Confidence in your strategy?

[LiamH]

Yay, nice one, wish I could go back and re-live my times as a young Dad over and over, great times enjoy..

The strat is one thing, but you've overlooked what's really working; sound MM and discpline will always win through whatever the conditions. Even if you get a drawdown if you keep the MM sound then you'll recover when conditions return. Remember its not you "its the market stoopid", if it's not happening you can't force it, something we still all have to remind ourselves of. Unless your strat is a bit weird/highly optimised then the comfort is (IMHO) it'll always work if you're aiming for ten pips.

Just a word on the Euro, it's the only pair I day-trade...it stuck around that major 1400 level (in a bit of a range) like Rooney to a 1200 quid a night gold digging chav. 2 things in relation to that; firstly it's one of those times that price makes a 'kin total mockery of all us hard core TA guys watching indicators, the world and every trader on the planet obviously had orders to sell and or buy at that level also it made that tight range a good 'play' screwing 10-15 pips out of the bounces nice and regular, now it's moved off that sticky area you may find things change..but you'll adapt no doubt.

As for fxcm micro if you get a 2.2-3 pip spread that's similar to the standard account spread and the micro is also NDD so you won't go wrong there, good platform, marketscope is a good package and codebase is something you may want to look into when you get back to work...

Aye, good times ahead, stressful times at the mo - Also have an 18month old daughter... That's just old enough to be a complete pain in the ar$e but too young to give a sh1t.

Aye, MM is well and truly drilled in to me so no problem there. The Euro has been a bitch for me today - Just before I started this thread I had two losers, both of which took out my stop pretty much to the pip then reversed and went beyond my target One of them was my fault though because the range was 5pts so was my stop - Should have left it at 10! When price broke 1.3890 earlier and then retraced I traded the bounce back down and got a nice 30 pips for 10 pip risk so that wasn't exactly part of my strategy but profitable so I'm happy.

As for FXCM, I have to say I really like their micro setup. The platform and marketscope are really excellent. I used to use Finspreads when I lost a couple of K a few years back and had all kinds of problems with them... I honestly don't think I'll ever leave FXCM now for as long as I trade.

 

[Black Swan]

Aye, good times ahead, stressful times at the mo - Also have an 18month old daughter... That's just old enough to be a complete pain in the ar$e but too young to give a sh1t.

Aye, MM is well and truly drilled in to me so no problem there. The Euro has been a bitch for me today - Just before I started this thread I had two losers, both of which took out my stop pretty much to the pip then reversed and went beyond my target One of them was my fault though because the range was 5pts so was my stop - Should have left it at 10! When price broke 1.3890 earlier and then retraced I traded the bounce back down and got a nice 30 pips for 10 pip risk so that wasn't exactly part of my strategy but profitable so I'm happy.

As for FXCM, I have to say I really like their micro setup. The platform and marketscope are really excellent. I used to use Finspreads when I lost a couple of K a few years back and had all kinds of problems with them... I honestly don't think I'll ever leave FXCM now for as long as I trade.

Stable platform, spreads are good (in as much as at best price you get decent/reliable fills), very little slippage (other than at news events)...lot to recommend fxcm at any level. Consider dbfx (fxcm drive the application for them but it's Deutsche's money) when you're ready, only 3.5K to open, spreads of 1.2-1.7 on the Euro. Get yourself over to the fxcm forums, there's no lulz or fights, but it's worth a read/getting involved..

Also you can (iirc) link micro accounts to strategy trader, again might be v.useful when you get back to work if you decide not to check out the codebase link/apps to tradestation/marketscope .

 

[LiamH]

Stable platform, spreads are good (in as much as at best price you get decent/reliable fills), very little slippage (other than at news events)...lot to recommend fxcm at any level. Consider dbfx (fxcm drive the application for them but it's Deutsche's money) when you're ready, only 3.5K to open, spreads of 1.2-1.7 on the Euro. Get yourself over to the fxcm forums, there's no lulz or fights, but it's worth a read/getting involved..

Also you can (iirc) link micro accounts to strategy trader, again might be v.useful when you get back to work if you decide not to check out the codebase link/apps to tradestation/marketscope .

Nice one, I'll take a look at dbfx if I prove myself to be profitable over the next year or so.

I need to get reading up on exactly what Marketscope is capable of because I haven't a clue. It's good fun backtesting different things and I guess it would be good to get something trading for me when I'm at work like you say - Not sure my coding ability (complete lack of) would be up to it though.

 

[Depth Trade]

Liam cowboy, your spread:risk ratio is too tight. You are giving your broker way to much of an advantage.

 

[meanreversion]

I recall having a conversation with the infamous ODT a while back. He stated that he was making an average of 2 pips per trade whilst doing 30 trades a day. I asked him if he was happy that his broker was making more from his trading than he was.. he replied that as long as he was in profit, he didn't care if the broker made 5 times as much from his trading as he did.

It was a fairly idiotic discussion and for all I know ODT has never placed a trade in his life, but overall I do believe one of the causes of retail trading losses is simply from overtrading. You can dramatically reduce your trade frequency by moving stops and profits much further out, thereby reducing bid/ask crossed and time required. It also reduces the "broker advantage" as outlined by Depth Trade (I had not heard that expression before but it's a good one).

The flip side is that you need to tolerate larger swings in equity - this is the bit that takes getting used to.

 

[Black Swan]

Liam cowboy, your spread:risk ratio is too tight. You are giving your broker way to much of an advantage.

Hi DT, been a while seen I set eyes on that chart, could you not put an argument forward that if you're aiming for a 10-15 pip profit (and the vast majority of your trades go into profit at some stage) then your "win probability" is greater than 50%?

 

[Black Swan]

I recall having a conversation with the infamous ODT a while back. He stated that he was making an average of 2 pips per trade whilst doing 30 trades a day. I asked him if he was happy that his broker was making more from his trading than he was.. he replied that as long as he was in profit, he didn't care if the broker made 5 times as much from his trading as he did.

It was a fairly idiotic discussion and for all I know ODT has never placed a trade in his life, but overall I do believe one of the causes of retail trading losses is simply from overtrading. You can dramatically reduce your trade frequency by moving stops and profits much further out, thereby reducing bid/ask crossed and time required. It also reduces the "broker advantage" as outlined by Depth Trade (I had not heard that expression before but it's a good one).

The flip side is that you need to tolerate larger swings in equity - this is the bit that takes getting used to.

Yes it's an argument for swing/position trading which patently doesn't suit everyone's psyche or funds. We can go offside by 200+ pips in a swing and stay with it, yep the broker *advantage* is less in swinging/position trading but there's also the possibility of rollover charges to consider...

IMHO the 50/50% probability cited on the spread-sheet is wrong in practice when aiming for small regular winners. Is it based on a random entry? For the purpose of highlighting the probs (that you'll give your broker more comms) I can't disagree..well duh.. but to describe it as an advantage is bogus imho..

 

[LiamH]

I understand this argument but to me it's not entirely valid as a reason not to trade in a particular way.

I mean, a strategy that is profitable with costs taken into account is a good strategy irrespective of what those costs are.

I don't know if this will be profitable long term although I do hope it will. With a $100 account I can't hold positions with a wide stop with any kind of confidence... Even at 10p per pip I would be risking 10-20% per trade so it's a no go.

I did have $1000 to one side for this venture but the missus had some complications with her emergency c-section. This has meant me taking 4 weeks pat leave rather than 2 and my employer is not kind enough to pay me or give me holiday for this extra time so I am limited to $100 for now.

I do plan to run a longer tf trend following strat at some point in the future but I have to admit this type of trading with small targets\stops and multiple entries each day suits me psychologically.

Also, there are inherent positives and negatives with all trading styles. A quick list for this would be:

Positives - No overnight positions, can deploy 3% risk several times a day, minimum risk of being caught by unforeseen events

Negatives: High transaction costs relative to profit, sensitive to slippage, stressful, time consuming

In summary - I like the strategy and if it's profitable will continue to trade it. First impressions are good but then this is the first time I've even come close to trading well so we'll see

 

[the hare]

Is it based on a random entry?.

It looks like it, but realistically most methods used by relatively inexperienced traders are basically random. Small stops and targets, and short duration trades generally dont work in anyone's favour unlerss they know what theyre doing (and as the statistics show, most dont !)

 

[Black Swan]

I understand this argument but to me it's not entirely valid as a reason not to trade in a particular way.

I mean, a strategy that is profitable with costs taken into account is a good strategy irrespective of what those costs are.

I don't know if this will be profitable long term although I do hope it will. With a $100 account I can't hold positions with a wide stop with any kind of confidence... Even at 10p per pip I would be risking 10-20% per trade so it's a no go.

I did have $1000 to one side for this venture but the missus had some complications with her emergency c-section. This has meant me taking 4 weeks pat leave rather than 2 and my employer is not kind enough to pay me or give me holiday for this extra time so I am limited to $100 for now.

I do plan to run a longer tf trend following strat at some point in the future but I have to admit this type of trading with small targets\stops and multiple entries each day suits me psychologically.

Also, there are inherent positives and negatives with all trading styles. A quick list for this would be:

Positives - No overnight positions, can deploy 3% risk several times a day, minimum risk of being caught by unforeseen events

Negatives: High transaction costs relative to profit, sensitive to slippage, stressful, time consuming

In summary - I like the strategy and if it's profitable will continue to trade it. First impressions are good but then this is the first time I've even come close to trading well so we'll see

Another huge plus to discover whether or not your strat will work/fit for you is the fact that you'll reach a decent sample size in double quick time. 5 trades every trading day for 3 months would be 300 trades, that's a decent sample to have a good looksie at the data and make some considered judgements...Trading one pair (on the swing) for that sample size could take 2 years...

 

[Shakone]

I recall having a conversation with the infamous ODT a while back. He stated that he was making an average of 2 pips per trade whilst doing 30 trades a day. I asked him if he was happy that his broker was making more from his trading than he was.. he replied that as long as he was in profit, he didn't care if the broker made 5 times as much from his trading as he did.

I think he's right on this though. It shouldn't matter. You have your strategy, which makes money. You minimise the costs you can without ruining that strategy, and then enjoy your money. It is not a competition with your broker, it is about you making money for yourself. If you can make enough to do what you want with your life, does it really matter that your broker made lots too? I dont' see why it is even relevant.

 

[Black Swan]

I think he's right on this though. It shouldn't matter. You have your strategy, which makes money. You minimise the costs you can without ruining that strategy, and then enjoy your money. It is not a competition with your broker, it is about you making money for yourself. If you can make enough to do what you want with your life, does it really matter that your broker made lots too? I dont' see why it is even relevant.

Heh and don't forget perhaps the broker may send you some gifts in the post for placing so many trades, like those guys at fx-pro..

I agree, who cares if it works/makes money...

 

[meanreversion]

I think he's right on this though. It shouldn't matter. You have your strategy, which makes money. You minimise the costs you can without ruining that strategy, and then enjoy your money. It is not a competition with your broker, it is about you making money for yourself. If you can make enough to do what you want with your life, does it really matter that your broker made lots too? I dont' see why it is even relevant.

Come to think of it, the strategy may have been more like 50 trades a day, it was a lot.

The approach thus advocated was to sit in front of a screen the entire day, trading many times, risking your capital and then, provided there were no black swan events, the profit would be small and almost certainly less than the broker made.

You can argue "money is money" but come on - who could follow this strategy for any length of time? Certainly you would receive a nice Mont Blanc pen at Christmas from IG, which you could then sell on eBay for £100 (I know a 'high frequency' spreadbet trader to whom this happened, ultimately he quit trading when he went down 40% of his starting equity, which was a material absolute amount).

No, it is not a competition with your broker, but why would you wilfully trade a strategy where the vast chunk of profits is eaten up by bid/ask from constant churning? You aren't going to get a rebate from them when you enter drawdown.

 

[Liquid validity]

I agree with Swan and Mean, both are right for the timeframe involved. For me higher intraday commission charges are the equivalent of rollover, equity swings or stamp duty for position trading.
I see higher commission charges as an insurance policy against news and overnight risk.
Every type of trading has its associated costs and downside.
The bottom line is all that counts.

Both ways work, the key is which way works best for individual traders and the instrument, I do all 3, intra, swing and position trading. For me its a case of selecting the method that best suits the instrument and my goals. Pick the tool for the job. Any method can win or lose - its the trader that decides that, not the method.

The right way is the way that works for you and is profitable.
BTW agree on the 50% strike rate being low for a 10-20 pip target, 80% + strike rate is achievable, and that is the only way it can work. 50% or less strike rate with low pip targets does not work. You also need to be ruthless with losing trades, better yet be ruthless about even entering a potential losing trade...

Good thread

 

[LiamH]

The right way is the way that works for you and is profitable.
BTW agree on the 50% strike rate being low for a 10-20 pip target, 80% + strike rate is achievable, and that is the only way it can work. 50% or less strike rate with low pip targets does not work. You also need to be ruthless with losing trades, better yet be ruthless about even entering a potential losing trade...

Good thread

Yeah, I'm still not sold on the win rate. It's hovering around 50:50 over 31 trades (16 winners) but the profit has come from the trades I have let run for 20-30 pips. Currently 10% up as have had some winners and losers today but overall down by around 2% for the day. I've made some clear mistakes since I started though and missed some seemingly good opportunities (honest) so it still looks promising but time will tell.

As I've already said, I understand the argument re transaction costs but it doesn't bother me personally. Either the market will move enough for me to get my 10 pips + spread or it won't. If it doesn't then this strategy won't work and if it does then I'll make some cash.

 

[meanreversion]

As I've already said, I understand the argument re transaction costs but it doesn't bother me personally. Either the market will move enough for me to get my 10 pips + spread or it won't. If it doesn't then this strategy won't work and if it does then I'll make some cash.

I keep an Excel spreadsheet of all of my trades, the dates of entry and exit, the prices of entry and exit, the amounts, the P/L, slippage and comments.

The slippage is simply the difference between where my system wants to deal and where I have dealt.

As I trade only with IB, I'm also able to dig up my total commission YTD.

I'd recommend you do something like this, if you're not doing it already. You can also include a mistakes column, for when you meant to trade but didn't (for whatever reason). Mistakes don't always have to be negative (profitable trades that you didn't take).. they can also be positive (you didn't take a trade because you were changing a nappy, and that saved you money, for example).

Over time you'll quickly start to get an idea of what needs to be done to improve your trading. For me, it's about not skipping signals.. there are 4 trades I missed this year which would have made an additional 10% of my account (my target for the year is 20%). Because my trade frequency is low, the bid/ask and commission are not that material, but I'm certainly going to keep tabs on them.

 

[Liquid validity]

Yeah, I'm still not sold on the win rate. It's hovering around 50:50 over 31 trades (16 winners) but the profit has come from the trades I have let run for 20-30 pips. Currently 10% up as have had some winners and losers today but overall down by around 2% for the day. I've made some clear mistakes since I started though and missed some seemingly good opportunities (honest) so it still looks promising but time will tell.

As I've already said, I understand the argument re transaction costs but it doesn't bother me personally. Either the market will move enough for me to get my 10 pips + spread or it won't. If it doesn't then this strategy won't work and if it does then I'll make some cash.

Maybe a lower strike rate and 20-30 pip target suits you better, on M15/30 TF with 1-3 trades per day?
Only you can answer that one though, do whatever suits you best

 

[Liquid validity]

I keep an Excel spreadsheet of all of my trades, the dates of entry and exit, the prices of entry and exit, the amounts, the P/L, slippage and comments.

The slippage is simply the difference between where my system wants to deal and where I have dealt.

As I trade only with IB, I'm also able to dig up my total commission YTD.

I'd recommend you do something like this, if you're not doing it already. You can also include a mistakes column, for when you meant to trade but didn't (for whatever reason). Mistakes don't always have to be negative (profitable trades that you didn't take).. they can also be positive (you didn't take a trade because you were changing a nappy, and that saved you money, for example).

Over time you'll quickly start to get an idea of what needs to be done to improve your trading. For me, it's about not skipping signals.. there are 4 trades I missed this year which would have made an additional 10% of my account (my target for the year is 20%). Because my trade frequency is low, the bid/ask and commission are not that material, but I'm certainly going to keep tabs on them.

Good advice, I do the same with Excel, just a copy of statements with the extra info added manually, really does help a lot.

 

[Depth Trade]

Hi DT, been a while seen I set eyes on that chart, could you not put an argument forward that if you're aiming for a 10-15 pip profit (and the vast majority of your trades go into profit at some stage) then your "win probability" is greater than 50%?

Hello BS, yes I guess one could say that win probability is greater the 50% when positions move into profit at some point, but for our example this is inconclusive. We have not defined what exit parameters would have been, so to make our example easy to understand, we use stagnant trade parameters. Once traders understand the basics, then one can explore strategy options.
We still have traders giving up a 15% advantage to the broker

..so my answer is no.

 

[LiamH]

I keep an Excel spreadsheet of all of my trades, the dates of entry and exit, the prices of entry and exit, the amounts, the P/L, slippage and comments.

The slippage is simply the difference between where my system wants to deal and where I have dealt.

As I trade only with IB, I'm also able to dig up my total commission YTD.

I'd recommend you do something like this, if you're not doing it already. You can also include a mistakes column, for when you meant to trade but didn't (for whatever reason). Mistakes don't always have to be negative (profitable trades that you didn't take).. they can also be positive (you didn't take a trade because you were changing a nappy, and that saved you money, for example).

Over time you'll quickly start to get an idea of what needs to be done to improve your trading. For me, it's about not skipping signals.. there are 4 trades I missed this year which would have made an additional 10% of my account (my target for the year is 20%). Because my trade frequency is low, the bid/ask and commission are not that material, but I'm certainly going to keep tabs on them.

Yeah, I really need to do this but at the minute really can't find the time. Once life settles a little I'll make it a priority to start recording my trades, mistakes and missed opportunities properly. I know a spreadsheet should be easy enough to put together but would you mind sharing yours? It would be good to get a template that's already doing the job. No worries if not.