Testing High Leverage Compounding

hmm. Couldn't get an entry set-up before the time ran out!

London session was +0.66R (27.4% gain). Risk taken on trade was 0.5R (20%) as it was Counter-trend trade.

Nothing for NY...

Have shutdown my platform to prevent repeat of yesterday. Not trading FOMC. Good luck all traders.

Food for thought:

We have seen recently the abrupt trend change in EUR/USD. How well does your system handle trend changes? What are the mechanisms you have put in place to prevent over-trading and getting a string of losers in a trend change?

The Demo Profit Trap

It's very easy to trade on a demo using discretion or a mix of discretion and rules and rack up huge profits. Because 1) randomness means that any series of wins and losses is possible 2) discretion works well when psychological factors are not in the way.

But if we get the same trader to then trade on a Live account, the same profitability cannot be repeated beyond a certain starting capital amount. Maybe it's 1000, maybe it's 10,000 but beyond a certain point psychological barriers will kick in and the trader will start making bad decisions.

IMO, it's pointless to try and trade demo and use discretion and hope to succeed at the game long-term. The only reason for trading demo is to test-drive rule-based systems. The immediate next step should be a small account to test the same rule-based system. If one wishes to succeed with discretion, then the Live account is the only place one can improve.

If we wish to turn small sums into large amounts of money, there is a need for some kind of consistency. We can never fully eliminate variance, but the consistency has to come in terms of reducing the max string of losing trades. As long as one can keep max DD and losing streaks small, any amount can be rolled into large sums with compounding with a profitable system. This is a statistical fact.

For any trader, this requires a huge commitment to study the market and understand what is real and what is imagined. But more importantly, there's a need to work on the self. The biggest losing streaks usually come not from trading the system, but from poor handling of obstacles and the emotions that accompany them. I'd be the first to admit that I struggle with this and am still trying to improve and get better at the game.

So to summarise:

1) Demo trading is useless if one is not following a rule-based system.
2) To be able to turn small sums into large amounts, one needs to cut Maximum DD and longest string of losing trades OR maximum loss on a trade.
3) To do so, one needs to understand the market and its facets.
4) But more importantly, one needs to master the self and one's own mind.
5) One needs to understand that the game evolves/changes completely when $$ increases. So the more one is relying on the mind to make clutch decisions, the more likely one will fail when capital increases because the burden gets larger.

***

You are either profitable or you aren't. (i.e. your method either has an edge or it doesn't.) If you are, then the only obstacle in your way is your maximum loss/max string of losing trades. Once you get that under control, you can be completely confident that you'll succeed long-term at turning small sums into huge amounts. Admittedly, this might be a paradoxical, since we are not focusing on profits at all. But this is the nature of the game. The profits will come eventually as long as you stay alive in the game and keep exploiting the same edge over and over. The number one reason for blowing up is demanding to make profits RIGHT NOW, instead of seeing the bigger picture and realising that the key concern is how can I prevent this losing streak from spiralling.

The reason why martingale or any grid system or trading without a SL cannot succeed long-term is because maximum loss in these systems is statistically unbounded/infinite. Even though they might generate profits day-in-day-out, they are bound to fail if your goal is to turn small $ into large sums. The profits are nothing but a facade and a distraction from the real problem... The only thing preventing you from going into infinite debt trading these systems is the fact that the broker will margin call and stop you out.

Of course, one may succeed by randomness and chance and luck. But I don't think that's the game we are trying to win at. The lottery has better chances if one wants to gamble and rely on pure luck to win.

Try This:

If you are currently struggling with your trading, give this a shot.

Cut your trading hours to LO -1H to LO + 2H and NYO -1H to NYO +2H. Beyond these hours, you wouldn't initiate any new trades (but you may perform trade management).

Pick 1 pair and focus on it.

Use a reasonable SL (10-16 pips for EU/GU) and a BE stop of the same size and a jumping stop that's larger. No need for TP.

Any entry method is fine.

If entering against the current momentum on short time-frames, risk only 1/3 of your regular position size on the first entry. Only add the 2/3 when momentum turns in your favour but NEVER averaging down. Don't take more than one entry against the momentum; if the first one losses, then either wait to enter with the momentum or stop trading.

Probably not the kind of stuff you see around on this forum. But it works. Maybe that's why the 'edge' is so elusive.

Absolutely! I stopped trading demo about 10 years ago. Even for new ideas I use live, but with smaller positions. You can never underestimate the psychological factor when trading.

One of the best ways of reducing stress is trading with money you don't really need, and not relying on the income. In other words, have another source of income to pay for all the important things in life. I'll probably never become a full time trader until I retire, because the stress of having to produce profits every month just to eat and live would probably affect my trading decisions too much.

Yet another EUR/USD counter-trend trade to start the day..



This time, looks like it might hit TP.

The funny thing about these counter trend trades is that they have the exact same entry trigger as my trend trades EXCEPT the context surrounding it is different.

Done for London session... Trade management complete.



Usually I would stay and trade GU (shorts) but today have got to go out and handle some important matters.

Will be back for NY session. tada.

NY Session

By the looks of it... probably no trade. GU is undergoing trend transition/huge retrace, either way, intraday momentum is not in my favour to short/follow the medium term trend.

EU is wallowing in some random zone. No edge if taking a trade here. No intraday momentum on my side.

So today's results: +30%/0.75R; risk 0.5R.

It's impossible not to profit.

Even the stupidest strategy, which is the random walk -- buy the highest yielding currencies against the lowest -- has produced risk-adjusted unleveraged returns better than the stock market and many other strategies for the last 30 years.

Any trend-following strategy on the daily chart would have worked.

It's impossible not to profit from the markets. Any sort of loss in the long run is because we shoot ourselves in our own foot.

If you can believe this, a lot can change.

But the difficult part is...

How to profit enormously. If you first found out how and why profitable strategies are profitable, you can then work on amplifying their edges. Start from facts and build from there. Keep testing your assumptions over time.

For example, a common saying is that markets are more volatile/has larger ranges on Wednesday, Thursday, Friday compared to Monday and Tuesday. Is this true? My analysis tells me for the past 1 year it hasn't been, although it was true for a period of time for around 5 years before that. So if the data tells you NO, go back to the null hypothesis which is they all have the same volatility/equal ranges. Do this for everything in the market and you will be successful.

Academics and Traders

I used to think that academics didn't know what they were talking about and that everything they did was nonsense and not applicable to actual trading.

That was until I did a dissertation myself and realised that actually it's not nonsense at all, it's the only way to objectively look at the market and to find out what's going on.

Then my trading started to improve...

perhaps one caused the other???

So if you are one of those who believe academic studies about the financial market are worthless, maybe it's time to update that view.

Food for thought...

NY Session

In a strange twist of events, eur/usd just turned and seems to be in a downward momentum now. NY session trading is back on

Will The EU drop from here?

May be the first full size trade soon :O 40% risk :O

still waiting...

This took ages... I literally fell asleep waiting.

​Shrugs. That was a colossal waste of time. Done for the day.

If only the US data were positive, lol. Today would have been huge. It's just a matter of time I suppose.

Cool! That's the problem with placing stops at BE - they get hit quite often and tend to mess up your mind and patience. In the end you get bored and might do stupid things. That doesn't mean it's a bad strategy, rather the contrary, I think the payoffs could be great once the price starts moving in your direction. All you have to do, is resist the urge to take trades because you are bored. Perhaps trading a demo account separately for those Im-so-bored-trades would help to divert your attention when your real trades are developing.

Traders' Podcast

Some awesome free material here for traders. Interview with retail/professional traders.

http://chatwithtraders.com/

check it out.

mm I think I've gotten over the trading out of boredom stage. and yeah, I'd much rather take the BE than a loss. my BE stops tend to work very very well -- 95% (okay maybe not 95%, lol, but it sure feels like so) of them turn out to be losses if I didn't exit at BE. And if price moves in my favour again, I can always reenter. It's not a big deal.

I have another Live account that I trade while I am not trading this one. That one uses more discretion but same MM except A LOT more conservative risk management. In fact, I posted the methodology a few posts back, that I recommended people to try if they are struggling... It's damn simple but it works. just don't add to losers or try more than once against the momentum/risk more than one-third the size initially. In fact, knowing that you only have one chance to enter/fade the momentum, forces you to wait and be patient so you don't mess up the chance...

oh and I know people will hate me for saying this/argue that I am wrong, but I suspect that my profitability arises partly from my MM. I don't know why but I think as long as you use stops and have large targets and trail your stops and scale in, you are almost guaranteed profitability trading volatile hours... The only question is HOW profitable.

Can your system handle this type of chop?

London Session

-1.25R / -50%. If you ask me, it's a good day because trading an older version of the system I would have lost 3.7R/entire account today. Although the older version is also profitable in the long term. Bear in mind if I were risking 1% per trade, this would be a 1.25% loss. It's R2R magnifying everything.

Wouldn't be trading NY because out for some personal matters.

Will be back next week Haven't had a proper winning day yet this week. The trend changes is preventing a big runner from occurring. Perhaps NY session we will see a EU short, but I wouldn't be there.