Testing High Leverage Compounding

The Often Overlooked Metric

Yeah, according to my edge, 95% of the market movements are random. That seems about right to me. Of course different' edges will spot different pockets of predictability but overall, it should be quite a low %. If you are in a trade more than 10% of the time (and not using a pyramiding strategy and you're not a HFT) and you are trading only 1-2 pairs, you should be concerned. There are inefficiencies in your system you can weed out.



It's absolute foolishness to think that the market is tradeable 24/5 just because it's open. Unless you develop 100 EAs all trading different strategies and they are all profitable in their own right (or at least negatively correlated to the others), then maybe yes, it can be done.

The question you should be asking all the time...

If I enter a trade now, do I have an edge or am I just speculating on this current trade?

If you're a discretionary trader, YOU are the system/edge. It's tough to answer this question unless you have traded for so long and are extremely confident in your judgment. Before that, any answer is nothing more than a GUESS.

If you're a systems trader, past performance is once again your best guide. But it's usually obvious if you are following the system or not. If you are, then there's an edge, if you aren't then there isn't. Unlike discretionary traders, system traders know when they are about to break their systems' rules.

Never ever enter a trade just because you think it might win. It's not important if that trade wins or not. What's important is whether given 1000 of such trades, you will take them all without hesitation and with similar risk and applying similar trade management to all of them. Even if you are a discretionary trader, there has to be some sort of consistency to your actions. If not, your results will certainly reflect that lack of consistency.

Well, you may say that every market situation is unique and hence it's possible to decide differently for even the most similar situations. Well, true, but how do you know when to make which decision? Coin flip? What's your decision making rule? Without any sort of framework, it's impossible to survive the psychological turmoil markets bring. Sure you might make it to doubling your account by taking some large risks, but once the amounts grow, your bravado will shrink and your judgment will deteriorate.

So the most important question to ask, always, is: Do I have an edge if I enter a trade now?

The answer, whether you are trading discretionary or system, is going to be no 95% of the time. if you are answering YES too much, something is wrong!

***

So what if you are a relatively new trader and don't have an edge?

Don't fret. Dedicate time to study. Risk very very very little and try to see if you can find patterns in the market. Learn how the market works. Expose yourself to different reading materials, not just mainstream trading books, but also academic texts. Get a good sense of what's fact and what's fiction.

RISK SMALL. Less than 1% per trade is best. You want to survive as long as possible so you can develop an edge. NOTHING matters before that. You can make 100% but you will lose everything the next week if you don't have an edge.

Paradoxically, your aim is NOT to make money. It is to become a trader. Once you become a trader, the money will follow.

It takes about 3 years trading LIVE to get a good sense of it even if you are the most brilliant person. In fact, the smarter you are, the longer it may take because of ego traps.

Look at Hayseed's profile. He trades about ALL the pairs and he is only in trades slightly more than 50% of the time.

http://www.forexfactory.com/hayseed#72-report

So if you assume half of those trades are correlated, then it boils down to about 5% of the time per pair. That's it.

Big drop in EU impending...

Invalidated if break above 9800

I think it has to go up.

k

invalidation point?

giving a bias without risk is pointless.

My sl is at 1.0955. I think that e/u needs to at least reach the fresh supply at 1.116. It is similar for other usd pairs. Then it will proceed or bounce down. Most likely bounce down IMHO.

k

On my ECN feed there are some intraday gaps on the 1 min chart below at 680, I think it's trying to fill those before moving anywhere else.

Gaps filled... some chance of a bounce/reversal here... stops at BE.. target 0940

Done for the day even though it was a double bank holiday... busiest day of trading so far... (and maybe most profitable too)

Interesting. How do you test them ? thanks

I read a couple of papers that tested it... can't rmb the source but probably can find.

Not sure if i should toss out Bank Holidays from my trading days...

It's a bit mixed... Sometimes there are some really good moves on these days. Only problem is the volatility can be really pathetic too.

Think I'll stick with trading them for awhile longer and see how it goes.

So the gist of the system is simple... Most of the time I'm taking small losses/small gains/break-even days. On average once a week I'll probably land a trade that doubles my account. (5R and above) And then I'll drawdown maybe 20-40%, and then rinse and repeat...

From recollection, Carol Osler talked about round numbers in one of her papers.

Thanks. I went and read her paper again, seems like she did mention that S/R levels work. So I must have mis-read.

But the levels she used were taken from levels published by the big banks. And that was in the 1980s. I was hoping to see something more recent. I'm quite sure I saw a paper that was done recently and had the conclusion about round numbers, but just can't find it.

Demo trading: Asian pairs in focus

AUD/CAD Long
NZD/USD Short
USD/JPY Long

As always, patience. Wait for a counter-trend move to develop, and then get in when it turns/climaxes (depending on your risk profile).

95% of the time trading is spent waiting or doing nothing. (and I'm an intraday trader...)

IMO, there's a right way and wrong way to make money, as traders.

The sole judge of success cannot be profits. After all, there's a non-zero chance any one might get on a lucky streak and make lots of profits in the short term, but does that make that person a good trader?

Trading to me is a calling. (and so is teaching; I love explaining stuff and helping others grow/understand.)

I think making money is inevitable if one trades well. My goal is to become the best trader in the world. It's what I'm going to do and strive to do for the next couple of decades of my life.

My experiments here may fail. The market always surprises us when we think we have the answer. I am aware of that. I know perfectly well that under reasonable assumptions, I should only be expecting at most ~100% returns per year on 1:10 leverage, and employing any higher leverage is suicide in the professional trading industry. But hey, I'm young and I have the time to try things. I've heard stories about traders at SMB Trading taking home six or seven digits every year daytrading the US stock market. And they don't even think in terms of %, because they make money every week and it's almost pointless to convert those kinds of insane returns to %. That's the kind of intraday trading I'm striving to do. IMO it's definitely possible, especially in the FX market where most of the participants are NOT in the market to make a speculative profit... There's a lot of surplus cash flowing around, especially from the Central Banks.

What's your reason to trade? Why have you not yet given up?

NZD/USD Short

AUD/CAD Long

http://markmanson.net/four-stages-of-life