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Testing High Leverage Compounding

  • #141
  • May 22, 2015 3:23am May 22, 2015 3:23am
Hi, just thought i'd drop in and see how your'e going today...
Markets we're a bit choppy (or really choppy) this week so don't let it get you down..
Good luck for nx week mate
  • #142
  • May 22, 2015 3:29am May 22, 2015 3:29am
Quoting RBlackburn
Hi, just thought i'd drop in and see how your'e going today... Markets we're a bit choppy (or really choppy) this week so don't let it get you down.. Good luck for nx week mate
Thanks Yeah chop is normal. The system is doing well so far with winners the past two days in choppy markets. today was a bit of a disappointment, really thought GU might run this morning. But I guess the big boys felt differently.

The signal this morning was a tad ambiguous.. Was wavering slightly whether to take a trend trade or counter-trend trade (it was a really close decision). Turns out the CT trade would have been the winner.
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  • #143
  • May 22, 2015 5:26am May 22, 2015 5:26am
Yeah, I've had a frustrating week too. A couple of losers, a couple of winners and the rest break even. It happens! Just got to try not to let it get us down.

Now short EU at 1.1198 based on M240 chart. Let's see if NY can deliver the goods
You reap what you sow.
  • #144
  • Edited 5:55am May 22, 2015 5:41am | Edited 5:55am
Quoting NorthTrader
Yeah, I've had a frustrating week too. A couple of losers, a couple of winners and the rest break even. It happens! Just got to try not to let it get us down. Now short EU at 1.1198 based on M240 chart. Let's see if NY can deliver the goods
Yeah it comes in bouts. Hopefully I wouldn't have to top up again; kind of odd to say this but a proper winning trade soon would be helpful. Need that + 160% (i.e. 260% gain) of a winning trade to turbo boost my account.

But can't force the market. I guess given my system's low win rate, the R2R MM is a bit risky, but nothing I haven't already considered.

If the god of markets i.e. randomness decides to give me 5 winners in a row... I'd be up to 5k, which in my earlier post I stated is my safe-zone... Wouldn't be possible to drawdown until I can't trade this MM once I hit 5k. Once that happens it's just a matter of time before I hit 50k (where I'll cut risk to 10%) and onwards..
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  • #145
  • May 22, 2015 12:06pm May 22, 2015 12:06pm
Quoting shellsnail
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...
Back from my business...

Looks like euro did indeed plunge. But I wouldn't have gotten into the move anyway, it was news initiated and too sharp without any pullbacks... I don't chase the market. Sometimes it backfires like now, but usually it saves my ass.
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  • #146
  • May 22, 2015 9:51pm May 22, 2015 9:51pm
Yes, that EU short made my week. Only problem was that I wasn't in big enough. But if CPI had gone the other way I wouldn't be saying that

Also, there's a lesson here. Just before the news I decided to take a small Nikkei short to hedge my position slightly. The Nikkei was near 15-year highs and bad CPI might have made it fall hard in anticipation of a drop in the US stock markets. Anyway, the news was good so I exited my position with a small loss very quickly. This is good! In the past I would've hesitated until price had moved against me too much, by which time I would've been very reluctant to take the loss. I would've tried to reason with myself that it will drop eventually anyway, so why not hold on to the position and ride it out? Or I might even have added to it, in the hope of recovering faster. Invariably price would've gone more and more against me until the pain was too much, then I'd take the huge loss and lose faith in it all for a while.

So the lesson is: never be afraid to exit your position quickly if something doesn't feel right, and never be afraid to take a small loss. It might not always be the best decision in hindsight, but don't beat yourself up about that. The important point is that you acted swiftly to limit your losses, rather than rely on hope and luck to turn the situation around. I'm much better at this than I used to be
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  • #147
  • May 22, 2015 11:23pm May 22, 2015 11:23pm
Quoting NorthTrader
Yes, that EU short made my week. Only problem was that I wasn't in big enough. But if CPI had gone the other way I wouldn't be saying that Also, there's a lesson here. Just before the news I decided to take a small Nikkei short to hedge my position slightly. The Nikkei was near 15-year highs and bad CPI might have made it fall hard in anticipation of a drop in the US stock markets. Anyway, the news was good so I exited my position with a small loss very quickly. This is good! In the past I would've hesitated until price had moved against...
Yes that's awesome!

And I'll add that loss taking has to be coupled with good MM so that it doesn't damage your psychology when trading discretionary approaches. We can't risk more than what we are comfortable with when the decision making is done largely arbitrarily by us (as opposed to following a mechanical system) in real-time.

It's less relevant for traders executing a defined set of processes though. There're many times I thought price was going to hit my SL but it didn't and instead went and hit my TP. So sometimes it's better to let the trade be and accept that the edge will play out over time...
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  • #148
  • May 22, 2015 11:25pm May 22, 2015 11:25pm
Every edge we have, as technical traders, comes from an imbalance of buying and selling pressure.

In all cases, the trading problem reduces to a matter of identifying when a statistical edge is present in the market, acting accordingly, and avoiding market environments that are more random.

~ The Art and Science of Technical Analysis, Grimes 2012
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  • #149
  • May 23, 2015 12:42am May 23, 2015 12:42am
Weekend Food for Thought

"...a trader who focuses on breakout trades should probably understand the patterns of failed breakouts. A trader who trades pullbacks in trends should probably also be able to trade the patterns that occur at the ends of trends. There are two reasons behind this suggestion. First, you should become intimately familiar with the patterns associated with the failure of the patterns you trade. The second reason is related to self-control and psychologythere is an old saying: If the only tool you have is a hammer, every problem you encounter will look like a nail. If you are only a skilled breakout trader, you may find it difficult to wait for the excellent breakout trades, and may try to force suboptimal patterns into this mold. If you have the freedom and the skills to switch to the setups that match the market conditions, you will be a able to adapt your trading skills to the market environment."

The Art and Science of TA

This is exactly why my CT and Trend trades often have the exact same entry signal. Because the classic failure of one usually leads to a profitable opportunity on the other side.
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  • #150
  • Edited 1:08am May 23, 2015 12:49am | Edited 1:08am
Quoting shellsnail
Volatility as a Fractionally Integrated Process From Wikipedia: In statistics, autoregressive fractionally integrated moving average models are time series models that generalize ARIMA (autoregressive integrated moving average) models by allowing non-integer values of the differencing parameter. These models are useful in modeling time series...
Revisiting Volatility

Volatility decays slowly over time, but very very slowly and generally persists.

This is a statistical fact.

Believe in it; have faith in it.

It means you shouldn't be taking profits off a trend trade at 30 pips when prices are predicted to travel 80 pips. This is called shooting yourself in your own foot. It also means if price starts moving against you in large amounts, it probably means the trend has changed. It also means you should be setting up protective stops beyond the expected volatility in the counter-trend direction.

Don't be afraid of getting stopped out. Play the long-game outcome/expectations. Do the right thing consistently and the results will show over time. You've to commit to trading. Seriously commit to it for the long-haul. It's not something you can just dabble and then succeed and then leave. You don't learn how to trade, you become a trader.

Understanding this point, and how markets actually move/behave, will significantly impact and improve your trading. Read more papers, run more statistical tests, test test test test. Never stop testing. The more you see for yourself the true FACTS surrounding the market, instead of all the bullshit fed to retail traders, the more you can actually start making money.

***

Go listen to Grimes talk about trading here.

He's absolutely right when he says most patterns and fancy stuff don't have an edge in the market. The only edges around are EXTREMELY SMALL and generally really simple. But if you combine them together and use a good dose of logic, common sense, and lots of leverage, it's possible to magnify the edge and turn a small edge into large profits.
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  • #151
  • May 23, 2015 1:16pm May 23, 2015 1:16pm
The Element of Luck in Trading

Attached Image (click to enlarge)
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Source: The Art and Science of TA.
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  • #152
  • May 25, 2015 2:37am May 25, 2015 2:37am
The move on EU is drawing liquidity into the market.

Could see a range expansion soon.
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  • #153
  • May 25, 2015 4:08am May 25, 2015 4:08am
EUR/USD Short

Stop out for +50%.

Attached Image
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  • #154
  • Edited 4:32am May 25, 2015 4:21am | Edited 4:32am
There's a slight problem here. Typically, if I risk 1% or even 5% per trade, there's no real asymmetry in the gains. I can start the day with a 1.5% loss, and then end with a 2% gain for a positive day.

Now, risking 40%, once I start the day with a 60% loss, it's impossible to end the day positive unless I hit a full winner. Because 0.4 * 1.8 = 0.72. This is a serious problem because my system thrives on break-even days (or minor gains/losses), and some very very good days.

I'm thinking I have to dial my risk down (maybe to 20% per trade) to even have a chance to survive to 5k. The risk of ruin is simply too high. thoughts?
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  • #155
  • May 25, 2015 4:35am May 25, 2015 4:35am
Depends on your strategy.
IMHO, the best high leverage strategy would be using fresh supply/demand zone bounces and trading with very tight stops (5-10 pips), so that just a small percentage of equity is at risk. Ideally, one would milipede out of it for a large potential gain. Personally, my s/d skills aren't that good, but some people seem to be able to pull off that trick.

k
  • #156
  • May 25, 2015 4:40am May 25, 2015 4:40am
With a 20% risk you need a very big edge
  • #157
  • May 25, 2015 4:45am May 25, 2015 4:45am
Quoting kprsa
Depends on your strategy. IMHO, the best high leverage strategy would be using fresh supply/demand zone bounces and trading with very tight stops (5-10 pips), so that just a small percentage of equity is at risk. Ideally, one would milipede out of it for a large potential gain. Personally, my s/d skills aren't that good, but some people seem to be able to pull off that trick. k
I hesitate to say this but I've not seen conclusive proof that S/D zones indeed have an edge.

round numbers do though. I've seen statistical evidence proving it.
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  • #158
  • May 25, 2015 4:47am May 25, 2015 4:47am
Quoting DavidRP
With a 20% risk you need a very big edge
I'm quite confident in mine. Only issue is now the break-even days/weeks slight wins are becoming loss days because of the asymmetry in gains.

For example last week Wed and Thurs I had two winners, netting around 1.5R in total. But then Friday's 1.3R loss wiped out all the gains + more. Risking 20% instead of 40 would at least have prevented that from happening.
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  • #159
  • Edited 5:11am May 25, 2015 4:59am | Edited 5:11am
Ok. I gave it some thought.

Going to dial my max risk down to 20% instead of the current 40.

So the plan now is 20% risk until 50k, then 10% until 200k, and 5% until 500k. Estimated timeline is 2-3 years.

Thanks for the comments/suggestions!
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  • #160
  • May 25, 2015 5:20am May 25, 2015 5:20am
Updated explorer to reflect correct start date for Attempt Beta
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