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Attachments: Have been chasing trends for 14 months - Some thoughts
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Have been chasing trends for 14 months - Some thoughts

  • Post #1
  • Quote
  • First Post: Oct 7, 2015 4:22pm Oct 7, 2015 4:22pm
Hello everyone,

I am new to Forex trading. After losing heavily in risky strategies (putting all the eggs on one single trade, etc.) I decided to play safer, and to see if long-term trades, with very little risk involved each time, success will smile to me.

My new strategy is very simple: I will ONLY trade in a pair if I can clearly deduct whether a it has a clear trend on both weekly and daily charts. I no longer care about smaller time scales. My risk is approximately 0.5% of my capital per trade, and I generally let them to run for 2-6 weeks.

Strategy: The entries are generally done when I think that although the pair (say, USDJPY or NZDUSD) is still trending, it is going to have a pullback. I wait for the pullback to reach the previous lower-high, then I get in.

After 14 months, my capital grew 20% from its initial value. No amount has been retrieved. Most trades are going fine, while there are some resulting in hundreds of pips loss, others balanced it back to positive.

For seasoned traders, is this strategy sound, or are there obvious flaws? I would like to keep trading for the decades to come (I'm 21 yrs old) and would like to adopt good habits right now.

Thanks!
Hi wllen1,

you haven't said anything about when you close trades or how big your SL is.
So far it sounds good because you seem to let winners run and use the right amount of risk in each trade.

For more clarification you could post a screenshot of one of your trades.
hi there,

congratulations, 20% return in a 14 months tenor is quite a good performance.

not many professional funds achieve this.

of course you would also have to see the volatiliy and draw down of the account for a clearer picture.

I also personally believe that risking little per trade is a good strategy as it allows you not to become emotionally involved in the trade and not think clearly when trades go the wrong way.

best,
Yeah, I recognize that I should include more details about each of my trades.

I will definitely get some screen shots of my current trades.

Trouble is, I am not even sure what kind of information I shall put on looooool.

As you can see, I am quite new to the forex community.
Quoting wllen1
I will ONLY trade in a pair if I can clearly deduct whether a it has a clear trend on both weekly and daily charts. I no longer care about smaller time scales. My risk is approximately 0.5% of my capital per trade, and I generally let them to run for 2-6 weeks. Strategy: The entries are generally done when I think that although the pair (say, USDJPY or NZDUSD) is still trending, it is going to have a pullback. I wait for the pullback to reach the previous lower-high, then I get in.

This all sounds fundamentally sensible and reasonable, to me (especially the 0.5% position-sizing).

My only reservation about it relates to the 2-6 week duration of the trades, and I'm offering this thought without knowing how you decide that, but I'm wondering whether you might show some overall gain by cutting losing positions after something more like 1-2 weeks rather than "waiting them out", if that's what you're doing? Only your own results and observations can answer that, though.

Good luck with it, anyway: it sounds a far more sensible approach to me than the kind of things that many aspiring traders typically try to do.
Quoting Xela
{quote} This all sounds fundamentally sensible and reasonable, to me (especially the 0.5% position-sizing). My only reservation about it relates to the 2-6 week duration of the trades, and I'm offering this thought without knowing how you decide that, but I'm wondering whether you might show some overall gain by cutting losing positions after something more like 1-2 weeks rather than "waiting them out", if that's what you're doing? Only your own results and observations can answer that, though. Good luck with it, anyway: it sounds a far more sensible...

Hello Xela,
The reason I let some of these trades run for weeks is because the market moves up and down regardless of my patience. I actually have SL and TPs. It is just that sometimes, the SL can easily be a few hundred pips away, because by that point it means something fundamental occured, and that the trend really is about to change. By that point, we are likely to hear some news regarding the currency in question. As the TPs are concerned, they sometimes touch the level while I'm studying/doing other things.

The entire process can sometimes take less than an hour, or several weeks.

Essentially, I develop a theory of where a pair is approximately going to go, what kind of trend that is, below or above which price level is the trend going to change. Once this diagnostic is run, I put equivalent of 0.5% of my capital in the trade, and then just... let it go.
Quoting wllen1
Hello Xela, The reason I let some of these trades run for weeks is because the market moves up and down regardless of my patience. I actually have SL and TPs. It is just that sometimes, the SL can easily be a few hundred pips away, because by that point it means something fundamental occured, and that the trend really is about to change. By that point, we are likely to hear some news regarding the currency in question.

Ok, thanks ... I see what you mean.


Quoting wllen1
As the TPs are concerned, they sometimes touch the level while I'm studying/doing other things. The entire process can sometimes take less than an hour, or several weeks.

That sounds at first like a really wide variance, but that isn't necessarily a bad thing, anyway. (I trade only intraday, and my trades can be open for anything from 5 minutes to 5 hours; what you're talking about is only a pro rata expanded version of that, after all. Fair enough. )

Clearly you're doing plenty that's right, and you're doing far better than the overwhelming majority of aspiring traders, too. Just keep it up. As you amass more experience and have more trades/results to analyse, try to do more of "what works" and less of "what doesn't work".
wllen1, I think as long as you think this 20% was gotten consistently and you believe this performance is repeatable ad infinitum, then I think you should keep doing what you're doing. Give your approach more time to settle in (another year?) and make sure these returns are consistent and repeatable, then once you own your method start looking for ways to refine it. If your method can consistently give 20% APR right now, then down the road with some technical improvements and trading maturity you'll probably do much better.

By the way, there's nothing wrong with having a stoploss hundreds of pips away, as long as you're not risking 0.5% to gain 0.01%. As long as your entries are nearly always reliable and you're not risking an absurd amount relative to your potential gain, then forget about classic risk:reward ratios. The better your success rate, the less necessary is that ratio, and vice-versa.

Rob Mondave
I have been doing the same. Have you looked in trying to trade your approach to the market with other instruments, such as bonds, stocks, and commodities. It will be nice to have a large sample of trades instead of waiting a while for a limited number of trades on Forex instruments.
gratz bud i am same age as you been playing for around 5 years now and have the same strategy as you. Ive got it to work pretty well just got to fix up the mental mind set.

This strategy is sound but i would have more rules and discipline in place for entry and exit ops. For example i use the same strategy but for entry i incorporate Fibonacci trendlines and my execution is on a bar pattern such as pinbar. and then exit would be the next support or resistance point and all trades should have atleast a 1:1 risk reward ratio.

Cheers!
You have abandoned trading and became an investor, so there isn't much help to offer you. If you wanted to trade the dips you are seeing, that is called trading, but if you want to ignore them and ride them out, well that is buy-and-hold investing. I hate that style of trading, so I cannot offer any advice, but if you ever decide to make more money, let me know. I think, if you are risking real money, that at least you have a great risk appetite and calm nerves. That I admire as an outstanding quality. Good Luck
You cannot be extraordinary by being normal
  • Post #12
  • Quote
  • Edited 1:08am Oct 8, 2015 12:42am | Edited 1:08am
Quoting wllen1
Hello everyone, I am new to Forex trading. After losing heavily in risky strategies (putting all the eggs on one single trade, etc.) I decided to play safer, and to see if long-term trades, with very little risk involved each time, success will smile to me. My new strategy is very simple: I will ONLY trade in a pair if I can clearly deduct whether a it has a clear trend on both weekly and daily charts. I no longer care about smaller time scales. My risk is approximately 0.5% of my capital per trade, and I generally let them to run for 2-6 weeks....
A breath of fresh air. Congrats on your performance.

dkrock is quite right. You are thinking as an investor. At least from my perspective however that is the only way to think as I simply don't have the risk tolerance to view it any other way. Wealth is too precious to me and my overall well-being. It does not necessarily help my day to day cashflow but it certainly does help in wealth management. If your intent is long term, then you are on the right path to make some serious dough.

To assist in your goals and perhaps increase cashflow availability also look into principles of diversification where that sound technique of yours might have broader application. This way you may be able to increase trade frequency and focus on the big moves that may appear from time to time without having to 'squeeze' every drop out of the market....and psssst....look at other asset classes as well. Forex by it's very nature is trading relative performance between currencies as opposed to other asset classes that might have an inbuilt long term fundamental asymmetry built into them like commodities and indices in which the 'buy and hold' fraternity utilise to get their edge.
Quoting Copernicus
{quote} A breath of fresh air. Congrats on your performance. dkrock is quite right. You are thinking as an investor. At least from my perspective however that is the only way to think as I simply don't have the risk tolerance to view it any other way. Wealth is too precious to me and my overall well-being. It does not necessarily help my day to day cashflow but it certainly does help in wealth management. If your intent is long term, then you are on the right path to make some serious dough. To assist in your goals and perhaps increase...
PPS Be aware that the past two years have been a very fortuitous time for trend traders due to associated volatility that was particularly pronounced with forex in the last year. It would be worthwhile doing a bit of back-testing of your strategy to clearly highlight those times when trend trading create 'stress' associated with drawdowns. It is important to be aware that these times do occur and it is better to be forewarned to be forearmed. You need to become aware of your drawdown tolerance to prevent you throwing up your hands in the air and declaring it simply no longer works. For a bit of confidence and an understanding of the particular equity profile that attaches itself to trend trading, have a look at the monthly performance results of the big boys from the CTA space (many of which engage simple trend following strategies with the secret sauce being diversification) and those websites that feature the performance of trend trading systems.

Of course, also subscribe to the following podcasts to keep in touch with new developments in the trend following space:

  1. Top Traders Unplugged; and
  2. Covell Podcast.

Quoting wllen1
The entries are generally done when I think that although the pair (say, USDJPY or NZDUSD) is still trending, it is going to have a pullback. I wait for the pullback to reach the previous lower-high, then I get in.
I personally dislike waiting for pullbacks as they are difficult to quantify and if you get in on a pullback its a sign that the trend has lost some of its force (even though you are getting in at the better position). Some major trends in the past could just keep going without having a significant retracement. Are you prepared for such a scenario?
Quoting wllen1
......... is this strategy sound, or are there obvious flaws? I would like to keep trading for the decades to come (I'm 21 yrs old) and would like to adopt good habits right now. Thanks!
You might want to look at some kind of triple screen trading strategy - find a trend on the weekly chart, drop to a daily chart and wait for a pullback, then drop to a 4H chart and enter when it turns back in the direction of the weekly trend. I don't think there is a bigger edge available in any kind of technical analysis than that. Alexander Elder made one version of the strategy famous in 1985, but variants of it have been traded profitably for a very long time.
si hoc legere scis nimium eruditionis habes
Quoting numbnuts
{quote} You might want to look at some kind of triple screen trading strategy - find a trend on the weekly chart, drop to a daily chart and wait for a pullback, then drop to a 4H chart and enter when it turns back in the direction of the weekly trend. I don't think there is a bigger edge available in any kind of technical analysis than that. Alexander Elder made one version of the strategy famous in 1985, but variants of it have been traded profitably for a very long time.
Good advice Numbnuts. MTF trend trading entry has so many things going for it as a robust method.

Alexander Elder with his book 'Trading for a Living' (plus the study guide) was one of the formative books that really changed my view on trading and put me on a better path.
Quoting Copernicus
{quote} PPS Be aware that the past two years have been a very fortuitous time for trend traders due to associated volatility that was particularly pronounced with forex in the last year. It would be worthwhile doing a bit of back-testing of your strategy to clearly highlight those times when trend trading create 'stress' associated with drawdowns. It is important to be aware that these times do occur and it is better to be forewarned to be forearmed. You need to become aware of your drawdown tolerance to prevent you throwing up your hands in the...
A first for FF, a member quoting himself! Bloody Australians.......
Audentes Fortuna Juvat
Quoting Nijee
{quote} A first for FF, a member quoting himself! Bloody Australians.......
Hey.......that's what lonely people do when nobody talks to them
Quoting Copernicus
{quote} Hey.......that's what lonely people do when nobody talks to them
See you in Brisbane in two weeks, I will be all ears LOL
Audentes Fortuna Juvat
Quoting Nijee
{quote} See you in Brisbane in two weeks, I will be all ears LOL
Give us a hoy when you get here. We have some drinking to do and tales to tell
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