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Building an equity millipede

  • #7,101
  • Edited 8:03am Nov 18, 2015 7:51am | Edited 8:03am
Quoting IveGotQuads
The waiting game is the toughest part....all scouts sent out (if I could call them scouts) and unfortunately no more margin left It will be nice to see how others are progressing.
Disaster waiting to happen. The point is low risk, there should be plenty of free margin.

In addition waiting for a few days is not long, try 6-9months without catching a decent trading move which happens and is why the fact you don't have any free margin is a problem.

Positions are not supposed to be deployed all at once, where are these opportunities that you are taking that has required the deployment of all your available margin?

The problem with this method is that you can go a long time without getting decent winners, the market only pays you when it trends, the stronger the better so you need to ensure you have plenty of powder dry.
  • #7,102
  • Nov 18, 2015 8:15am Nov 18, 2015 8:15am
Quoting verv
{quote} Disaster waiting to happen. The point is low risk, there should be plenty of free margin. In addition waiting for a few days is not long, try 6-9months without catching a decent trading move which happens and is why the fact you don't have any free margin is a problem. Positions are not supposed to be deployed all at once, where are these opportunities that you are taking that has required the deployment of all your available margin? The problem with this method is that you can go a long time without getting decent winners, the market only...
Relatively new to the application of the methods in this thread and still on page 39... I think the margin requirements went up for the platform I am using but you do have a point. I had used 1.2% risk and a 20 pip stop loss to establish initial positions with all positions at BE at worst case scenario if it goes against me right now. I have probably margin enough for 1 more trade which is a problem...I am thinking of closing 1 of the positions to replenish the account/margin. I don't have the necessary experience to make that decision as it is, maybe I can count on those before me.
  • #7,103
  • Nov 18, 2015 8:46am Nov 18, 2015 8:46am
Quoting pipEASY
{quote} Good morning, hornedgod Great question. I would encourage doing both. If you start off 5000USD with 0.1 lot size, that is reasonable. However I do hope all traders who are serious and have the mentality to take it seriously to continue adding funds into your capital trade 'when necessary.' Not because of the realized losses but because of the margin required. 0.1 lot size requires approximately $120 usd per margin. I wouldnt advise closing off all positions suddenly at the end of 0.1 lot size millipede as this would inject a very sharp increase...

Never-mind found the answer of my problem on page 44... eternally grateful to Graeme for sharing all this nuggets for free.
  • #7,104
  • Edited 8:03pm Nov 22, 2015 5:31am | Edited 8:03pm
IMPORTANT: Traders of this method please read!
-------------------------------------------------------
Since this is one of the more popular threads on FF, I think the following small contribution might be helpful
There is a lot that can be learned from this thread. However, I disagree that the FX is the proper market to apply this method in. In fact, it could perhaps be the worst market for this. FX is known to be mean-reverting in part due to the relative valuation of the currency pairs. Another reason is CB intervention. To maintain economic stability, CBs will intervene and keep currencies within a certain range, preventing them from taking off like stocks do.

The millipede method can be described as follows: You are essentially trying to sneak as many "legs" into a long-term trend hoping that the market does not return to their entry points.

The problem here is the reliance on long-term trends, which are notoriously hard to anticipate. Other times the markets simply doesn't offer any trends (which happens a lot in FX).

I would recommend that this method be applied in individual stocks or the futures indicies (SP 500, Nasdaq, etc).
These market experience strong trends that put the odds in your favor that price is less likely to return to a trade's entry point.

Quinton
  • #7,105
  • Nov 22, 2015 6:23pm Nov 22, 2015 6:23pm
Quoting Quinton
IMPORTANT: Traders of this method please read! ------------------------------------------------------------ Since this is one of the more popular threads on FF, I think the following small contribution might be helpful: There is a lot that can be learned from this thread. However, I disagree that the FX is the proper market to apply this method in. In fact, it could perhaps be the worst market for this. FX is known to be mean-reverting in part due to the relative valuation of the currency pairs. Another reason is CB intervention. To maintain economic...
??? I hope you know that the basis of this thread was just to give the readers a "different perspective". As in positional trading...the ability to hold on to your winnings and cut off the losers as soon as possible. If a trader wants to hold a trade for 2 weeks or 2 years its his prerogative. You have a right to your opinion and a right to express yourself but thanks and no thanks. Too many people have made this work, at the end of the day this style isn't for everyone.
  • #7,106
  • Nov 22, 2015 6:31pm Nov 22, 2015 6:31pm
Quoting IveGotQuads
{quote} ??? I hope you know that the basis of this thread was just to give the readers a "different perspective". As in positional trading...the ability to hold on to your winnings and cut off the losers as soon as possible. If a trader wants to hold a trade for 2 weeks or 2 years its his prerogative. You have a right to your opinion and a right to express yourself but thanks and no thanks. Too many people have made this work, at the end of the day this style isn't for everyone.
The length of the trade's holding period was not what my post was about, but rather that there are markets better suited for this method.
Just pointing out a potential stumbling block that has not been mentioned yet and that a beginner would be unlikely to catch, esp. if this is his/her first method. Again, if long-term trends do not present themselves a trader could be looking at long periods of flat and or negative returns.

Cheer's
Quinton
  • #7,107
  • Nov 22, 2015 6:50pm Nov 22, 2015 6:50pm
Quoting Quinton
{quote} The length of the trade's holding period was not what my post was about, but rather that there are markets better suited for this method. Just pointing out a potential stumbling block that has not been mentioned yet and that a beginner would be unlikely to catch, esp. if this is his/her first method. Again, if long-term trends do not present themselves a trader could be looking at long periods of flat and or negative returns. Cheer's Quinton

Any trader should be aware that there are times one can go through 20 losses in a row...doesn't mean that We will throw "the baby with the dirty water". I believe the thread has addressed "dry spells" and about the market comparisons, I think most people here prefer the exchange market to stocks or indexes or whatever it is called nowadays. That is the reason we were here in the first place. Your message comes across as poisonous, what do you mean by "traders of this method please read" and in red writings as if you are warning little kids about fire. Please keep your unproven opinions to yourself next time. Read the thread again and notice that any question a newbie may have had already been mentioned.
  • #7,108
  • Dec 1, 2015 12:26am Dec 1, 2015 12:26am
Hi,

I am wondering what broker pipeasy was using. He mentioned that we can see this in his profile, but this information has been since removed.

Anyone remember what particular broker was he using?
  • #7,109
  • Dec 1, 2015 2:10am Dec 1, 2015 2:10am
Quinton makes an excellent point, others have made it as well - the fact that FX markets mean revert much of the time, especially to get the break even stops, makes this strategy hard and frustrating to implement for many.

Basically as Q points out it's a mega trend following strategy, so latch on to a mega trend and great riches will follow. Conversely, latch on to markets that don't put in many mega trends, or if they do, have large retracements of those trends, and frustration will be the order of the day.

So why are people in this game? Is it to make money or to trade FX?

If money is your goal does it matter if you make your fortune on Monkey crap futures or Dollar/Yen? The money will be no different which ever one you choose.

Therefore as Q points out, perhaps the strategy is better suited to other markets perhaps stocks, there are plenty of choose from. Easy to scan 1,000 stocks over the weekend looking for 10-20 which have promise for possible trading the following week. Yes, stocks won't be perfect, many will be frustrating as well (that's markets) but they'll probably be far better than using FX. Remember, G looks for certain things in the markets, he doesn't focus on crosses that aren't doing much.

Overall, Quinton makes a VERY valid point and it's advisable for aspiring traders to take note.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #7,110
  • Edited 3:19am Dec 1, 2015 2:37am | Edited 3:19am
Quoting Calculus
Quinton makes an excellent point, others have made it as well - the fact that FX markets mean revert much of the time, especially to get the break even stops, makes this strategy hard and frustrating to implement for many. Basically as Q points out it's a mega trend following strategy, so latch on to a mega trend and great riches will follow. Conversely, latch on to markets that don't put in many mega trends, or if they do, have large retracements of those trends, and frustration will be the order of the day. So why are people in this game? Is it...
Great points Calculus. I hate when long term trades are hit with negative swap than can be extremely costly. Refer to sample long term trade below on EURUSD where average swap applied was a minimal -1.40% PA and the trade was held for 402 days. Note that despite a gross profit, swap quickly turned this into a net loss. Look at the relative value of SWAP against the profit in the results below the chart.

Attached Image (click to enlarge)
Click to Enlarge Name: Millipede Example EURUSD.JPG Size: 115 KB


Attached Image (click to enlarge)
Click to Enlarge Name: Millipede Example EURUSD Trade Result.JPG Size: 28 KB


This millipede strategy exploiting mega trends IMO is more suited to equities (long only) that are unleveraged (hence no holdings costs) where you progressively become fully invested and then manage the entire portfolio with group harvesting to manage drawdown and a global stop loss...... as when the proverbial hits the fan they all become correlated.

It is the super trends (eg. 6-7 years duration etc) in bull market phases that you find in the equities market for example where this strategy would shine. While using an index, it is representative of some of the great trends obtained in it's composition. If you don't have holding costs then your relative performance will be great provided you can progressively become fully invested......eg. buy and hold strategy but maximise position size efficiency through the Millipede entry method.

Attached Image (click to enlarge)
Click to Enlarge Name: SuperTrend.JPG Size: 98 KB
  • #7,111
  • Dec 1, 2015 3:36am Dec 1, 2015 3:36am
Quoting thokthok
Hi, I am wondering what broker pipeasy was using. He mentioned that we can see this in his profile, but this information has been since removed. Anyone remember what particular broker was he using?
When I was following him on this thread he was using FXCM
  • #7,112
  • Dec 1, 2015 4:23am Dec 1, 2015 4:23am
Quoting Copernicus
{quote} Great points Calculus. I hate when long term trades are hit with negative swap than can be extremely costly. Refer to sample long term trade below on EURUSD where average swap applied was a minimal -1.40% PA and the trade was held for 402 days. Note that despite a gross profit, swap quickly turned this into a net loss. Look at the relative value of SWAP against the profit in the results below the chart.
arent you suppose to close the position once your new buy positions continuously start failing, which would indicate that trend has changed?
also, at the same time you will have multiple sell position, which will make you money in this change of trend.
  • #7,113
  • Dec 1, 2015 4:24am Dec 1, 2015 4:24am
Quoting Chorlton
{quote} When I was following him on this thread he was using FXCM
Oh, I dont think they are wise choice any more. They stock is down to like $6 from $180s.
  • #7,114
  • Dec 1, 2015 4:31am Dec 1, 2015 4:31am
Quoting thokthok
{quote} arent you suppose to close the position once your new buy positions continuously start failing, which would indicate that trend has changed? also, at the same time you will have multiple sell position, which will make you money in this change of trend.
Yes you are quite right. The example was just to demonstrate the accumulation of holding costs over time with a long trade and how it bites into Trade profit. This example was a single trade of 0.2 lots that accumulated about $430 in holding costs where the spread transaction costs were minimal. There is a cost of leverage that can be avoided through using this approach with say equities. A short trade in this instance also faces negative swap of 0.8% PA so long or short....over time these holding costs severely bit into profit.

This is just EURUSD in this example. Many other forex pairs have much higher negative swap costs. A few however have positive swap (which is the exception rather than the rule).
  • #7,115
  • Dec 1, 2015 5:17am Dec 1, 2015 5:17am
Got it. You are way ahead as you trading it live. And I am just reading theory.

Here are my comments:

pipeasy's only 5% trade survived over the years. about 15 percent ended pre maturely at BE or little profit, rest 80% were at a loss.

So the real gain would only be visible after literally hundreds or thousands of trades.

Another thing is wisdom of using 2 lots or 0.2 lots in your case. Half of it can be closed when the initial weakness of trend becomes visible to lock gain and maintain equity growth (as pipeasy puts it).
  • #7,116
  • Dec 1, 2015 5:28am Dec 1, 2015 5:28am
Cop, yes I forgot about the swaps, can be costly.

That was once point that G made that I never agreed with - don't worry about the swap costs as the mega profits will wipe them out. True to a certain degree but why pay when you don't have to, or why pay $1 for a can of Coke when the next door shop sells it for $0.75? Let's also not forget the compounding effect of saving x% a year can have. So if you save x% a year and then compound that saving (extra profits basically) over 5-10 years, big effect.

The better way of handling the swap problem is not to have longs and shorts open at the same time via the broker a la hedging. Better to keep a spread sheet of your long and short positions and then have one overall position in the market. For example, long 10 EUR-USD and short 4 makes for an overall net position of long 6 even though as far as your strategy goes you're long 10 and short 4. Nothing wrong with that, in fact probably everything right and it also isn't a problem if your broker doesn't allow hedging which I think US one's don't.

Overall nobody is saying that FX is not the market to use, yes, when they're big trending they can be fabulous but any big trend in any market is just as fabulous. I'd also suggest if people look at stocks to look at them from the short side as well. The trick I've found with the short side of stocks is to COVER if the move accelerates on the downside as that's often the fat lady singing. For example, you're short and the market generally moves lower over a period of time but the move is sort of orderly and controlled. If THRUST starts to show, if the bars start to get bigger, and especially if that bigger moves is into some sort of simple chart level from the past, you better look for a way out. Does it always works, of course not, but this is a game of probabilities...
Road To Wisdom? To err and err and err again, but less and less and less...
  • #7,117
  • Dec 1, 2015 6:53am Dec 1, 2015 6:53am
Quoting Calculus
Cop, yes I forgot about the swaps, can be costly. That was once point that G made that I never agreed with - don't worry about the swap costs as the mega profits will wipe them out. True to a certain degree but why pay when you don't have to, or why pay $1 for a can of Coke when the next door shop sells it for $0.75? Let's also not forget the compounding effect of saving x% a year can have. So if you save x% a year and then compound that saving (extra profits basically) over 5-10 years, big effect. The better way of handling the swap problem is...
each position of a currency pair will have different entry point so you cannot manage it using one position.
  • #7,118
  • Dec 1, 2015 7:59am Dec 1, 2015 7:59am
Hi folks, sorry to interrupt, just want to contribute with my 2 cents. I'm not a fortune maker but I've survived for a bit. I'm still a rookie, so you don't have to agree with my words. If you don't just put your points, simply don't be too hard on me. These are some things I've learned after many, many hours (I think I started playing with forex back in 2011):

  1. You might be right about what and why, but most probably you can't predict when. Time component is the most mysterious variable. You know that an economy will collapse or start to struggle to the point to affect its forex levels, the problem is that you don't know when the sweet spot will happen. It can be next week, next month or next year.
  2. Tight stops can be your killer. You know that market will go in that direction but you are stopped out once and again and again. It adds small loses to your account. But the biggest problem is that when the market reacts and goes in your direction you are out and probably not in front of the computer to ride it from the beginning, so you miss the start of the movement, which normally is a good move. We can't be 24h a day and sometimes our stops are triggered at the most inconvenient time.
  3. Small positions will let you survive to trade another day. It is true. As you are not sure when the market will react in your direction you might be at the wrong timing. With small positions the loss is so small that you don't need to close it. You can re-enter at a better price and average. Careful: this is not about averaging losers. You can re-enter as long as conditions still prove that you are potentially right. Only losers average losers (Paul Tudor is right). If you are in a losing position and market is going against you and conditions are proving you wrong then do not average.
  4. Swap rates can become a huge pain, even if positions are small. With small positions if you are stuck in a sideways market you don't need to worry as long as swap rates play in your favor (and the market doesn't prove you wrong). In my case when I trade a pair with big negative swap rate I try to keep a mental note that I must not let that trade live long. I can have it open for days but no more than that because it can bleed you. It is like that annoying mosquito that bites you every day... I hate it.

Some of these points are useful for this thread and some may be not. I like some things here but I don't agree with others. For instance I combine fundamentals and a simplified TA to find the direction, but I wouldn't open hedged positions just to know where the market is going based on which ones are still alive.

I have many things to improve. Pyramiding (even when winning) is tricky, and fundamentals can be confusing many times. It seems to me that the key is to find a balance and not overexpose your account.

Regards

  • #7,119
  • Dec 1, 2015 8:31am Dec 1, 2015 8:31am
Quoting fonx
Hi folks, sorry to interrupt, just want to contribute with my 2 cents. I'm not a fortune maker but I've survived for a bit. I'm still a rookie, so you don't have to agree with my words. If you don't just put your points, simply don't be too hard on me. These are some things I've learned after many, many hours (I think I started playing with forex back in 2011): You might be right about what and why, but most probably you can't predict when. Time component is the most mysterious variable. You know that an economy will collapse or start to struggle...
Very good advice fonx. Looks like you are a seasoned veteran.
  • #7,120
  • Dec 1, 2015 8:35am Dec 1, 2015 8:35am
People approach the idea of pyramiding lured by a few well chosen examples. Adding to winning trades may be appealing because it appears less risky but this is deceptive. You are still concentrating your risk into one instrument, there is no way around this fact.

There may be technical reasons for pyramiding (or scaling-in as some call it) but I personally have never found a use for it within a system. This is because standard trend-following systems already tend to over-expose profits during extremely volatile trends thus requiring a scaling out rule if you wish to keep exposure constant.
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