Diversified Trend Trading Approach

Weekly Outlook continued.....


FTSE


GBPSGD


GBPUSD

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Nikkei

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NZDCAD

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NZDJPY

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NZDUSD



....more to come.

C

Weekly Update continued....


USDCAD


USDCHF

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USDJPY

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USDSGD

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XAGUSD (Spot silver)

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XAUUSD (Spot Gold)

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That's it for the week ahead. Let's hope it is a more favourable trend trading week to last week.

Best of luck for the week ahead guys.

C

NFP tend to have this effect and this week we had stronger than usual numbers with a positive revision from last month also, seeing the corporate earnings suffer from this Dollar bull i expect it to cool off, the question is when ?.

As always, good Job.

Best,
B.R.

hey C.. Thanks for the Nick Drake vid ..I listen to this guy too..


I would totally agree imho, in my experience the longer term return on equity benefits greatly focusing on the primary trend ..It would be interesting to know your stats after a year or so on the win/loss ratio's for entries in M30-H1-H4.. I used to find the H1 entry results to variable so removed them, I only take a Daily signal- H4 entry while the primary trend has to be with the Monthly-Weekly weight of flow..

Nice to see such a disciplined journal . I think its a big *tell* of someones performance when they can show good housekeeping..

I enjoy your posts...thanks C

Hi Ja

I reckon you are right with regards to the lower timeframes but given that I will be running the test this year I will be able to come up with some definitive statistics to prove whether the hunch has merit.

The combinations I will be trialling are the following timeframes MN, W1, D1, H4, H1 and M30 and also whether the trades taken are in the direction of the primary trend or a counter trend trade. I have always been sceptical of counter trend trades given that they are of a much shorter term nature, so their validity for trend trading techniques seeking open ended profit results is questionnable to start with and are more appropriate for shorter term swing trading or scalping approaches. Anyway, I will keep everyone posted with the results on a weekly basis going forward.

My gut tells me that the probable result will be an approach that only deals with the MN, W1 and D1 timeframes IN THE DIRECTION OF THE PRIMARY TREND which will mean that I will probably need to go on the search for a far wider basket of instruments to trade to keep trade frequency at levels required to achieve consistent yield. It might mean I am forced off my preferred platform (ProRealTime) and back onto Metatrader with a broker offerring a large basket such as Oanda. I love the ProRealTime platform for its trade by charts functionality but you are restricted to those brokers that offer this system and in that regard there are limited options. The ideal scenario for my approach would be to continue with ProRealTime but with a broker offerring a greater range of spot price commodity options including soft commodities and metals etc without having to go the futures path which I avoid given the difficulty in back testing as you need to merge futures series.

PS I only recently came across Nick Drake in the last few years. I was blown away by the fact that his music passed me by. Not sure how I missed him in his day.

Take care

C

Hey C.. I have an account with IG... here they have an extensive list of instruments, they also managed to absorb the SNB scenario quite well.. they use the pro-realtime charting package.. It might be an option ? there are also some clearing houses who offer a large array of instruments with different platforms now ...

I know what you mean though, once your happy with your set-up it almost seems unsettling to migrate to another set-up..anyway, good luck if you stick or twist.

Thanks Ja

Yep, I use IG as well. That's where I got onto ProRealTime. The only problem I have with them is in their range of spot commodities (only 2 being silver and gold). The rest of the commodities offerred are futures derivatives which I tend to avoid. I am hoping that some day they extend their spot range offerrings. Their current instrument range pretty well defines my ability to diversify and I am therefore loaded up in forex and indices. There is more on offer in their forex and indices range but I am loathe to extend too much in these instruments due to their degree of correlation. I think Interactive Brokers also offers ProRealTime but need to check them out a bit more.

Maybe I should just bite the bullet and look for alternative platforms that allow for trade by charts functionality.

Thanks for the info on clearning houses. Will check them out. :-)

C

Update to Risk Per Trade Settings for the EDTT Approach

Please note for those following the EDTT that the following risk per trade settings are applied to the different timeframes:
- MN =0.5% risk per trade
- W1 = 0.5% risk per trade
- D1 = 0.5% risk per trade
- H4 = 0.25% risk per trade
- H1 = 0.25% risk per trade
- M30 = 0.25% risk per trade

Given the significant increase in trade frequency it is necessary to compensate for risk by reducing the average risk per trade to conservatively manage drawdowns.

Regards

C

Morning Copernicus,
For analysis I use Market Analyst, however you can only trade from their charts using Interactive Brokers and they do not do CFD's.
To place trades i'm using Commsec whom use Prorealtime platform.
I have used quite few charting platforms and have found Market Analyst by far the best.
Just my 2 bobs worth.
All the best

Thanks for that clayjay

I have an old Commsec account that I can resurrect. I am familar with their CommsecIRESS platform which was great for options trading but wasn't aware they also offerred Prorealtime. I will check it out.

Market Analyst sounds very powerful and I will closely look at it. I see it was developed in Australia which augers well for me. One of the key requirements however for me is the ability to trade by charts using obliques for pending order and stop setting. Do you know whether that feature is offerred in this platform?

Regards

C

Obliques jeez, not familiar with these.
Had a quick look could not find the word oblique, the guys there have been helpful although recently they have changed help desk to email.
Regards

No worries clayjay. I will suss things out. :-)

Obliques is just a term for setting alerts/pending orders on inclined lines as opposed to horizontal lines on the charts. Admiral Markets offers the facility with MT4 but MT4 itself is pretty unfriendly when you try trading this approach with it.

More here on Admiral Markets but don't know much about them.


PS This looks pretty good if you ask me for those MT4 lovers who are after tick data solutions (looking at you Nijee). :-)

C

Ja

That utube of Nick Drake was awesome. I have had it going most of the morning.

Thanks muchly :-)

Why so low Trade Risk Percentages?

Following on from Post 288, a question was asked why I bother trading with such low risk percentages. I suppose the way I look at things might be a bit different to some traders seeking the thrill of instant profits.

One of the benefits of such a low risk appetite is that the fear associated with a losing trade is minimal and allows me to follow my strategy faithfully without the desire to interfere. The way I view things is as follows. If you constantly watch the trade and are concerned or nervous about it's prospects, that is a subliminal response to trading above your preferred risk appetite. It is only when I significantly reduce my trade risk exposure that I actually don't care about the results of an individual trade.

Having confidence in your trading plan is a central requirement for staying in this game a long time. If the stats demonstrate a profitable system over the long term, then provided you can stick to your trading plan, you shouldn't be worried about the results of individual trades. Probabilities only start meaning something as sample sizes grow so base your decisions on the stats and not the results of individual trades. It is the long term results you should be worrying about and if the results over time start declining, then it is time then to do something about it by adapting the approach to current market conditions.


It's all well and good saying this as hindsight is a beautiful thing, so how do we ACTUALLY respond to the natural fears associated with a losing position.....and the way I have found to deal with this is to reduce my risk exposure per trade to a position where I actually don't worry about it.

What must also be remembered however is that in running a diversified portolio you may have at a single time 12 trades running, so to be focussed on the result of a single instrument is counterproductive. If the trades are across uncorrelated instruments then it is really no different to running 12 trades sequentially in terms of probability results.

I hope this helps.

C

An interesing viewpoint from a trend trader here. C

"A tale of two traders and risk

Imagine two traders, who are looking at the same potential set up, and are supposedly using exactly the same method, with the same expectancy, to determine their entries and exits.

Trader A risks 10% of equity on every trade. He takes the signal, and ends up generating a +3R profit on the trade before taking his profits off the table, for fear of losing them.

Trader B on the other hand, only risks 2% of his equity on each position. He also takes the same entry, and lets the trade play itself out fully before an exit signal is given. He holds the position for much longer than Trader A, and he makes a +7R profit.

Trader A has made more than double (in monetary terms) than that of Trader B. So was it a better trade?

To experienced traders, the answer should clearly be No. Trader A was risking far too much of his equity on a single trade, and probably because of that, he was unable to follow his rules for exiting a profitable trade. Therefore, he got out of the position far too early. Yet he has made way more money on that trade than Trader B.

It is scenarios like this that make it difficult to quantify the quality of a trade when you talk purely in terms of the monetary gain. You need to consider other factors, such as the result in terms of R, and also the trading efficiency (i.e. were you able to follow your rules for entry, position size, and subsequent exit).

Trader A may strike it lucky every once in a while, yet because of his overly aggressive approach to risk, it is only a matter of time before he suffers a major loss when a trade goes against him, losing a chunk of his equity - possibly even blowing up his account. Because of his inability to fully let trades play themselves out, he also won't get the same results (in terms of R) on his profitable trades that his method should allow him to achieve.

Trader B however knows that trading is a marathon, not a sprint. He is thinking in terms of the next 1,000 or 10,000 trades. He is not trying to become a millionaire by this time next week. And, by having his risk per trade under control, he is able to have an 'emotional indifference' towards the trade. This allows him to simply follow his rules to the letter without hope, fear, greed etc., clouding his decision making and his execution.

In monetary terms then, Trader B may not be the big winner on that one trade, but he will be the big winner in the long run."

A sample of some excellent insights into the trader psychology of the trend trader from here. It's easy to think this game is too hard and buckle under the pressure but the following interviews demonstrate that trading (and in particular longer term trend trading) can offer a great living for those willing to put in the effort. C


Trader: Nick Radge

1) How long have you been trading?
I started trading in 1985 when I was 18, so about 29 years.

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?
I have always been 100% technical. I started off using a very basic system (moving average crossover) then moved toward rule-based discretionary trading, but all my personal trading these days is 100% systematic - I run a longer term trend following strategy in Australian equities, combined with a short term mean reversion strategy in US equities. I traded futures for the first 17 years but moved toward equities in 2001.

3) How do you feel when a trade goes against you?
I really feel nothing either way. A trade is just a trade and a single trade will neither make or break me. One of my favourite mantras is "Next 1000 trades" which basically sums it up. Trading is just a process of following my signals, placing orders, making adjustments where needed and repeating. I say this with my normal day to day trading. I guess the term is apatheia, which basically means I am not emotional to any extreme one way or other. If we're emotional we really only add to the issues at hand. That said I have certainly had times in my career when I get a dose of extreme doubt about what I'm doing and whether or not I'm over-estimating my own philosophies and beliefs. But in general, day to day, I never give losses or profits too much thought.

4) How do you feel when a trade goes for you?
Again, I don't tend to look at any single trade in isolation, especially when doing the shorter term US trading. When I get to ride a big trend, it's not so much about excitement, but more that, yes, what I'm doing is the right thing and it will serve me well for a long time to come.

5) How have these feelings changed over your trading career? (Can you recall how you originally used to feel and elaborate on how this has changed over time?)
When I traded futures, which was a limited portfolio, I used to get a lot more attached to trades. In that phase, at least initially, I was a lot more rule-based discretionary, and so I was probably a lot more personally involved in each trade. I was more focused on each trade individually rather than looking at the larger picture.

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?
I rarely read trading/investment books or magazines any more and I do my best to limit reading social media feeds. I know what I need to do and it’s best to just work on doing that and not participate in peripheral noise. I read a lot of fiction - I enjoy a good crime story. Another practice I do is reviewing the track records of the great traders - those who have performance records dating back 20, 30 or even 40 years. Taking a look back at what they've been through, good and bad, realising that they have walked this ground and that they too are apt to the ups and downs of this game. It's always a good reinforcement.
I guess my meditation, if you like, is offshore fishing. I like getting out in my boat. My mind is completely away from the markets, trading and everything associated therein. I'm privileged to live in a small seaside town that allows me to do this and also distance myself from the hype so many others get caught up in.

7) Have you always done this?
No, I used to play golf but often I came home crankier than when I left! Fishing is much more relaxing.
In terms of trading, I used to try too hard, no different to so many others. Once I truly understood that the game is exploiting an edge over the longer term and that the challenge is about the longer term application of that edge, then it was all about putting myself into the best state to do that.

8) If not, how have you learnt to deal with the feelings that come up when trading?
It's been a conscious choice to simplify my life over the last 5 or so years. This means removing noise, knowing that what I'm doing is the correct thing to do and I just need to keep on doing it over the longer term. I may not be the world’s most profitable trader but neither will I blow up like so many have done. I have always been an end-of-day trader meaning I can allocate my time to doing the things that I really want to do rather than the brain numbing exercise of watching numbers roll across a screen. Being that close to the market is not sustainable and it’s not healthy. My strategies are automated so day to day effort/application is minimal.

9) Can you describe a time in your trading life which really rammed home the point that so much of trading comes down to psychological factors?
I think any extended drawdown or a significant drawdown is where you need to dig deep regardless of how experienced you are. Most amateurs zig and zag at the first hurdle mainly because they expect trading to be a linear curve. But when significant hurdles get put before us, i.e. drawdowns exceeding 20% or being in drawdown without recovery for over 12-months, that's a time for introspection. That's the time to reaffirm that what you're doing is right and that this is just one of those challenges that comes along every so often. The same happens with our health, with our business, with the economy and with most things in life. It's how one deals with these issues that differentiates the pros from the amateurs.

10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?
You need to look at the next 1000 trades. This is not a race. It's a journey like every other journey. There will be hurdles and tests and without taking the long term view it’s very easy to be swayed off course at the slightest hiccup. Run your own race. Make sure you keep risk low. Ensure you have a positive expectancy, and if these are in place, all you need to do is keep placing the next 1000 trades.

Speaking of good old Nick, this is absolute gold as you will know if you ever watched it before

Always worth listening to it while working on your charts

Enjoy

Much obliged kind Sir. I am just listening to it now. :-)

PS What a great vid. Excellent info and food for thought. I am going to continually refer to this like you suggest. Thanks E :-)

Following on from the post from Erebus regarding Nick Radge's presentation I thought I would post Bill Echardt's trading results for the period 1991 - 2015.

What Nick highlighted and what should be clearly understood from trend traders amongst us is that consecutive months of losses and even years of losses should be expected which certainly highlights the importance at looking at success over the long term. One of the reasons that there is so much dissatisfaction amongst many here on this forum is that there appears to be an expectation of instant wealth in trading.

Look at the highlighted results that demonstrate what to expect.



PS Note that this is the Net result after fees have been taken out so the trading result for performance exceeds this reported result.

But despite the losing months and the occassional loss making year expect this result if you wish to achieve an equity curve as follows which is a very impressive result. Note the accompanying drawdowns as well as this is just a fact of life for a trend trader.




What has to be remembered is that in this game of probability, expectancy biases are only delivered on a long term timeframe. There is such a large component of random volatility in the market which means that like the house edge in the casino, sustainable returns are only delivered as the sample size increases.

Bottom line to succeeding in this industry is to reduce your expectations, be patient and stick to your plan provided you can demonstrate through your testing over long timeframes that your approach delivers an expectancy bias in your favour.

Do 12 to 16 consecutive losses in a row mean the strategy no longer works. Here I take Nick Radges guidance and his formula to determine what to expect

LS = (LN(TS)/-LN((1-PW/100)))

Where

LS = Losing Streak
LN = Natural Logarithm
TS = Trade Sample
PW = Probability of winning

With a 50:50 outcome over 50,000 trades, expect a losing streak somewhere along the way of around 16 trades in a row.

I know already that I have incurred a losing streak over 557 trades of 11 in a row and this is not far off the money for a Pwin of 60%. My current LS for 50,000 trades = 11.53.

So the central takeout here is that despite an unholy string of losses, it does not necessarily mean that the approach no longer works. This can only be evaluated over the long term. Before you relegate your approach to the dustbin, it is important to take these factors into consideration.

Regards

C

So true...I couldn't agree more imho.. the tendency in retail is to change the trade model after 2-3-4 months (or less ) of negative trading, most traders can't deal with the pain...