Disliked{quote} Yeah, u can laugh @ me as much as u want guys, if u r that blonde in the picture than u r welcome to visit me in jail as much as u want but be sure to wear a bikini next time . {image}Ignored
Wooohooooo. Now you're talking Bass :-)
FXCM Strategy Trader Delivers the Next Evolution in Automated Trading 12 replies
Yuppie's Evolution... 78 replies
Usd Eur Gold And Silver Evolution... 1 reply
The Evolution of a Trader 13 replies
Trading evolution 0 replies
Disliked{quote} Yeah, u can laugh @ me as much as u want guys, if u r that blonde in the picture than u r welcome to visit me in jail as much as u want but be sure to wear a bikini next time . {image}Ignored
DislikedHmmmm.......Bass how did you get thrown in the FF clink? What did they say you did?Ignored
Disliked{quote} They said when i contacted them about this issue that i'm promoting some kind of services and i was playing against the rules, the fact is that i was just sharing here some of my daily research as i always do and still doing. Thank you for asking anyway. Best, B.R.Ignored
Disliked{quote} I guessed as much. What FF does not like is when posters share charts but do not give the means of duplicating those charts. That leads them to think that you are trying to get people to PM you, so that you can move them off site and sell them the missing pieces that you have chosen not to share in your posts here. That really seems to tick them off. Glad that you share your research, but to FF if you do not give the source of your research so that others can duplicate it, then you are fishing for folks who are willing to pay for that. Otherwise...Ignored
DislikedMichael Covel@Covel If your trading at home or office looks like this...my guess is that you have ceased reality and of course sex. {image}Ignored
Disliked{quote} Go to his twitter and see what people r saying, it seems that u dont like sex too much.Ignored
DislikedMichael Covel@Covel If your trading at home or office looks like this...my guess is that you have ceased reality and of course sex. {image}Ignored
10 Ways A Trader Can Diversify Their Life
It is not trading or profits that make us better people, as much as the lessons and principles we learn from our trading, that can help to strengthen all areas of our lives, and make us whole.
February 3, 2015 Courtesy of STEVE BURNS · NEW TRADER U
Pips
Financial instruments move in Pips and an appreciation of 1 pip means that the instrument is rising 0.0001 units or points (Yen pairs are an exception 1 pip equals 0.01 points).
The EUR/USD exchange rate is currently 1.2520 and if the EUR/USD rises to 1.2530, it equals an appreciation of 10 pips. Some brokers quote their pips in the so called pipettes where 1 pip equals 10 pipettes.
The value of one pip is different for different currency pairs, but you can calculate it very easily:
Value Of One Pip = (0.0001 / Current Exchange Rate) * Trade Size
If you want to trade the EUR/USD with its current exchange rate of 1.2520 and a contract size of 1 standard Lot ($100.000), you can calculate the pip value as follows:
Value of one pip = (0.0001 / 1.2520) * $100.000 = 7.99 EUR
If you multiply it by the current EUR/USD exchange rate, you receive the USD value: 7.99 EUR * 1.2520 = $10
Tip: Whenever the USD is the second (quote) currency, the pip value is $10.
Lot
Units
Pip value*
Standard Lot100.000$10
Mini Lot10.000$1
Micro Lot1.000$0.1
*if your base currency is USD.
Leverage
Especially in forex, leverage plays an important role. The contract size in forex are Lots and 1 Lot equals 100.000 units, but since most forex traders dont have a trading account that would allow them to buy or sell $100.000 when entering a trade, leverage is a traders best friend or enemy in most cases.
Leverage in a nutshell means that your broker lends you money so that you can enter a position that is actually too big for your trading account. But without leverage, most traders wouldnt even bother trading because their profit opportunities would be close to zero.
If you want to take a trade with the size of one standard Lot, youd have to buy $100.000 to enter the position. But if you chose a leverage of 100:1, you can enter a one standard Lot position with an account of only $1.000:
Required Account Size = Trade Size In $ / Leverage
$100.000 / 100 = $1.000
Leverage and the risk of wiping out a trading account go hand in hand, and after Oandaanalyzed the performance of their customers trading accounts, they found the following relationship: traders who use a leverage of 50:1 have a 15 times higher chance of blowing up their accounts than traders who only use a leverage of 10:1.
http://www.tradeciety.com/wp-content...margincakk.png
Margin
Margin is very similar compared to leverage and its mainly just another way of looking at the same thing. If your broker requires you to have a 2% margin, it just means they are offering you a 50:1 leverage ratio.
Leverage = 1 / Margin
50:1 = 1/2% = 1/0.02
This means that your trading account has to be at least 2% of the value of the trade you are about to take. Margin, therefore, works as a deposit that the trader hat to provide to the broker when entering a trade.
With $1.000 margin (a trading account of $1.000), you can trade up to $100.000 with a 100:1 leverage (1% margin requirement).
When a losing trade falls below the maintenance margin, you receive a margin call and your positions are being liquidated by your broker or you are required to deposit additional funds to remain in the trade.
Leverage
Margin
Notional Position Size (1 Lot)
Margin Required (Trading Account)
1:1100%$100.000$100.000
10:110%$100.000$10.000
50:12%$100.000$2.000
100:11%$100.000$1.000
200:10.5%$100.000$500
Position Sizing
Position sizing is straight forward with 4 easy steps and you only need the following figures to determine the size of your position correctly:
Step 1 Your $-Amount Of Risk
Risk = [(Your Account Size) * (%-Risk Per Trade)] $50.000 * 1.8% = $900
You are willing to risk $900 on this single trade
Step 2 Stop Loss
Stop Loss In % = 1 (Stop Price/Current Price)
1 (40/45) = 11%
Step 3 Position Size
Position Size = Your $-Risk / %-Stop Loss
$900 / 11% = $8.180
Step 4 Number Of Shares To Buy
Number Of Shares = Position Size / Current Stock Price
$8.180 / $45 = 180
You have to buy 180 shares for the current price of $45 to enter the trade with the correct position size.
Chris Perruna offers an excel spreadsheet that lets you do the calculations yourself and if you are a forex trader, you can use Babypips position size calculator. The above 4-step calculation just serves as an explanation so that you know what you are doing rather than blindly hammering in some numbers.
Expectancy Of Your System
The expectancy of your trading system is the USD-value that each individual trade you take is worth and will yield you over the long term. You need the following figures to calculate the expectancy of your system and its the first and easiest way to see whether your system is profitable or not.
Expectancy = Winrate*(Account Size * %-Risk * Risk:Reward) Loss Rate*(Account Size * %-Risk)
Expectancy = 60% * ($50.000 * 1% *2) 40% *($50.000 * 1%) = $400
In general, the expectancy formula consists of 2 parts: the expected return of a winning trade and the average loss of a losing trade:
Expected Profit Of A Winning Trade = Winrate * (Account Size * %-Risk * Risk:Reward)
60% * ($50.000 * 1% * 2) = $600
Expected Loss Of A Losing Trade = Loss Rate* (Account Size * %-Risk)
40% * ($50.000 * 1%) = $400
Likelihood Of Losing And Winning Streaks
Traders underestimate the likelihood of losing and winning streaks, and in general lack the knowledge how to calculate probabilities for losing and winning streaks. In the following well show you how you can calculate the likelihood of streaks with a few simple formulas. You only need the statistics of your winrate [60%] and loss rate [40%].
Likelihood Of Winning Streaks
2 Winners In A Row = Winrate * Winrate
60% * 60% = 0.6 * 0.6 = 0.36 = 36%
3 Winners In A Row = Winrate * Winrate * Winrate
60% * 60% * 60% = 21.6%
4 Winners In A Row = Winrate * Winrate * Winrate * Winrate
60% * 60% * 60% * 60% = 13%
If you would like to calculate the probabilities of having a certain losing or winning streak within a number of trades, you can use the streak calculator from sportsbookreview. The chart below shows you the probabilities of winning (or losing) streaks with certain lengths for different winrates.
http://www.tradeciety.com/wp-content...ds/streaks.png
Account Loss And Recovery Rate
Now that we know how to calculate the likelihood of winning and losing streaks and saw that it is far more likely to have 10 consecutive losing trades in a row than you thought, we can evaluate the effect of losing streaks on your account.
If you calculate your position size new after every trade, which is highly recommended, risking 2% per trade, 2 consecutive losing trades will not amount to 4%, but only to a loss of 3.96% with each losing trade, the 2% risk per trade becomes a smaller $-amount.
Account Size
$-Value Of 2% Risk
%-Loss Of The Starting Account
$ 10.000$ 200
$ 9.800$ 1962.00%
$ 9.604$ 1923.96%
$ 9.412$ 1885.88%
$ 9.224$ 1847.76%
$ 9.039$ 1819.60%
$ 8.858$ 17711.41%
The %-amount of consecutive losing and winning trades can be calculated as follows:
The %-Loss Of 2 Consecutive Losing Trades, Risking 2%:
1-[(1-0.02)*(1-0.02)] = 0.0396 = 3.96%
The %-Loss Of 3 Consecutive Losing Trades, Risking 2%:
1-[(1-0.02)*(1-0.02)*(1-0.02) ]= 5.88%
How big losses can get if you risk 1%, 2%, 4%, 5% or 7% per single trade you can see in the following table.
%-Risk Per Single Trade
1%2%4%5%6%7%
Consecutive Losing Trades
21.99%3.96%7.84%9.75%11.64%13.51%
32.97%5.88%11.53%14.26%16.94%19.56%
43.94%7.76%15.07%18.55%21.93%25.19%
54.90%9.61%18.46%22.62%26.61%30.43%
65.85%11.42%21.72%26.49%31.01%35.30%
76.79%13.19%24.86%30.17%35.15%39.83%
87.73%14.92%27.86%33.66%39.04%44.04%
98.65%16.63%30.75%36.98%42.70%47.96%
109.56%18.29%33.52%40.13%46.14%51.60%
The problem with big losses is not only that they cost you a lot of money, but the time needed to recover from such losses. If you have a $10.000 account and lose 50% ($5.000) of your account, you need to regain 100% ($5.000) to get back to your original $10.000 most traders dont make this connection and therefore significantly underestimate the meaning of losses. The following graph shows you the relationship in more detail. If you lose 70% of your trading account, you need to regain 233% to get back to where you started.
http://www.tradeciety.com/wp-content...ssrecovery.png
If you connect the three things weve discovered so far:
it becomes clear why a sound risk and money management approach should be the #1 priority for every trader.
Profitability Check
Did you know that you that your stop loss distance and your take profit distance, together with your past winrate can tell you if you should take a trade or if the specific trade would be unprofitable over the long term? Here is how you can combine winrate [60%], stop loss distance [40 pips] and take profit distance [65 pips] to check your trade for profitability:
Risk:Reward Ratio = Take Profit Distance / Stop Loss Distance
65 / 40 = 1.625
Required Winrate = 1/ (1+ Risk:Reward Ratio)
1 /(1+ 1.625) = 0.38 = 38%
The required winrate is smaller than the historical winrate (38% < 60%) which means that you can safely take the trade
http://www.tradeciety.com/wp-content...RRRwinrate.png
Correlation And Risk
Correlation is a statistical figure that shows you to which degree two financial instruments move together. The correlation is a number between -1 and +1; sometimes correlation is being displayed as percentage figures between -100% and +100% to allow a faster interpretation of the metric.
http://www.tradeciety.com/wp-content/uploads/corr-1.pngCorrelation -1:
If Stock A rises 1%, stock B falls 1%.
A correlation of -1 means that the two instruments are perfectly negatively correlated. If one asset rises, the other one falls at the same rate. The graph shows two instruments with a correlation of -1 one graph is the mirror image of the other one.
Correlation -0.5: If Stock A rises 1%, Stock B falls 0.5%.
Correlation 0: No correlation between two instruments exists and they move completely independently from each other.
Correlation +0.5: If Stock A rises 0.5%, Stock B rises +0.5%.
http://www.tradeciety.com/wp-content/uploads/CORR1.png
Correlation +1: If Stock A rises 1%, Stock B rises 1%.
A correlation of +1 means that two instruments move together identically with the same strength and also in the same direction.
The chart shows two stock prices with a correlation of +1 (+100%). Both instruments rise and fall together with the same strength. Although a correlation of +1 is very rare, you will often have correlations that are close to +1, signaling two very similar instruments.
What Do Correlations Mean For Your Trading?
Correlations can increase or decrease your risk when entering trades. If you buy or sell two stocks that are positively correlated, you increase your risk because both stocks rise and fall together.
A negative correlation can decrease your risk since both stocks (and instruments) will move in opposite ways. When one stock rises, the other one will fall and therefore serve as some kind of hedge.
If you trade stocks, you can use the correlation calculator form buyupside to calculate correlations between different stocks and if you are a forex trader, the correlation calculator from mafa is all you need.
http://www.tradeciety.com/wp-content...corrttrad2.png
Word Of Caution
Correlations change over time and can even change from a positive to a negative correlation. The chart below shows the price development of the S&P500 and Oil. As you can see, both instruments have been correlated positively, but changed to a highly negative correlation in recent times and also had times when no correlation existed.
Growth Of Capital
The magic why your trading account can grow fast is because of exponential growth.When you have a regular 9-5 job you get a constant salary and the income in one month is usually independent from the one you got the month before. In trading, your capital can work for you and if you have a winning trade, you can risk a higher $-amount on your next trade and therefore also make a greater profit. The graph below compares linear growth (blue) where you just save the same amount every single time, exponential growth (red) where you reinvest your profits and the red graph that simulates the trading performance (risk:reward 2:1 and winrate 50%). While the linear graph has only risen to $50.000, the exponential graph grew to $280.000 and the trading graph to $200.000. All three graphs are based on an initial investment of $10.000 and a 2% growth rate.
http://www.tradeciety.com/wp-content/uploads/growth.png
Why Traders Screw Up: Randomness, Independency And Sample-Size-Thinking
Randomness, Independence and Sample-Size-Thinking are three of the main statistical concepts that traders get totally wrong and are the main reasons why they completely misinterpret their trading performance.
Randomness
Randomness means that the distribution between winning and losing trades is completely random over the short-term.
Independence
The concept of independency means that one trade is completely independent from the one before. If your last trade was a winner, it does not have any impact on the outcome of your next trade.
Sample-Size-Thinking
Both, the concept of randomness and independence are being misunderstood by traders because they dont understand the most important concept: statistically significant sample-sizes. The mistake traders often make is that they judge their trading system based on the outcome of just a handful of trades.
Weve seen above that its more likely to have 2 winners in a row than 3, but statistics only provide meaningful information if you analyze a big enough sample size. Therefore, dont make premature decisions whether your trading system is good or bad after 10 or 20 trades, but take 100 trades with the exact same rules and then analyze your performance.
Conclusion: The Math Guide For Traders Is All You Will Ever Need
Whereas not understanding or being aware of how math and statistics work in trading will significantly deteriorate your overall edge, you dont need to get your Masters degree to trade profitably. In most cases, its even sufficient if a trader would apply some common sense when trading. With the concepts in this math guide for traders you are good to go and it includes all mathematical and statistical principles you will ever need in your trading.
Courtesy of Rolf - Tradeciety.com
Richard Donchian Technical Guides
All 9 of these technical guides apply equally well to major & minor formations.
Enjoy from one of the pioneers if not the one.