Lose small, win BIG

Hi there,

This journal is mostly for keeping record of my progress. If somebody would like to add his/her 2 cents to this thread I'll be glad. For this purpose I opened small real account which will be published here to monitor my positions as I'm often out of my PC and I prefer to monitor my positions in some "tracker" and not in platform as I ussually feel need to modify my position somehow.

My goal is not to ruin the account and improve my entries. Another goal is to keep losing trades very small and let winners run for a long period of time. Preferable SL size is something between 5-10 pips and after initial momentum in my favour SL will be moved to BE and forgot. My risk will stay constant for some period of time and then will be increased and kept for another period of time. Starting position is 0.01 lot

Most of published trades will be those good ones. Bear in mind that for every good trade there will be much higher number of bad trades. By bad I mean losing however, not every losing trade is a bad trade and every winning trade is a good one.
Example:



It still can be BE trade so take it easy. It might be lost at any time. So no emotions attached to position. It's just money which may be made or lost whenever in my life.

Regards,
Adam

GBPUSD short on pre-defined level



SL 69points

Notes: Spread might be higher at this time. It was definitely "conflict area", there are many small moves... Got wiped out and price was quite far away from my SL. With higher capital I'll definitely use commision-based broker. I'd like to re-enter position as price is good, location is very good but spread is too high.

What is this exercise good for?

Black swan is very popular concept nowadays because of Taleb's book. It says about huge impact of very improbable events. Those events usually kills most traders or institutions and as they are immposible to predict we aren't able to protect ourselves against them. Our approach is what determine if it impacts us negatively or positively.

Let me tell you about one market maker. They are are quite big today and better prepared than they were before but let's go couple of years back to history. They were very good market maker making a lot of money on daily basis. Market makers usually makes spread on every trade they do but sometimes experience big loss. Their winning rate is about 99% and they make big volumes. Very rarely their day is not a winning day.

When they expect some big changes they need to be prepared for them. Interest rate should be changed, estimate change was 0.25% and market maker was ready for that. What happened they couldn't expect. Interest rate was changed and difference between old and new was 0.5%. It could be alright, but it is released one day before release date. Nobody was ready for that. This market maker lost 85% of his capital in single one day. Owners said they had been lucky change wasn't bigger. It would kill them in second. They needed more than half year to recover losses. Black swan arrived to their door. They survived. They were very very lucky and able to decrease their risk. Not all of them were so lucky.

I'm aware this situation is an extreme but extremes are good to eye-openers.

This exercise is planned to get me to the other side of black swan effect. I know I'll be losing many trades and few of them will be huge winners (black swans). There are many traders and investors, Taleb including, who makes money by preparing their battlefield for unexpected events. They'll come one day and then these people make unbelievable amount of money. Bear in mind they lose small while others win small and win big while other lose big. At the end, both sides can be at the same level and both sides have to know what is convenient for them.

I know which side is better for me (psychologicaly). Hopefully will be better financialy as well...

this is my strategy. i lose 50 pip and win 100 pip. when i win a positon. i can lose 2 positon i still have profit. my profit will be stable . i think this is great ratio.

Thank you for your contribution mran. I appreciate it.

There is no correct approach, perfect system or truth in the market

Last week I read couple of threads and I must say that some traders have really brilliant ideas which might be missing part of someone's puzzle picture. But you should be aware that it doesn't have to be good for you. You can lose money using that method and your mates can make a fortune doing the same. It must fit your personality. I saw many immature traders arguing about trend vs. counter-trend approach. One was saying you must use one method to be successful the other said the opposite. Who's right? None of them.

My friend told it very well: There are numerous methods that will bring you a lot of money. .... I'd say: Good trader will make money (in long-term, of course). No matter what's going on.

It's up to trader to make money. If (s)he doesn't it is their fault. Let's start accepting it. No truth, not good methods, just good traders...
Please stop fighting about stupid stuff and improve your trading. Much more useful for everybody.

Be patient and wait for your entry. Be perfect at it and let your winners run or die. Those 2 trades made more (open) profit than last 15 trades lost. I still can lose it and probably I will. I still wait for my BIG BIG WIN and don't care about average trades.

This is my probable scenario and plan for EU for following days. On my TP level I'll start to protect my profits aggresivelly (of course, if price hit it) and I'll get some nice cash for other trades and more attempts to hit some big movement.

All my attempts failed today. Time to get out from market for at least for 10 hours and to take some fresh air. No need trying to revange market and get money back....

Setting TP to cover costs. I decided not to let my account decrease very low because of my psychological comfort.

Waiting for short opportunity for hours...

Attached Image (click to enlarge)

I decided to take some smaller wins to cover my costs...

Knowledge skepticism.

As I problem I see that people make conclusion too quickly. It is always easier to say there is one reason for this and that. Most people like that simplicity as it allows you to simplify your life but often it routes to a wrong conclusion.

On that wrong conclusion we make another conclusion which has to be wrong by nature.

I have a good example. Somebody I know work for agricultural and food chamber. This organisation prepares many reports. People there very often don't understand very basic statistics (really basic) and calculate some reports. Based on those reports other reports are made and they are sent to statistical bureau.
Based on them there are made reports about economical situation in our country for investors, companies and others.

It's like catching a tail running around a tree. We build our knowledge on wrong knowledge. How we can be well-educated with this kind of approach?

I'd suggest start from tabula rasa. Forget all knowledge you've gained all over the way and start to know markets from basics. Forget books, forget analysis, forget some trainings or whatever. Just focus on what you see. That's the truth. Why this movement happened? Because interest rates were changed? Really? Can we make such a simple conclusion in a such complex enviroment? This is done nowadays. It could be reason why so many traders lose money, they try to predict because they "know" that A is caused by B. Is it really? And let's say it is...

Does it help you? If you could know that price of crude oil will be 20usd in 9 months would you profit from that? Probably most reades will say yes, because they will sell tomorrow and wait for a beautiful downfall. Meantime price will go to 500 and comes back to 25. I'm aware this is not the best example of my thoughts flow but I hope you see my point.

What we discover we accept and trust. It is a real weapon that can help us to grow.

I've figured out I like open profit more than "closed" one. Once profit is on my account there is no possibility to grow, unless I open a new trade and risk some money again. While my open profit has a potential to make even more money without additional work, analysis, waiting time and so on. I'd say it's easy money because my losing trades are small enough not to worry about them. Losing 20 trades risking less than 1$ per trade is cheaper than an evening with my friends drinking wine and eating good food (and I live in country with low prices). There is no need to worry outcome of following trade, even of next 10 trades.

On the other side, few winners make me happy enough and allows me to grow steadily. It's holy grail- you don't have think a lot about your outcome anymore. It might come tomorrow, in one week or month. I expect to lose, hope for BE and celebrate winners. It has never been so easy emotionaly. Positive black swan are beautiful while losing small is comfortable.

Past performance is not necessarily indicative of future results

Ilusion of knowledge is very strong in our culture. If we study history we think we learn because we know what caused this and that. We think we're able to predict some events (very improbable event) by studying its history. It's very easy to learn from history. Everybody has so much knowledge after a war.

But I'd like to write about trading. We evaluate our system, methods by wathching their curves. Let's start with example at the beginning of this post.



This is growth curve of one of my new automated systems. What we can say about this system? Is it good system?

Most people (hopefully not readers of this thread) will say it's a good system because return was 12% in two weeks. People like to watch curve history and make a conclusion.
Curve might be totally useless indicator of system strength.

What people usually evaluate:



It is history of the system and growth in history. Many suppose they'd make money if they invest (or develop) in the same system. Do you remember that text written with very small letters in disclaimers: Past performance is not necessarily indicative of future results? This is one of the most important part to understand and accept. It's written everywhere...
Past performance has nothing to see with quality of the system. The only thing about my system you know at the moment is that it had so and so performance in the past, but you have no idea what my system can do in the future. It might lose all my funds (and it's what I expect in every system and method). When you trade or invest you know only one thing about it's future...



And it is: date in performance curve will increase every single second.... That's all you can know from past performance curve.

Important is to understand your method and no to fake your "knowledge" gained by observing history. I'll tell you truth. You won't be able to predict future by learning history...

I could write a book about it but I think there is no need for that. Hope it is clear from this single post....

Stop trading immediately

I've read article which says that only 10% of traders make money and advise was not to start trading if you don't want to lose money. I have no idea if that 10% is correct or not, but I guess there is very similar number when talking about entrepreneurs. If only 10% entrepreneurs makes money does it mean we shouldn't start business because we'll probably won't succeed?

So if nobody trade forex there will be 0% losing traders, right? So it is a solution, not to trade and not to take risks....

Really interesting approach and logic....
Sometimes it's really difficult to understand logic of those people, really...
Please stop trading because only 10% of traders succeed

So only 100 traders from 1000 will make a lot of money...

I'll probably stop trading and start to read motivational literature in order to be very successful.

Although I like the logic in your thread title it will take more than this to succeed. You need to build up some stats over your entry and exits to know what drawdown can be expected over the course of your trades and when to stop if you go beyond maximum expected drawdown.

This is thread might help you out a little http://www.forexfactory.com/showthread.php?t=510632

Edit: above mentioned thread of redbaron is excelent. If you take trading seriously please read it.

Hi baron,

Really good point. Thank you for contribution and link to your thread, I'll definetely read it.

I agree with you baron. First of all, you should know when you're doing something wrong and when to stop doing it. I've been trading for around 7-8 years so I know what I can expect regarding my drawdowns and risk taken. I can afford losing all my trading capital because I take part of profits every months and if account reach some pre-defined level I take all of them because I want to be able to start again if something get wrong (what can happen in some of my systems, the above mentioned which I started 2 weeks ago included).

When you start with account you're willing to lose you are okay. I have more systems, some of them which make small money regurarly week by week, some which risk small amount but win big when conditions are good.
And just to mention, this account you can see attached to FF trade explorer is really small (starting balance 260$) just to improve my entries. I haven't traded discretionary for more than 6 months so I want to practise before funding my discretionary account. When I feel ready for "real" trading (i mean with more money- I think demo trading is not useful once you know how to use your platform and better is start with small real account) I'll first increase risk for let's say 10$ per trade and regurarly increase risk to higher numbers. I'm not fan of 1-2% risk in traditional way which I consider good when trading shares with no leverage (and having all your money on this account). I prefer to fund less and risk more. Let's say I have 10k for trading so I'm willing to risk 100$ per trade (1%). In that case, I'll fund 2k and risk my 100$ per trade and I can do whatever I want with the rest.
Edit: I prefer daily, weekly (or other TF risk). Let's say I'm willing to risk 500$ monthly...

I like to risk really small, how in this case, 260$ and take it back as soon as possible and the rest is no-risk trading capital where I can risk more and withdraw more and more with every bigger profit. Money on trading account I don't consider to be profit until it's not back to my bank account and on the other side, I don't take it as a risk once it is on trading account because I put there only money I don't really need for my living so it's not affecting me at all.

Regards,
Adam

Other good runners passed away on BE. They don't deserve to run anymore. I feel better with every BE trade - it teaches me to be patient and not to worry about every trade, just to follow my long-term interest. Big loss won't be cause by one bad trade but one good trade causes big profits. Who cares about one or even 10 losing trades in a row. Enter like the best scalper and exit as the best trend-following trader.

Another bullet shot today:



Regards,
Adam

My training account is 20$ down and I feel very good about progress. I haven't been trading discretionary for about half year and losing was difficult at the beginning. After so many trades my ego seems to be ready for trading again. I decided not to deposit this training account but try to increase its value. I'll combine more styles but idea will be very similar - limit losing trades and let winning ones growing.

Worst case scenario is losing 260$ (is it bad scenario??) so I'm not in any kind of financial risk. I'm really curios what may be done with a such small account. I'll risk just few pips on some trades and risk couple of dozens pip on others. It will cause big % changes (but small $ changes). If it goes well I'll get some pocket money and experience, and if it goes downside I'll get an experience. Experience is what it's so valueable. In regards to money, it can be made in day job (like I do) or somehow differently.

I get some money from market every month. It's still very small amount but it least can cover my training accounts
Let's ruin my account

Regards,
Adam

Numbers lie

I'm dissapointed by general trading thinking. Of course, there are traders who are not shortsighted (I'm happy to meet them and discuss trading, wine, women, life and whatever topics I and you consider interesting).

Why traders believe that what makes nice return is a good method and vice versa?

I'm so dissapointed when we discuss results and somebody tells that system is bad because it didn't make money (or lost slighty) in last 4 months and, even worse, when they see system with big returns and they automatically consider it a good system...

I have two "real" accounts (those which I don't consider play accounts). One is good (that one which lose slightly but occassionaly makes very good money) and one is bad (makes money on regular basis but with potential of big loss).
Good account is considered a bad one by others and bad one is considered to be good one. People focus too much on numbers and decide about quality taking them in mind as the only one criterion.

My good account had only a few winning days. I mean when balance was increased. But equity was high all the time. Because I don't care about balance so much. The bad account had no losing day (again, in terms of balance) making 2-digits return every single month.
The bad one can be lost any day. Good one most likely won't be lost. Good one has potential to build a fortune, bad one generates regular income with no potential to bring fortune.

Bad one appears to be a good one, because return is really high, but are numbers enough to evaluate it? You can see it's results in past but can't make any assumptions about future. I know, i'm sure, that my bad account will pass away one day and it makes it bad account. I know it will be lost. All profits will be withdrawn of course, but still it will be lost.

The good one will make money (i'm sure about it) even though it's curve is flat most of the time. Because of logic behind it.
Please don't compare system by comparing their results. Compare their logic, worst case scenario and potential.


Numbers lie, percentage especially.
Don't get fooled ladies and gents, please.