Multi-Lot Multi-Timeframe Position trading

Yes, that always happens when people trade without a stop. They do great for a while, then it blows up. Set your stop wide and take your exits manually. Why let the market's whims control your exits? Take control of them yourself, and still keep the protection of a stop. Seriously, see if you can trade just one week without hitting a wide stop, taking all your exits manually. Don't count any that stop out while you are asleep. You can't help those. If you can do this, you'll be a better trader. You only need one to three good trades to make a ton of pips trading them multi-lot. Take only the best entries and stay with them long enough for the trend to make you a profit, at least a few days. Today, all I see that is good to trade using my system is the UCad long. EU short isn't bad, but I'm concerned about that ECB meeting in a couple days.

A single lot on the EU trade below would have made +380 pips. Trading Multi-lot I'm up 1300 pips on this trade. Just one like that is enough to make a good profit even after 5 or 10 bad entries. But looking at the account history of your trades, most of them were good trades. You just didn't stay with them long enough for them to make a good profit for you. I'd advise concentrating on trying to stay in your trades longer, like 3 days to 3 weeks. Something like that. It takes that long for the trend to pull away from the noise. Once it has, you can set your stop so there is zero risk to your trading capital and let it run to the moon. Don't trail your stop too much or too often and you won't get kicked out of good trades as much.

Hi Graviton,

I like your explanations and I address you another question about risk management and lot sizes. Maybe it is good for a little explanantion.

8. In an early post you said you traded JPY pretty much across the board. You were also talking about that you do not risk more than 0.5%-1% of your account on a single trade and you do not like to risk more than 2% on one currency.

So the issue is how do you cope with this problem is you have like 4 JPY short trades open and you start scaling in. We know that if you have 3 trades open it is risk free. However if you have 4x2 trades open, in the worst case all 8 positions will be losers. What do we do then? How do you calculate risk and the lot sizes in this case?

Also to this question: you once said you only trade the 3 best trades/day, even if you put many good trades. So if you have like for JPY short trades open (you mentioned such situation already) then we can assume you opened 3 of them one day and if the JPY was worth to trade for more pairs then you opened the 4th trade on another day? Or these rules do not have to meet with you selection requirements all the time?

Thanks,

IBO

IBO, Generally I will reduce lot size as needed when taking a basket of trades, like several JPY trades, to control risk. Usually, those trades would be taken over a period of several days. The best trades run for weeks or months, so taking only 1 or 2 a day doesn't affect the results much. I stray over the line a bit now and then, but at least I'm aware of where the line is and how much I'm venturing past it. If one never takes risk that could take them out of the game, then it's just a matter of how long will it take to make back capital lost in a high risk venture. Depending on your account size, 1 to 2% risk is reasonable if other risk management tools are being implemented. I gave an extensive list of those in a previous post. Losing 5% is not good, but I can make it back fairly quickly. A 10% loss is more serious and it could take weeks to earn that back. I'd be kicking myself every day that I had to work just to get back where I was. 20% would be miserable and it could take months to earn back.

Worse still, the risk of ruin is so great if one should hit several of those very bad trades in a row, that the only reasonable thing to do would be to greatly reduce trade size once the first one is hit. That means it will take even longer to make the capital back. We want to avoid the situation where we trade well at small size, then increase size and lose it all back, and go back to small size again, repeating the same mistake over and over and getting nowhere. No reasonable professional money manager would take such a risk, and if they did, the first time their fund dropped that much there would be a rush to the exits by their investors. There are many tools in the risk management basket though. Make use of all that you can. Here is a summary of things we've discussed to reduce and control risk. If you are implementing most or all of these tools, you could probably trade more safely risking 3% of capital than someone else that had not implemented these tools and who was only risking 1% of trading capital:

Demo Trading
Maintain Reasonable Expectations
Leverage Limits
Loss Limits (Value at Risk)
Diversification
Margin Management
Scaling in
Avoiding a large loss
Set Risk per trade
Early exits via invalidation of trade basis
Maintaining reward/risk ratio
Partial exits
Worst case scenario planning
Hedging
Profit targets
Trading with trend
Fundamental confirmation of technical trends
Add to winners, close losers
Riding through volatility


G

Thanks for your input Graviton - My mind suddenly clicked today after looking at your chart.

I realize trading is just an inventory problem. (Not sure if you are familiar with how companies source inventory)
But mostly companies uses a First In First Out system. (FIFO)

This means the first batch of purchased products get sold first (it's very common for places like grocery stories or simply just selling milk)

For trading, you always exit the most profitable and oldest lot first, which is the same as FIFO.

Then, you talked about how I should just enter mechancially at every 50 pips on a currency that has already established a trend.

That way - the "average cost" for the currency will always be lower than the price (assume up trend)

When you take profit, it simply boost the average cost up a bit more

And you always make sure that the price doesn't drop below total inventory (which you will exit at break even or so)

I feel like I am able to see the big picture now (maybe I am just rambling)

What do you think?

Cheers,
Eric

Very nice post Grav. Thanks for sharing.

IBO

Nice Eric, now you have made it click more for me.

G thanks for the explanation of Lot sizes using Risk Management, I had not taken that in when you talked about " Lot Sizes" before.

A lot of us are waiting at the moment for the next 24 hrs, so may I please ask a hypothetical question, while we wait.
I will be waiting till Friday.
I am using eToro to learn to trade and they have released a 12 point warning regarding the ECB Meeting, one point was that "All Markets" may be effected by the meeting, which ever way it goes.

There is a lot of discussion around at the moment about what will happen on Thurs.

Will the ECB announce a 500 Billion Euro QE.
Does it need to be 1 Trillion.
Will the EUR go to parity with the USD.

One of the Tools that you mentioned in the above list is "Worst case scenario planning".

So after what happened recently with " Francaggedon ", the SNB having purchased 100's of billions of Euro's to hold up their currency, " a cornerstone of their monetary policy"and then removing it.

my question(s) is,

Do they still have 100's of billions of Euro's.
What happens when they get rid of them. (the EUR will go down)
When will they do that, or have they already started or will they do that in the next few days.
How much value has been lost on the EURUSD since APRIL when this Trend started, (is it a lot more than 100's of billions).

I hope this is not off topic but I am new to this so please let me know if I am asking the wrong thing at the wrong time, but it seems that the market is hinged on this topic at the moment so I hope its relevant to the subject of the thread.

Many thanks G.

About the risk/reward ratio... how do we account for that? I mean, we don't know where a trend will stop, so we risk opening (example) UC and see it reverting just in a little time.

G. i have a few outstandings... do you think i'm managing them correctly ?

Thanks

Luca

Sure, that's one way to look at it.

Hi G,

What are your thoughts about Draghi and this Euro QE nonsense due out tomorrow. Do you plan to ride through it, lighten up or go flat? For my part I will watch from the sidelines until next week. Seems to me that all pairs could be impacted in too many ways to predict with any confidence.

Best, AG

Hi McPoint. Yes, regardless of what the ECB does, expect extreme volatility. Swiss foreign reserves are about $550 billion and half of those are in Euros, so roughly $275 billion in Euros. They will definitely need to offload those Euros at some point, but that might be in the far future. Sure they have lost $50 billion or so with their Euro purchases, but the Swiss can just print more Francs, so it's not a problem for them. One thing is sure, they are savvy businessmen. It's said that if you see a Swiss banker jump out of a window, jump after him, because he's probably spotted a big pile of money below.

The "worst case scenario" for my EU short is extreme volatility causes the Euro to spike up, it hits my stops taking me out of my trades for a 600 pip profit, then it dives to parity, and I miss out on most of the good move. These are the types of scenarios that we must consider and plan for to avoid unreasonable risks. Forex traders tend to be an optimistic group, but irrational exuberance can be a fatal flaw. Always consider the worst case scenario to control risk and protect capital.

Hi G. Tomorrow great spikes are probable. Why don't you close just the last lots opened and put a sell limit upper?

Excellent question Luca. Studies show that most Forex traders actually win most of their trades. So how is it that most lose money in Forex? Simply, they tend to lose much more on their losing trades than they win on their winning trades. Maintaining a high reward/risk ratio, at least above 2:1 will prevent this from occurring.

Lets drill down into this risk a bit more. There are two ways to maintain a high reward/risk ratio. Cut initial entry trading capital losses shorter or add to and hold winners longer. You can only cut entry losses so short, and after that you are taken out of almost all trades before they can ever become winners due to intrinsic market volatility (spikes), and that will cause your win/loss ratio to go way down. So once you have capped losses at some reasonable value, there is no more progress to be made on that point. Quite simply, fiddling with stops more will not make you rich. It's really just wasted time and effort. If you want to win at Forex, pick a reasonable stop loss point and move on to work on learning how to add to winners and hold them longer.

So, lets look at adding to winners and holding them longer. This isn't easy stuff, but I've discussed how and when to add to winners at great length in this thread. Holding winners longer means holding them longer after they have become winners. That means taking reasonable risks with unrealized gains to make even larger gains. There is no other way to do it. That means letting stops grow wider as unrealized gains build up in a winning trade and adding to that winning trade in a measured way. Once you understand this revelation, you can set a reasonable stop and focus all of your attention to adding to winners and holding them longer. That's where the money is to be made.

This is a critical issue and it deserves much more discussion. To win at Forex, we must learn how to add to winners and hold them longer. There is simply no other way. Of course, we can go too far in that direction as well. Adding too much to fast risks precious trading capital. We never want to risk more trading capital than is required just to enter a winning trade. Of course, holding a trade past a major reversal, usually caused by central bank intervention, can cause too much risk to unrealized gains. But in the ladder of risks, missed opportunity is the least important, it's hardly worth anything, unrealized gains are 10 times more important, since they are easily converted into trading capital, and trading capital is 1,000 times more important, since without it we are out of the game with no chance of recovery. We MUST take reasonable, well thought-out risks with unrealized gains to profit in Forex. That is a logical fact. We NEVER want to take unreasonable risks with trading capital. That will destroy our account and our confidence.

Thanks for the good question. This is a good discussion. I'd like to drill down into it further, but I'll pause to see if anyone has a comment on it.

G

Already done. Glad to see we are thinking alike

I agree. Risks are unmanageable at this point. Traders should take steps to protect themselves from extreme volatility.

Looks like things are settling down a bit now. The ECB unexpectedly leaked their QE plans early and it caused a bit of an uproar. I expect some more volatility when the ECB makes their official announcement tomorrow, but most of the storm may have passed. I rode through it with no risk to trading capital. Unrealized gains were at risk and I exited my newest 2 trades to reduce risk a bit, but the oldest 4 positions are still on short and earning well. The better news is the UCad trade soared when the BOC dropped their interest rates, so I made a nice return for the day. Earlier I had noted that my worst case scenario was to walk away with +600 pips from the EU short trade and I'm left up quite a bit more than that, so no crying allowed in Forex. Moving on...

Earlier I discussed how reward to risk ratio affects risk. To summarize, broker data shows that most Forex traders win most of their trades, yet still lose money since their average losses are much larger than their average wins. This is a risk we can overcome. The first thing we must do to become profitable in Forex is to see that our winning trades win more than our losing trades lose. To improve reward to risk ratio, we must either reduce risk, or increase the reward. Risk can be limited by using a reasonable stop, but beyond that, no amount of fiddling with stops will show any improvement in r/r ratio. If we increase stops greatly, we will suffer large losses when we make a bad entry, and if we reduce stops greatly, we will be stopped out by the first news flash spike that comes along. A few pips improvement in stop one way or the other will not get us into our private jet. To really make an impact, we need to set a reasonable stop to limit our risk and move onto increasing our rewards, which in theory can be increased without bounds. This is the logical result of simple facts and statistics. I'm willing to debate these conclusions with anyone, politely of course.

Let's assume here that the reader has implemented all the steps necessary to effectively manage her or his risk and is ready to move full force with improving their profits from winning trades. One way is to pick more winning trades, but I already implement the best methods I know of to pick winning trades, and spending a huge amount of time to try to find a few more winners is again wasted time and effort. We really only need a few winning trades that run for months or years to afford that private jet. Our goal then, is to find our few winners and ride them to the moon. Finding a few winners isn't difficult. Anyone who uses the Multi-timeframe + Fundamental analysis that I've discussed here should be able to find a few. If you have a better method, by all means use that, but this is simple and doesn't take much time so it works well for me.

Winning trades will stand out from the pack fairly soon. They have strong well-understood fundamental drivers and will go positive fairly quickly after entry. The only thing left to do is eliminate any risk to our precious trading capital at some appropriate point and ride the winners to great profit. This can be done simply if we can avoid just a few mistakes along the way.

The first mistake to avoid is moving the stoploss to BE too soon. If we initially decided we would risk, say 80 pips of our precious trading capital to get into this winning trade, just because the trade is up 60 or 100 pips, there is no reason to get nervous. Unrealized gains aren't as important as trading capital and the risk to our trading capital has not increased. We are willing to risk that additional 80 pips of unrealized gain since what we really want from this trade is 600 or 1200, or more in pips of profit. Trying to reduce risk to trading capital by moving the stop to BE too soon is really counterproductive as it will result in us getting kicked out of good trades that could return thousands of pips later. We will end up exiting good trades that had a small retracement, and staying in bad trades that never went positive in the first place until price hits the stoploss. We can't win this game by only playing defense. We have to go on the offense to win. Don't move that stop to BE until price is very unlikely to retrace back to it. A minimum gain before moving the stop might be 2X the initial stoploss risk of the trade, but even waiting until price has moved 3X or 4X or more of initial stoploss risk might be necessary in volatile markets. Remember, we are not risking any additional trading capital by waiting. We are only risking unrealized gains to make much larger unrealized gains.

The second mistake is taking off profits too early. After a string of losers, it is tempting to cash in that winner quickly, before those pips slip away.This is counterproductive because one small winner can't make up for several losers and leave you with a nice big profit. In theory we don't want to sacrifice any opportunity of a huge win later for the instant gratification of a quick small win now. In reality, we can do just a little of both. I will sometimes take a quick profit off the first lot of a winning trade, to finance the trade, but I only do that once. So if I have a sl risk of 60 pips, I might cash in that first 60 pips of profit on a peak move in my favor, then try to re-enter at an even better price than where I exited. Even if the re-entry fails, I have not taken any loss to my trading capital. But this is a calculated trade-off and I'll only do it once. If the trade turns out to be a big winner, the price of that 60 pip profit I took off early might very well be 300 pips or more in missed opportunity a month later. I can miss a few opportunities and still do very well in trading, but I can't miss them all. Patience and delayed gratification is the name of the game here. Let those winners run, the longer the better. If you really want to take 1,000 pips or more off a trade, you'll never get there taking 50 and 60 pip gains. To win, your profits on winners must be many times your losses on losers. Winners are hard to come by. If you have found one, don't give up on it easily. You don't have to risk more of your trading capital to stay with it, and in fact you shouldn't, but you probably will have to risk some or even most of your unrealized gains at some point in the trade before you can ride it to mega pips.

Graviton,

Great stuff! I love reading your comments and discussion!

Can you talk about the psychology of holding for the big swing / long term? Personally I can take small losses no problem ... but holding for weeks/months is very difficult for me. It is hard to watch the big swings in equity as you add positions. I want to punch out after a decent move up ... but have a hard time holding for a truly huge swing over weeks/months.

Example, as you add more lots to build a position in a trend ... lets say first position is 1:1 leverage (so 0.1 lots on $10k act for example). Lets say the currency pair moves up 1%, so your equity moves 1% ... no big deal. Lets say later you keep adding, and add 4 more positions, so now net 5:1 leverage ... so 1% move in currency pair is 5% move in your equity. A lot more nerve-wracking! How do you handle this psychologically wise?

Regards,
EZ

Hi Grav,

great writing on risk and money management! It is an interesting point what ezcurrency raised. Maybe you could tell us with an example how you handled the UJ situation. I would be very interested to see if you closed your positions when the large retracement occured and if yes where; or if you did not close them then where were your SL-s?

One more question: NZD is a roller coaster, IMO it's own fundamentals are strong but commodity fundamentals in general are weak and this influences the currency in a way that it is hard to trade. What do you think of that?

IBO

i would like to try to answer to this before the master. He'll eventually correct me.

everything should be the R:R ratio. But, according to G's method, if i understood that correctly, you would open one position, which will be the only one until you don't open another one (but Handling risks) or close it out because of bad entry/sl.

So to say, you open one short on EU but your leverage will remain 1:1 until you close it /sl or you add another position. In the latter case leverage will be 2:1 but you will have put the SL on the first lot either in BE or such that the Whole trade closes up at a midprice point for a BE exit.

Your scenario shows up when you appy a sort of grid, opening more position but when you are on the loosing side of the trade.

Hope i understood well and answered correctly.

Hi man

Graviton, it had always seemed to me that part of the success of the methods that you share here, is that you did move up stop losses quite quickly including to BE and beyond. This meant sacrificing a few winners but limited losses. So I am a bit confused as to how you prefer yourself to manage entries and build multi-lot positions. As you say, the best trades tend to move into profit very quickly. I am very aware of course that you often get at least one retest of the good entry points after some initial success.

For example, I think you like to use a daily ATR as an initial hard stop.... if I understand you right, you like to move that up as the trade goes in your favour, and would consider being at break even by the time of 1 ATR? I'm interested in this issue because its a tricky one, and using some skill here can really help... and I think its not only me that could learn from exploring this area more in our discussions here as discretion can work better here than hard ad fast rules. Do you have any views on time-based moves to BE? I don't have detailed stats, but I did once do some research that suggested that moving to BE after 48 hours was beneficial (this was with stop losses based on H1/H4 swings).

Secondly, I understand you don't add new lots blindly, but wait for another pull back/break out when it is appropriately spaced? Or do you add just after X move in your favour when a move looks very strong? The problem with waiting is that you might not get the pull-back...


I see what you mean about preferring breakouts to technicals for entries - I went long UC just under 1.20, after several tests, just when all the technicals were turning long - it was a combination of both really... and yesterday there was an "accident along the line of least resistance".


I appreciate that a big part of what you have been sharing here is showing how the same method is scalable within different time frames.