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What happens when you have a flawed trading system 21 replies

Is this a flawed theory/concept? Is 5-8%/mth TOO conservative? 3 replies

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Attachments: Isn't 2% per trade massively flawed?
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Isn't 2% per trade massively flawed?

Quoting turtleup
{quote} LOL. I totally agree that spot FX trading is playing with fire. The only way to completely eliminate the risk of the SNB like black swan events is to not trade spot FX. I would recommend Currency futures options where you can actually completely quantify your risk and eliminate the chance 100%.
Just never pay back your broker for a negative loss also, they have stop losses and stop outs to prevent such things, if they can't honor them they shouldn't be offering them and the risk is theirs if they can't!
Quoting flinx
{quote} ​I agree with all your suggestions. I think it's noteworthy though to not completely rely on negative balance protection.. FXCM offered negative balance protection up until they were suffering and then tried to collect it. Might even be worth asking a specialist to look over your broker terms to make sure they don't have anything secret hiding away.. I think (for me anyway) It's going to be vitally important to not over leverage myself... I am not confident trading 2% of my account per trade as this is far too much in my opinion (incase...
I thought FXCM took out a loan to cover everyone with negative balances and to honor stop-losses?
Quoting dancingphil
I trade at 400:1 leverage. I trade at that leverage at 2.5 lots per $1,000 in my account. I use brokers which DO charge for negative balances. These same brokers also allow hedging, and I hedge at -11 pips, before transaction costs. If I screw the pooch on a trade, I am down less 30%, BUT because my system of trade entries is VERY accurate, getting out of a hedge to me is just the next trade entry. That said, these ways I trade do NOT talk to your question. I'm up $88,000,000 so it is easy for me to talk. I recommend that you trade large lots per...
Thanks for the info I have been watching your threads trying to find out what level you used as a hedge stop. As a hedge trader myself I know the merits of using them rather than a stop loss but very few people recognise the value of them. Your method is very good although somewhat unorthodox. That is why you have been able to do as well as you have done.
Quoting HungryHound
{quote} Thanks for the info I have been watching your threads trying to find out what level you used as a hedge stop. As a hedge trader myself I know the merits of using them rather than a stop loss but very few people recognise the value of them. Your method is very good although somewhat unorthodox. That is why you have been able to do as well as you have done.

Hi there, do you mind telling us what exactly are you hedging in the forex market?

For the rest out here, many broker out there allows you to have a buy order and sell order done and show you 2 positions on your system without netting them off. This is NOT hedging. Effectively, 1) you have no position 2) you incurred 2x commissions 3) you incurred swap cost for holding the two position

You have no net position and you continue to incurred side cost for keeping the two positions open. This way, your broker continues to make money off you. So beware.
Quoting Sis.yphus
{quote} As I said, to avoid swans/stock halts, don't trade around news releases. All stock halts are because of News that is sketchy and it they are very easy to predict, just like most Currency Swans are when Monetary Policy change is announced during its scheduled news release. AVOID THE SWAN:HOW TO GUIDE {image} STEP 1: Close All Trades BEFORE news comes out. STEP 2: Don't Open Any Trades BEFORE news comes out. Your Done! I was not affected by CHF as I do not trade if there is big red news expected within 4-24 Hours(Depending on trading strategy)...
actually this CHF drop wasn't in the news on FF calendar. If you open to see the details, you will see that they added it afterwards, it was an unscheduled emergency meeting. Which seems really shady to me, but it is what it is.
and, flinx, trading big TF would help you a lot. If you trade the daily for example, with this CHF drop you would "only" lose like 30% of your account, something like that.
But trading a TF like the 4H or above would reduce the risk in a quite significant way, I think.

Quoting nasir.khan
{quote} Is there a documented case of a client made to pay? (there might be but i have;t heard). Just go with ones that do offer protection against neg balance. and honestly SNB was not a black swan event. A terrorist attack or an earth quake is a black swan event and those slip you like 200-300 pips at most. You had ECB constantly pushing the euro down and announcing more QE in next week, you knew the schedules speech timing of SNB, you knew that shorting chf was never worth it interms of Risk:reward ratio. if anyone was long any chf pairs at...
indeed, nice reasoning

I will study more about currencies to understand more and be aware of these things.
Quoting tradingwapro
{quote} Hi there, do you mind telling us what exactly are you hedging in the forex market? For the rest out here, many broker out there allows you to have a buy order and sell order done and show you 2 positions on your system without netting them off. This is NOT hedging. Effectively, 1) you have no position 2) you incurred 2x commissions 3) you incurred swap cost for holding the two position You have no net position and you continue to incurred side cost for keeping the two positions open. This way, your broker continues to make money off you....
Well you are probably technically right, but in the context of not using a stop loss then what you try and do is:

When the price has gone against your position then you place a trade of at least the same value in the opposite direction. This locks your drop in equity temporary as you then try and trade your way out of the loss in equity. A loss only becomes a loss when you close the trade, as in the case with a stop loss.
Quoting HungryHound
{quote} Well you are probably technically right, but in the context of not using a stop loss then what you try and do is: When the price has gone against your position then you place a trade of at least the same value in the opposite direction. This locks your drop in equity temporary as you then try and trade your way out of the loss in equity. A loss only becomes a loss when you close the trade, as in the case with a stop loss.

Hi HungryHound, thanks for highlighting. However, I would like to point out the fallacy in your respond that I colored red. It is a very dangerous misconception that only serves to enrich your broker with no net benefit to yourself.

First, when you place the opposite trade, you have effectively locked in your loss. It HAS become a loss. Tell me what is the difference between the two:

Case 1: Broker that allows you keep opposing trade open on your system:

Current price = $8
a. Bought 1 unit at $10 , unrealized P&L = -$2
b. Sold 1 unit a $8, unrealized P&L = $0

Assume no other position traded for the day and thus realized P&L for the day = $0

unrealized + realized P&L = $-2 + $0 + $0 =$-2


Case 2: Broker does not allow opposing trade on the system and thus nets them off

Current price = $8
a. Bought 1 unit at $10
b. Sold 1 unit at $8
Net position = no position.

Assume no other position traded for the day and thus unrealized P&L = 0

unrealized + realized P&L = $0 - $2 = -$2


Don't kid yourself thinking there is a difference. There is none, and if we put into the example, the swap cost and 2x commissions, than those are the difference and is a penalty to you. I sincerely hope you see it.
Quoting tradingwapro
{quote} Hi HungryHound, thanks for highlighting. However, I would like to point out the fallacy in your respond that I colored red. It is a very dangerous misconception that only serves to enrich your broker with no net benefit to yourself. First, when you place the opposite trade, you have effectively locked in your loss. It HAS become a loss. Tell me what is the difference between the two: Case 1: Broker that allows you keep opposing trade open on your system: Current price = $8 a. Bought 1 unit at $10 , unrealized P&L = -$2 b. Sold 1 unit a $8,...
I don"t dispute your logic or your maths, but there is one slight difference in the application when we trade.


Every time you cash in your equity loss position then you lower your balance, you generally accept that your have made a trade that has gone against you and then start again. with a lower balance.

When you place a hedge trade in place, generally its because you think that your trade is still a valid but you want to contain your downside. and stay in the trade.

If you accept that the only was to trade is to place in stop losses then you limit your trading options.

I am saying that there are alternatives, it up to the trader to decide if they are suited to themselves.
  • Post #90
  • Quote
  • Edited 6:49pm Apr 10, 2015 3:36pm | Edited 6:49pm
Dude, you are so Myopic, as in so tunnel visioned that you cannot even see the sides of the road.

Hedging becomes TWO separate trades, and they should be treated as TWO separate trades!

It is typical of a 3 posts wonder on FF kid to suggest that they know stuff yet cannot even put their example in Forex trading terms. We don't trade in "current price = $8" ETC!

Get a grip KID. At least learn the lingo before promoting yourself to professor!

MY life is one of I enter a buy on the Eur:USD 1.05889, YET I have a pending Stop at 1.05779. But happy days for me, price then rises, and I get a free of risk trade in because my EA set a BE+1 stop loss at 1.05899 after prices reaches 5 pips profit.

Yet if shit happened, and if price crashed down thru my buy price, then the hedge trade entered at 1.05779 becomes my main focus. It is an entirely different trade, and has its own life.

But that's OK. It is easy to know when to release this hedge side when my system tells me the NEXT entry signal................yadda farken yardda

Get a good system you KNOW.

And kid, go back to the share market where maybe you have a chance.

Quoting tradingwapro
{quote} Hi HungryHound, thanks for highlighting. However, I would like to point out the fallacy in your respond that I colored red. It is a very dangerous misconception that only serves to enrich your broker with no net benefit to yourself. First, when you place the opposite trade, you have effectively locked in your loss. It HAS become a loss. Tell me what is the difference between the two: Case 1: Broker that allows you keep opposing trade open on your system: Current price = $8 a. Bought 1 unit at $10 , unrealized P&L = -$2 b. Sold 1 unit a $8,...
Risking 2% of one's account on every trade is absolutely insane. On Jan 15 this year, traders learned the meaning of a black swan event when the SNB made the surprise announcement that CHF would no longer be pegged to the euro. Traders lost billions, even FXCM nearly went bankrupt and had to find emergency funding (and it's a NYSE-traded company!). Forex brokers go out of business all the time, leaving traders' deposits at risk. Even big stock brokerage firms do - remember Lehman Brothers? Heed the lessons of history or you will be doomed to repeat them.
The problem is "black swan" events occur more frequently than we're led to believe. The crashes of 1987 and 2008, the SNB surprise, 9/11, and list goes on.....
The "once in a lifetime" events happen more often than we think.....
if you cant understand your objective ,regardless to your understanding of trading then sit back and try to work on your objective .you dont go to a whore house to find a wife !!!!

go for the gold if your limitations on account size dictate such rational.
  • Post #94
  • Quote
  • Edited 7:49pm Apr 10, 2015 7:26pm | Edited 7:49pm
Quoting dancingphil
Dude, you are so Myopic, as in so tunnel visioned that you cannot even see the sides of the road. Hedging becomes TWO separate trades, and they should be treated as TWO separate trades! It is typical of a 3 posts wonder on FF kid to suggest that they know stuff yet cannot even put their example in Forex trading terms. We don't trade in "current price = $8" ETC! Get a grip KID. At least learn the lingo before promoting yourself to professor! MY life is one of I enter a buy on the Eur:USD 1.05889, YET I have a pending Stop at 1.05779. But happy days...


Get a grip man. It's been well publicized and exposed what you do on another forum. You trade EURUSD reversals when the market is fully extended and reaches pivot/fib levels. If price crushes through, you start hedging, looking to release this hedge at your next entry signal. The problem is that your entries arent accurate enough to stop your account from blowing up. All you do is talk shit on the forums, acting like you are special and throwing your maths around trying to impress newbies. For all the readers here, let me aware you that these are his attempts to lure victims. Victims who still believe in the holy grail. Victims who do not know better. I've contacted several of your 'students' who had to pay $2000+ fees to be mentored by you. None of them have been shown any proof of your profitability. But if on your profile you say you have 33 students right now, then that's not bad income living in china, is it... Get real. You are one of the biggest scammers still active on this forum. I am honestly surprised you are not banned yet. I hope no one else falls for your tricks. I'm out
Just saw the front page where people were saying to just look at all the "upcoming blackswan events" on the calendar and pencil them in and avoid them... did everyone forget Fukushima? not everything is a timely swiss scheduled destruction of your account. can never predict when radioactive godzilla shrimps will be coming from tokyo bay to devour your hard earned pips. oh wait, i know, you could keep your weather channel feed tuned in at all times!
Quoting dancingphil
BUT MOSTLY, ONLY TRADE THE Eur:USD. The EU is THE most liquid pair around. It can gap on Monday openings, but WTF are you in a trade for at an opening? News can skew prices out of the stratosphere, but why are you trading news without an edge? Etc etc etc. NEVER be in a trade OR hedged over a weekend. NEVER be hedged going into a major news event such as NFP or FOMC. Trading other pairs is asking to be raped. {quote}
Hey dancingphil , im one of the hedging believer and im still learning forex , You mentioned no Hedged over weekend catches my eye . i wonder what is the reason behind it ? is it because of the weekend gap on Monday when the market open ? if i only risk 5% for a trade and i trade not more than 3 pairs . will hedging during weekend be okay? (i have been doing so recently ,the DD is only slightly higher during weekend ) .what would you do if you cant find the right signal to close the hedged position ? do you accept closing both at the min loss before going into weekend.


if one was in the CHF trade and hedged , will the acc be impacted when the SNB event happened back in Jan 15 ? i heard the spread was crazy during that event.
many thx
The reality is, the 2% rule is to keep you interested in the money potential and at the same time stop you from risking all your account.

However disagree with trading the whole day with 2% a trade.

eg, if i win my first 2 trades and now im up 6%.

A clever trader should bank 3% and then split the other 3% by 2 or 3.

So the rest of the day, your risk amount would be 1% or 1.5%, safeguarding your profits for the day or week.
Assuming a one-size-fits-all approach in risk amount across different technical systems is flawed. If you take a long-term technical system and scale down all the parameters to create a short-term system, you now have a completely new system with a different win-loss distribution and risk/reward. You need a new position size built around it.
  • Post #99
  • Quote
  • Last Post: Sep 7, 2015 5:58pm Sep 7, 2015 5:58pm
2% is kind of "dogma". Why 2? Why not 3 or 1? (I would've asked the same for any number)

Who came up with this level? Decades of experience? Ok, then why not 2.45% or 1.78%?

I risk anywhere from 4 to 10% per trade. I'm comfortable with that level and I never had more than 2 losses in a row. If I lose, I decrease the lot. If I lose again, I stop trading for a couple of days, go "back to the drawing board" trying to figure out what went wrong. Then I am patiently waiting for the next good entry point, never trying to "get back" the amount I lost.

If you are taking excessive risk, you are going to blow your account. Om the other hand, if you aren't risking enough, you are going to stay poor (as correctly stated in the "Zurich axioms").

"If you are not worried, you are not risking enough"
Shift happens...
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