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Multi-Lot Multi-Timeframe Position trading

  • #981
  • Feb 26, 2015 9:33am Feb 26, 2015 9:33am
Quoting Graviton
{quote} I agree that oil is risky. It's price is not being determined by free market forces. I like the cheap gas (petrol), but I don't trade things that are obviously being manipulated. Oil price is obviously being manipulated by the Saudi's. I'm more of a free market kinda guy. As far as NZD strength vs. AUD, I can see that on the basis of the AUD being more dependent on weak mining than the NZD. In the end, if there is any way I can see a good reason for a strong trend, I'll trade it. If I just can't see it, I'll keep looking.
Thinking about it i realized you're both right. You and IB.
What could be also interesting to monitor is the european equity (stoxx600 or 50). But this is the forex forum
  • #982
  • Feb 26, 2015 9:35am Feb 26, 2015 9:35am
Quoting lemna
Just noticed another advantage of funding the second lot with a first lot.... you can switch pairs if you want. Unorthodox, but feels nice got the first lot off EURGBP financed a EURUSD short with that now I am short EURUSD "second lot" + peace of mind I know I shouldn't be so fearful of losses but this little trick is psychologically effective!
Fear is the most powerful force acting on a human mind. The euphoria of greed is probably a close second. Fear will prevent us from achieving our goals in the markets, even when we really know how. Anything that removes our fear while leaving a healthy respect for the power of the markets is probably a good thing.

Third lot short on EG. Trade is fully funded by taking off profits at earlier steps. Now, one of two things will happen, either it goes down or up, call it a 50/50 chance. If it goes down I make profits at three times a single lot trade and I have no limit on possible profits. If it goes up I'll exit with just a few pips, but no possible loss. Arranging a trade with only those two options is not easy, but it's not rocket science either. I'll take that trade as often as I can manage to set one up.
  • #983
  • Feb 26, 2015 9:53am Feb 26, 2015 9:53am
Quoting Graviton
{quote} Fear is the most powerful force acting on a human mind. The euphoria of greed is probably a close second. Fear will prevent us from achieving our goals in the markets, even when we really know how. Anything that removes our fear while leaving a healthy respect for the power of the markets is probably a good thing. Third lot short on EG. Trade is fully funded by taking off profits at earlier steps. Now, one of two things will happen, either it goes down or up, call it a 50/50 chance. If it goes down I make profits at three times a single...

I have 2 questions

1) you suggested to enter for 1/3 risk in the initial trade. But this way even if after 100 pips i take profits and fund the second lot, this will be allowed to loose less than 30 pips with previous profits banked. How do you suggest to handle this?

2) why eur/gbp has this little spacing for you? You opened 3 lots in 100 pips if i'm not wrong

Thanks
  • #984
  • Feb 26, 2015 10:09am Feb 26, 2015 10:09am
Quoting lemming78
{quote} Hello! Regarding the corporate side, the thing is that corporate might want to long eur/gbp, but it has to contact its sales in bank and fill the order. Bank trader will 99% of the time hedge instantly the order with an opposite trade so net effect would be zero. In my life i've only once seen an operation which manipulated the market. It was 1 and a half year ago for a big corporate i worked for which had to buy 1.5 billion dollars one shot in order to pay USD dividends. EURUSD fell 75 pips. You may be right, i need to study a little bit...
Yes, my example may not have been the best, but the point is, we are always trading with incomplete information. If we have good information, we can be more confident that a strong consistent trend is real and will be sustained and trade it more aggressively. If our information is incomplete or non existent, we can still trade the trend for profit, but we need to be more careful, like using the 12-step fully funded entry plan I discussed earlier. In a sense, we are helping to manage our risks by the methodology of our trading.

If you keep your rules simple and minimal, they are easier to follow. Always follow your rules. If they don't work well, then adjust your rules so they do work well for your style of trading. Breaking your rules will destroy your account sooner or later. Been there, done that, have deep scars to prove it. Losing because the market took an unexpected turn is just part of doing business, and it will be offset by wins from good trading in time. Losing because you broke your own rules is sickening and it can only be fixed by learning the lesson and following your own rules in the future. We all make that mistake.

Perhaps the market does forgive us a few times for breaking our own rules. That is the worst possible outcome because it fosters a false confidence that it's ok to break our own rules. We would really be better off if the market would hit us hard every time we broke our own rules without exception. Then we'd quickly learn to never do that. But the market doesn't work that way. It's a probability game. When you break your own rules, you might be successful for a while, then have a very long losing streak or get wiped out with one bad rule violation. So, as odd as it seems, succeeding because you broke your own rules is the worst possible outcome. Failing because you broke your own rules is the best outcome of a bad mistake. Of course, that's just my own humble opinion.
  • #985
  • Feb 26, 2015 10:33am Feb 26, 2015 10:33am
Quoting lemming78
{quote} I have 2 questions 1) you suggested to enter for 1/3 risk in the initial trade. But this way even if after 100 pips i take profits and fund the second lot, this will be allowed to loose less than 30 pips with previous profits banked. How do you suggest to handle this? 2) why eur/gbp has this little spacing for you? You opened 3 lots in 100 pips if i'm not wrong Thanks
1) I enter each lot with the same size. So, if I am trading position sizes of 0.8 standard lots, each of my entries will be 0.8 std lots. So if I make 50 pips on the first entry and take it off in profit, then enter a second time with a 50 pip sl, the trade is now fully funded. Please let me know if that doesn't answer your question.

2) Yes, my spacing is very tight on the EG short trade. That's for lots of reasons. One is the average daily range is only 55 pips. So the volatility of that pair is very low compared to a GJ with an ADR of 140 pips. A second reason is I have good confidence in the trade, so I'm willing to run tighter spacing and tighter stops. That gets me to the 3 lot trade quicker, at the risk of stopping out quickly if I'm wrong. I can at least partially offset that risk of a quick stop out (due to the tight stops and spacing) by moving quickly through the steps to fully fund the trade as I go by taking off some profits before the 2nd and 3rd lots are put on, as I had described earlier in my 12 step entry method. This wouldn't work well on a pair with a very high volatility as I'd probably hit the stops before I could go through the steps to get the three lots on. Let me know if there is still a question on this.
  • #986
  • Feb 26, 2015 11:34am Feb 26, 2015 11:34am
Quoting Graviton
{quote} 1) I enter each lot with the same size. So, if I am trading position sizes of 0.8 standard lots, each of my entries will be 0.8 std lots. So if I make 50 pips on the first entry and take it off in profit, then enter a second time with a 50 pip sl, the trade is now fully funded. Please let me know if that doesn't answer your question. 2) Yes, my spacing is very tight on the EG short trade. That's for lots of reasons. One is the average daily range is only 55 pips. So the volatility of that pair is very low compared to a GJ with an ADR of...
Thanks. Actually 2nd answer is ok, but on the first i still have questions.

I thought we should scale in but the first lot with 1/3 risk and the next ones with increasing lot. Is that incorrect?
If it is, can i assume that i should put the same amount of risk on the first lot and on the subsequent ones?

Thanks G... you're changing my trading
  • #987
  • Feb 26, 2015 11:55am Feb 26, 2015 11:55am
Quoting Graviton
{quote} 1) I enter each lot with the same size. So, if I am trading position sizes of 0.8 standard lots, each of my entries will be 0.8 std lots. So if I make 50 pips on the first entry and take it off in profit, then enter a second time with a 50 pip sl, the trade is now fully funded. Please let me know if that doesn't answer your question. 2) Yes, my spacing is very tight on the EG short trade. That's for lots of reasons. One is the average daily range is only 55 pips. So the volatility of that pair is very low compared to a GJ with an...
Hi G,

I have a comment on your first point although you discussed it a couple of times. So you take profit after 50 pips lets say. You closed the trade, took +50 pips and open shortly a new 1 with a 50 pips SL. This way you have a risk free trade. The question is why just not skip that whole move with the second lot? I could just move SL to BE when I am in +50 pips and leave the 1st lot run. I do not have to close a trade and open another one. The difference in the end is only that I do not pay spreads twice.

IBO
  • #988
  • Feb 26, 2015 12:47pm Feb 26, 2015 12:47pm
Quoting lemming78
{quote} Thanks. Actually 2nd answer is ok, but on the first i still have questions. I thought we should scale in but the first lot with 1/3 risk and the next ones with increasing lot. Is that incorrect? If it is, can i assume that i should put the same amount of risk on the first lot and on the subsequent ones? Thanks G... you're changing my trading
I hope I'm changing your trading for the better!

OK, now we are getting into the internals of my own personal trading style. I actually have two separate live trading accounts. One is my test account. It is a micro lot account. The other is my main standard trading account.

If I'm not very confident in the trade, and that's more often than not, I enter it first in micro lots in the test account. If the trade does well, I move up to my standard account and enter the trade there with a much larger position size.

If the trade goes poorly, I'll take a very small loss in the test account and move onto another trade. In the test account, all positions, the first one and all subsequent ones, have the same risk, usually 0.01 standard lots. So a 3 position trade would wind up with three entries, each of the same amount, 0.01 standard lots each.

The same goes for my main trading account. If I am trading 1.00 standard lots per position in the main account, when I have 3 positions on, they would all be the same size, 1.00 standard lots each. I trade both accounts at the same time. For instance, right now in my test account I have ea, eg, en and eu short. eg and en short have multiple lots running. In my main account I have eg with 3 lots running short and en with two lots short.

I didn't discuss that detail before because I thought it would just be confusing, but that's really how I enter a test lot at a smaller amount, and then move up to a larger risk size if the trade goes well. This probably only just gives me more confidence to take the large trades. I don't believe it actually improves results much since when I go back and evaluate both accounts, the drawdowns and absolute returns as a percentage of equity risked in the accounts is just about the same. You could try the same thing with a demo account as a test account I suppose, but for better or worse, this is just the way I like to do it. Like I said, I can't claim any logical or empirical advantage by trading this way. It might just be adding unnecessary complexity to my method. It is just more comfortable for me personally to trade in two stages like this.

I'm happy to discuss it more, but I'm not sure if it will be of any value to you or not. Let me know if you have any more questions, or this is not clear. The discussion is valuable to all here, including me.

G
  • #989
  • Feb 26, 2015 12:57pm Feb 26, 2015 12:57pm
Quoting Graviton
{quote} I hope I'm changing your trading for the better! OK, now we are getting into the internals of my own personal trading style. I actually have two separate live trading accounts. One is my test account. It is a micro lot account. The other is my main standard trading account. If I'm not very confident in the trade, and that's more often than not, I enter it first in micro lots in the test account. If the trade does well, I move up to my standard account and enter the trade there with a much larger position size. If the trade goes poorly,...
Thanks man, i understood completely...

#IBreakOut: very good question... so simple (simple but brilliant) i've not been able to think the same myself ahaha

Letì's wait for G
  • #990
  • Feb 26, 2015 1:00pm Feb 26, 2015 1:00pm
Quoting IBreakOut
{quote} Hi G, I have a comment on your first point although you discussed it a couple of times. So you take profit after 50 pips lets say. You closed the trade, took +50 pips and open shortly a new 1 with a 50 pips SL. This way you have a risk free trade. The question is why just not skip that whole move with the second lot? I could just move SL to BE when I am in +50 pips and leave the 1st lot run. I do not have to close a trade and open another one. The difference in the end is only that I do not pay spreads twice. IBO
Yes, you are absolutely correct. I have actually done it both ways. I do like the feeling of locking up pips in my equity account since I consider realized gains more valuable than unrealized gains. The math says your way is superior, since it reduces transaction costs overall. This is just something that makes me more comfortable with large trades. Is it worth the extra transaction costs to be more comfortable? For me yes it is, but for someone else it might seem like an unnecessary expense with no benefit. I'd just conclude that you can look at my path as I have described it, and if you see a path that is better for you, take it! Good observation though
  • #991
  • Feb 26, 2015 1:37pm Feb 26, 2015 1:37pm
Quoting Graviton
{quote} Yes, you are absolutely correct. I have actually done it both ways. I do like the feeling of locking up pips in my equity account since I consider realized gains more valuable than unrealized gains. The math says your way is superior, since it reduces transaction costs overall. This is just something that makes me more comfortable with large trades. Is it worth the extra transaction costs to be more comfortable? For me yes it is, but for someone else it might seem like an unnecessary expense with no benefit. I'd just conclude that you can...
I would add one thing.

I don't remember who suggested to open for example 4 lots and to close the last and the first in order to have the possibility to get a better avg cost and don't be spiked out so easily. This might be an advantage of the method suggested by IBreakOut. Do you agree?
  • #992
  • Feb 26, 2015 1:39pm Feb 26, 2015 1:39pm
New trade... entered following my entry rules. If these work i'll be comfortable. But let's see

Attached Image (click to enlarge)
Click to Enlarge Name: EURUSDH4.png Size: 38 KB
  • #993
  • Feb 26, 2015 6:32pm Feb 26, 2015 6:32pm
Quoting lemming78
{quote} I would add one thing. I don't remember who suggested to open for example 4 lots and to close the last and the first in order to have the possibility to get a better avg cost and don't be spiked out so easily. This might be an advantage of the method suggested by IBreakOut. Do you agree?
I suppose there are many ways to exit these lots. I haven't tried that method, so I can't say for sure how it would work out.
  • #994
  • Feb 27, 2015 10:25am Feb 27, 2015 10:25am
Well, this is slow, but working well. Taking every other lot off EG short for profit. Started with the first before putting the second on, then the second before putting the 3rd on, next I'll take the 3rd off in profit before putting the 4th on, etc. The only risk is at the beginning of the trade, after that, profits fund the trade. Minimum risk, still unlimited opportunity. Three lots running EG short now with no risk. Giving some serious thought on how to best trail the stop and not get kicked out early. I have plenty of time to think about it, and I suspect it wont be the same for every trade:

Attached Image (click to enlarge)
Click to Enlarge Name: EG.PNG Size: 59 KB
  • #995
  • Edited 6:37pm Mar 1, 2015 2:02pm | Edited 6:37pm
So, I'm going to use this EG short trade as a live trading example. It might go straight to the stop, since price can do anything at any time, but as long as it lasts I'll follow the example.

Initial entry was just according to my method of lining up ALL timeframes trending short. I entered after a small retracement on the short TF's seemed to end. Price bounced up and down +/- 20 pips for a while then headed lower to join the prevailing down trend. It wasn't a great entry, but it will serve my purpose. Lots were taken off for profit as I went along to fund putting more lots on the trade, and now I'm at 3 lots short. I consider this the end of the entry phase of the trade. I have 3 lots short and no risk to equity due to having taken two lots off already for profit. Now I move into the profit phase, which is much more fun!

I want to stay in this trade as long as it is trending down. The question is, how do I know when the downtrend has ended? This is the trillion dollar question. There is no answer that is going to be correct 100% of the time, but we can look at a few things and we'll find that there are some things we can know for certain. For instance, an uptrend can be defined as a series of higher lows. A downtrend can be defined as a series of lower highs. So, using that definition, as long as we are making a series of lower highs, we can be certain we are still in a downtrend and we want to stay in the trade.

Working down from the monthly we get a nice string of lower lows that looks something like the below. Note there is one "Head fake" price high on the monthly where price makes a lower high, followed by a later higher high. If we were trailing our stop down behind the previous lower high, this would cause us to stop out early when price went above the fake lower high. We can either discount that or we can just accept it as a head fake and find a way to deal with head fakes going forward. We'll find a way to deal with head fakes going forward. This is the part that is probabilistic and can never be 100% certain. So, as is usual in trading, we have some things that we can be certain about and some that are probabilistic.
Attached Image (click to enlarge)
Click to Enlarge Name: EG Monthly.PNG Size: 56 KB


On the weekly, there is also the problem of the head fake, but otherwise a series of lower highs defining a down trend:
Attached Image (click to enlarge)
Click to Enlarge Name: EG Weekly.PNG Size: 56 KB


Daily has a nice series of lower highs:
Attached Image (click to enlarge)
Click to Enlarge Name: EG Daily.PNG Size: 54 KB


H4 series of lower highs:
Attached Image (click to enlarge)
Click to Enlarge Name: EG H4.PNG Size: 57 KB


H1 has one head fake:
Attached Image (click to enlarge)
Click to Enlarge Name: EG H1.PNG Size: 56 KB


So, all we need is a probabilistic method to make us a nice profit in spite of head fakes, and we can follow this trend right down to our fortune
  • #996
  • Mar 2, 2015 1:26am Mar 2, 2015 1:26am
Hi Grav,

I cruised my charts and thought I share what I see so we can maybe compare it with your findings.

GBPUSD short
NZDUSD short but not there yet for meeting all entry criteria
EURNZD short
GBPJPY long
AUDNZD short
NZDJPY long

Waiting to see what others have to say,

IBO
  • #997
  • Mar 2, 2015 4:22am Mar 2, 2015 4:22am
In Forex position trading with momentum, it helps to look for the currencies that have been strongest/weakest over past 3 months (before 2008, past 6 months history was a better indicator). This is echoed by Graviton's use of 10 period weekly indicators in his examples of determining what to trade.

On this basis we have USD and GBP and maybe NZD as possible long currencies and EUR, CAD and maybe AUD as possible short currencies.
  • #998
  • Mar 2, 2015 9:13am Mar 2, 2015 9:13am
Quoting lemna
In Forex position trading with momentum, it helps to look for the currencies that have been strongest/weakest over past 3 months (before 2008, past 6 months history was a better indicator). This is echoed by Graviton's use of 10 period weekly indicators in his examples of determining what to trade. On this basis we have USD and GBP and maybe NZD as possible long currencies and EUR, CAD and maybe AUD as possible short currencies.
Excellent observations. Thanks for the input!

G
  • #999
  • Edited 10:49am Mar 2, 2015 10:14am | Edited 10:49am
I'll continue now with a discussion started earlier. We have talked a lot about entries, about how we want to trade strong vs. weak pairs, always going long with the stronger currencies and short with the weaker pairs. We've discussed making entries with the trends, always in the direction of longer and medium term trends. We've discussed how we can manage our trades minimizing risks by taking off some profits as we go and maximizing returns by adding additional positions fully funded by those profits as the trade develops. The basis of this method is wrapped up by the old sayings, cut your losses and let your winners run, as well as, the trend is your friend, until it ends, and all trends come to an end. We can discuss these important issues to further clarify them as anyone wishes. That's our purpose here and I believe it benefits all who participate here.

Now, we have discussed the methods we can use to extract steady profits as the trend progresses, but we haven't talked much about what to do when the trend ends, as all trends will do eventually. Our trades are in agreement with very long term trends, those observed in the daily, weekly and even monthly charts. As such the trades can run profitably for weeks, months and years. But eventually, all good trends come to an end. Actually, one of two things will eventually happen. Either the long term trend reverses, as the UJ down trend did in Oct 2012, reversing to a long term up trend, or there will be a retracement so deep that we don't really want to ride it out. Sometimes discretion is the better part of valor and it's best to just exit the trade and pick it back up if and when the deep retracement ends.

Deciding on when to exit a trend requires a balance of two opposing forces. If we exit too quickly, say with a tight trailing stop loss, we miss opportunities for further price movements in our direction. If we exit too late, say with a very wide stop, we risk losing much if not all of our hard earned profits. There is no obvious amount of stop that will work well for every pair in every situation. We can trail a stop behind previous support/resistance points, but eventually price will go past that point temporarily, as shown in my previous charts, taking out the stop before returning to following the main trend. I'll make this broad statement now, offer 2 quick methods of proof and then quickly move on:

There is no stop loss setting method that will not eventually be hit by a rogue price excursion which does not represent an actual reversal in trend.

The first proof is empirical. Pick any stop loss setting method you like, and you can find past price action that will violate that stop loss setting, that is to say, it will cause an exit after profits are given back, even though the adverse price excursion did not represent a long term reversal of trend. The second proof is statistical. It doesn't matter what time frame you are looking at, eventually price will move against the trend and on say a short trade, it will go above the previous lower high.

Looking at the charts I posted earlier you can see that (very) roughly 1 out of every 10 price excursions would take out a stop set at the previous lower high which was used to define the downtrend. There is no theoretical limit to the size of these rogue or "head fake" price excursions, they come in all sizes. This is roughly a statistical normal distribution or bell curve distribution, though the "tails" of the distribution my be fatter than a theoretical distribution would predict. In any case, we are traders. We deal with probabilities every day. We can overcome this issue, at least well enough to profit handsomely over the long term in the vast majority of cases, and not take an unreasonable loss in the cases where the inevitable price spike takes us out of a trade prematurely. Our goal going forward will be to optimize these exits for maximum profit and minimum risk. I'll continue this discussion in a bit, but now I'd like to open the thread for discussion. Any questions, comments, difficulties with anything discussed so far?
  • #1,000
  • Mar 2, 2015 11:58am Mar 2, 2015 11:58am
I'll move on and if anyone has any comments they can jump in at any time. First of all, allow me to clarify our definitions a bit. We have already adopted the discrete definition of a down trend as a series of lower highs and an up trend as a series of higher lows. Let's also adopt a discrete definition of a higher high and a lower low. There can be lots of little zigs and zags in price, so we want to adopt a definition that will always produce the same results. For this presentation I'll call a price peak one that occurs at about the same time as the fast stoch crosses below the slow stoch when that occurs above the 50% line on the 12,5,5 stoch. Below I've placed a current chart of how I would count back price peaks on the H1 chart of EU:

Attached Image (click to enlarge)
Click to Enlarge Name: EU Price Peaks.PNG Size: 61 KB
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