • Dec 3, 2014 7:48pm Dec 3, 2014 7:48pm
Quoting Graviton
{quote} ......... The only downside I see from hedging is it ties up margin and complicates the trading. I just would rather exit bad trades and add to good ones and keep things simple. But if you are trading with adequate margin and are able to keep up with the complexities of all the hedges, it should make no difference at all in the statistical expectation of the trade. I'm not sure if I answered your question completely? G
Thanks G,

That does in fact exactly answer my question.

As time goes on I will ask more about Hedging re longer term Multi Position management when I have some concrete examples to discuss, but for now I am good.

Best, AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
  • #548
  • Dec 3, 2014 9:26pm Dec 3, 2014 9:26pm
Loss limits

The most common loss limit is the stop loss. EVERY trade should have a stop loss. Make it as wide or as narrow as your trade requires, but make sure every trade has one and NEVER move it against the direction of your trade. If you ever have a complete internet failure, you'll be thankful you had a stop loss. Eventually it will happen. Professional traders often impose other limits as well.

There can be a daily loss limit to limit the amount lost in a day. If the limit is hit, all trades are unwound and you get the rest of the day off to play with children or eat ice cream or whatever. There can be a weekly loss limit, so if it's hit, no more trading for the week, or a monthly loss limit, and if it's hit it's time to take off the rest of the month for vacation. Those limits should be wide enough that they are very rarely hit, but narrow enough that they would save your account if they are.

One can set a limit on how many times they will try for entry into a particular pair, like 3 times in a day or a week max. There can be a limit on the number of losing trades allowed in a row or in a day or a week.

Total capital at risk can be limited and that can be broken down to exposure by currency. So for instance, if one is trading 4 currencies with the USD as the base pair at a reasonable 2% of capital per pair, an unusual move in the USD might put 4 X 2% = 8% of capital at risk rather than the 2% intended. That might be considered as excessive and the risk of such a move may need to be mitigated.

These are all simple loss limits that go into effect after the loss has occurred. There are more complex limits like Value at Risk limits that proactively limit trading when volatility is high and those seek to reduce exposure to risk prior to the loss occurring. As a professional trader you act as your own risk management officer. It is your job to understand the risk you are taking at all times and to take proactive steps to limit and manage that risk.

Next: Diversification
  • #549
  • Dec 4, 2014 9:05am Dec 4, 2014 9:05am
I just want to be clear that I am not trying to write a definitive handling of each of these risk management techniques. I'm simply mentioning each one quickly and leaving it to the reader to go onto the internet and do their own research into each subject. Some of these techniques may prove helpful in reducing risks and retaining hard earned gains, but they should be tested carefully before putting them into practice. Most risk management methods come at the cost of reducing returns somewhat. There is no free lunch in this business. That's why the best traders in the world only earn 25 to 30% a year. Of course they could earn much more, but they are settling for lower returns in exchange for much better risk management than most new Forex traders would adopt. There is probably some good middle ground here where the trader can make higher returns with reasonable risk management, but to believe that one can make 10 times the return of the best traders in the world without taking extreme risks that will ultimately blow out the traders account is simply unrealistic. That said, I'll move through these as quickly as possible and then return to the current discussion point of the thread, Expert Exits. Moving on:

Diversification

Diversification is difficult in Forex because so many pairs are so closely correlated. If one has taken two trades with a currency in common they are linked by that common pair and may move in tandem. So, if one wanted a trade that was short in the Euro and the Ausie, taking the EU and AU short is also taking a double long in the USD, since that pair is common to both trades. If the traders rule is to risk no more than 2% in a single pair, it has to be realized that the correlation if these two trades also produces a 2 X 2% = 4% risk that the USD could go down. To reduce the correlated risk, one of the two trades could be taken with a different base pair, so for instance, perhaps ECad short is almost as good as EU for this trade, so taking ECad short and AU short could reduce the correlation risk, perhaps at some risk of reducing return.

Another quick example is one I'm using right now. I want to trade short Yen. The best pair for that might be trading the UJ long, but I am diversifying that trade by trading 1/3rd of my capital long in each of three pairs UJ, CadJpy and GJ. This gives me my full exposure to the short Yen trade, but reduces my exposure to changes in any of the other currencies to 1/3rd of what it would be had I just taken just that single UJ pair long for the full amount.


Margin management

If margin is properly managed there will never be any risk of a margin call. That means proper trade size selection for the available margin. I like simple methods so I simply keep at least 1/2 my margin in reserve at all times. If I see my margin is running low, I reduce my trade size and/or I will take profit off a good trade to bring free margin back up to an acceptable level. I'd advise every trader to set a minimum level of margin available and take reasonable steps to increase margin anytime free margin drops below that level.

Next: Scaling in
  • #550
  • Dec 4, 2014 10:13pm Dec 4, 2014 10:13pm
Scaling in

We've discussed scaling in enough already in this thread, but perhaps we haven't emphasized it's importance as a risk management tool. By scaling in a trade, we can reduce the risk of a bad decision by a factor of 4 or 5. Typically we just enter the trade in 4 or 5 steps. If the trade turns against us early on, we risk less by exiting a smaller position and move on to look for a more profitable set-up. It's a simple method that trades a few early pips in a long running trend for a greatly reduced risk in cases of a bad entry decision.

Next: Avoiding a large loss
  • #551
  • Dec 5, 2014 7:54am Dec 5, 2014 7:54am
Had what I considered to be some very large TP settings over night on my short Yen positions (long UJ, CadJpy, GJ). Hit half of them this morning after the NFP report. Now I have to decide what to do. I'll give it some thought over a nice hot cup of coffee. No need to rush, profits are cashed in and remaining trades well into profit. Patience is the key to success.
  • #552
  • Dec 5, 2014 10:06am Dec 5, 2014 10:06am
Great thread Graviton!
  • #553
  • Dec 5, 2014 12:01pm Dec 5, 2014 12:01pm
Quoting renegade
Great thread Graviton!
Thanks Renegade. I'm trying to pick up the pace and move through this material more quickly, but there is a lot to cover. If anyone wants to discuss any of this, please speak up. It's supposed to be a discussion thread, so it's ok to shout out.

So far I've mentioned The following risk management tools.

Demo Trading
Maintain Reasonable Expectations
Leverage Limits
Loss Limits (Mentioned VaR, Value at Risk briefly)
Diversification
Margin Management
Scaling In

I'll briefly go over a few more of these risk management tools, tricks, tips and techniques, then leave the reader to go off and do some serious research on their own. Moving on...
  • #554
  • Dec 5, 2014 1:21pm Dec 5, 2014 1:21pm
Hi G,

I do not know if this fits in or not, but I would like to hear your thoughts about Manual vs Automated trading - more specifically the risks if there are differences. No problem if this comes later.

Best, AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
  • #555
  • Dec 5, 2014 1:34pm Dec 5, 2014 1:34pm
Avoiding a large loss

By now the reader should be getting the idea that even though we have no control whatsoever of the direction of price, and price can do anything at any time, there is quite a lot of things we do have control over, margin, leverage, diversification, etc. It's really amazing how much control over our trading we do have when one examines it all carefully. One thing we have complete control of is how large a loss we choose to take. Think of it, if 500 pips is too large a loss for your account, then cap your largest loss for the month at 200 pips. If 200 pips is too large a loss for your trading, then cap it at 100 pips maximum. It's just wonderful that this is entirely under the traders control.

Look at your largest losses taken over the past 6 months or year and imagine cutting them in half. How many pips would have been saved vs. how many good trades would have been missed? For most traders a LOT of pips could have been saved and very few good trades would have been missed, since good trades rarely generate large losses. The best traders in the world never take a large loss. They exit while losses are still small and move on to look for a better trade. This might be the single most important thing one can do to manage risk in their trading. Determine what a large loss is for your trading style. Set a limit below that large loss amount and exit before the loss becomes what you would call large. Never take a large loss again, period. It's just that simple. Now, go forth and trade without ever taking another large loss again.


Set risk per trade

If you set your risk per trade at 2% of trading capital, and adjust it to that level after each trade, how many trades would you have to lose in a row to bust your account? In theory, it's an infinite amount. What are the odds of losing an infinite amount of trades in a row? Even if you were trying to lose every trade, the odds approach zero that you could lose them all and it would take nearly infinite time. Of course, as Yogi Berra said, "In theory, there is no difference between theory and practice. In practice there is."

But be that as it may, trading a small fixed risk per trade and adjusting that trade size up or down in a methodical way relative to account balance can allow a trader to survive a very long period of losses, reducing trade size if necessary if the losses pile up. Because of the random portion of price moves, no trader will lose all their trades, and when one is on a winning streak, trade size will gradually increase, making the most of those wins. 2% risk per trade is recommended by many. Much over 5% risk per trade doesn't provide enough staying power to survive long enough in the markets to be successful. Professional traders in large funds often limit their risk from 0.1 to 0.5% per trade. I'm currently trading with 0.5 to 1% risk per entry to a trade. Scaling in allows me to expand that position size to 4 or 5 times larger without ever increasing my risk by moving stops toward break even as I go. Lower risk, higher return, what's not to like?

Next: Early exits via invalidation of trade basis
  • #556
  • Dec 5, 2014 3:15pm Dec 5, 2014 3:15pm
Quoting AlbinaGrande
Hi G, I do not know if this fits in or not, but I would like to hear your thoughts about Manual vs Automated trading - more specifically the risks if there are differences. No problem if this comes later. Best, AG

Sure AG, I'll give that a shot. Here is a rather long story about an automated trading system implemented at Long Term Capital by a Nobel Prize winner and some of the best financial math and programming minds on earth: http://en.wikipedia.org/wiki/Long-Te...tal_Management

To sum it up, they went bankrupt. Most automated systems these days have a 24 hour human over-watch performed by a crew of highly trained traders that can hit the kill switch if the machine goes haywire. So, you can either trade manually, or program a computer to trade and spend your time watching over the computer and making adjustments to the program for ever changing market conditions.

The risk of manual trading is that the trader will deviate from their trading plan and take a large loss. The risk of an automated system is it will not deviate from it's trading plan, even if it is obviously (to us humans) making a huge mistake. In the end, the most powerful pattern recognition machine on earth is the human brain. It's probably somewhere between 1000 to 100,000 times better at pattern recognition than the most powerful super-computer.

Certainly there are some proprietary computer trading platforms operating at the large trading houses that make consistent profits, but most of the ones that make the most consistent profits are not as sophisticated as you might think. Reports by ex-employees of those trading houses say the best trading programs in the large trading houses use simple, well understood, and easily adjustable methods like moving average crossovers.

Any trading involves risk and I don't think all of that risk can ever be eliminated by better programming. I have tried automated trading and it just didn't produce consistent profits for me. If someone else has the secret sauce for that, I wish them well. I'd just advise them to keep one eye on what the computer is doing at all times and a finger on the kill switch in case the darned thing goes haywire.
  • #557
  • Dec 5, 2014 5:28pm Dec 5, 2014 5:28pm
Another question for you G and readers.

When is enough enough?

I was approaching 100% profit on my account this week and so set my goal to get to that magic number by the end of the week. It turns out I reached it Thursday. I sat there thinking happy thoughts but mostly I was thinking 'should I close all my trades and lock that in and call it for the week and begin afresh next week or should I manage my stops as I normally do and look for more new trades and just keep going."

Afterall every day and every trade is a new day and new trade. Things are not going to stop just because I reached my target for the week.

I had a dilemma.

So I decided to continue on as normal as everything happening was just individual movements and profits and nothing was related to how my account was going or the goals I had set.

Today as close of trading Friday, I am now up 140% since LIVE in September and so again I ask myself "should I close everything and be over the moon or continue Monday as just another day?"
Winners add to winning trades!
  • #558
  • Edited 6:50pm Dec 5, 2014 6:07pm | Edited 6:50pm
Quoting marshalmax
Another question for you G and readers. When is enough enough? I was approaching 100% profit on my account this week and so set my goal to get to that magic number by the end of the week. It turns out I reached it Thursday. I sat there thinking happy thoughts but mostly I was thinking 'should I close all my trades and lock that in and call it for the week and begin afresh next week or should I manage my stops as I normally do and look for more new trades and just keep going." Afterall every day and every trade is a new day and new trade. Things...
In my opinion, don't cut a winner short. Let the market tell you when to get out. Congrats on your success. Fear and greed are traders arch enemies! Exits are as important as the entries. Have a plan for all scenarios so you can follow your plan and not have to think about it during your trade.
  • #559
  • Dec 5, 2014 7:23pm Dec 5, 2014 7:23pm
Quoting renegade
{quote} In my opinion, don't cut a winner short. Let the market tell you when to get out. Congrats on your success. Fear and greed are traders arch enemies! Exits are as important as the entries. Have a plan for all scenarios so you can follow your plan and not have to think about it during your trade.
Good stuff mate.
Winners add to winning trades!
  • #560
  • Dec 5, 2014 8:50pm Dec 5, 2014 8:50pm
Quoting Graviton
{quote} Sure AG, I'll give that a shot. Here is a rather long story about an automated trading system implemented at Long Term Capital by a Nobel Prize winner and some of the best financial math and programming minds on earth: http://en.wikipedia.org/wiki/Long-Te...tal_Management To sum it up, they went bankrupt. Most automated systems these days have a 24 hour human over-watch performed by a crew of highly trained traders that can hit the kill switch if the machine goes haywire. So, you can either trade manually, or program a computer...
Thanks G, Makes good sense. AG
Do not dwell in the past, do not dream of the future, concentrate the mind.
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