10.4 A Complete System

[pips400]

A single day's trading should never risk more than a set small amount -- maybe 5% or 10% of your account. You should NEVER be able to drive yourself into MC because a few trades went against you, because they WILL.

Keep your sizes smaller, and exit your losers, so your losses are contained.

This is a really helpful topic for a lot of people, thanks VirtualFM for sharing. Thought I'd throw my 2 cents in, hoping in may help someone thinking about doing this. The danger here is being over exposed to risk. And yes, in theory it is possible for experienced traders to recover from these kind of positions, but the trade management, stress, exposure etc is very high. I would agree with Gary on this, take the loss (which shouldn't be any more than 1-2%) and move on. You can't make every trade a winner, in fact it's really important to factor in losses in the overall strategy. Even 50:50 with a decent risk reward will be profitable in the long run. Accepting losses is a critical element to any trader, and should be seen as part of the nature of trading forex, if we try to make every trade a winner, there are a couple of things that can happen. One is fear, and we can avoid even getting into a trade because we want the "pefect setup" and we'll miss a lot of the action, the second, is that we can end up with the wrong focus. It's important to trade the edge and not the moment.

[davek]

"Pedigree"]Baluda’s GlobalMarketTrend indi has been around for months now, but it was only a few days ago that I started using it. Dumb ole me!!

Hi Pedigree:
How did you get Baluda's GlobalMarketTrend Indi onto the 10.4 info page so that it shows separate from the h4 and d1 in its own window. I attached it to the info page but it is overlaid and not in its own window?

thanks,
davek

[zentauro67]

"Pedigree"]Baluda’s GlobalMarketTrend indi has been around for months now, but it was only a few days ago that I started using it. Dumb ole me!!

Hi Pedigree:
How did you get Baluda's GlobalMarketTrend Indi onto the 10.4 info page so that it shows separate from the h4 and d1 in its own window. I attached it to the info page but it is overlaid and not in its own window?

thanks,
davek

Draw it to the top, where price is hidden.

[VirtualFM]

Thank you guys for your comments on my post! I know what you are saying, and believe me I didn't start to do this without some heavy thought.

I've been doing what you are saying and all, following the rules, using a SL at MA240 and taking it without even blinking (as I said on the post from last week). But this thing about making a SL at MA240 is really a long distance sometimes. And when it get's hit, it usually takes away about 10 previously profitable trades, and that sucks bigtime!

I've been used to blow up accounts. I've been loosing for the last 2 years, more or less. Yeah, I know all about Demo Accounts: they teach you nothing... at least in my opinion... because when I loose 50K in a Demo Account... I really don't care! And as a consequence I learn nothing, change system/EA/indicators and open a new account and repeat the process, also learning nothing. In a real live account when I loose $5 I go back and analyse WTF went wrong, I carefully analyse when I did put the trade, try to figure out why the hell I did put the trade in the first place and try to understand what I did wrong or could have done better. So I've been loosing money consistently, but also consistently making each investment last longer, learning a lot continuously (I remember one of my first tries watching in disbelief $500 vanishing in a couple hours... that never happened again, thankfully!). I am taking all that "loss money" as an investment, as a "crash course" on trading, as if I paid one of those courses to some "Forex Gurus" costing thousands.

In short, if it happens also this time, so be it, another experiment going wrong.

But I hear you and I know you are mostly right. And I say "mostly" because I am not adding to those positions blindly, I am still following 10.5 rules, still onto the trend (that EURNZD was an exception), still obeying RSI2 and CSS... and only doing it when the trade is not going where expected (again, following 10.5 rules). And since last week the markets were doing anything but what was expected, I used this reasoning and, as you said, luckily it worked!

Hey, isn't this summer's top music called "Get Lucky"?!

Anyway, now I only have positions opened in 3 pairs and hopefully I will be able to manage them next week. Then I will report next Friday.

[davek]

"Pedigree"]Baluda’s GlobalMarketTrend indi has been around for months now, but it was only a few days ago that I started using it. Dumb ole me!!

Hi Pedigree:
How did you get Baluda's GlobalMarketTrend Indi onto the 10.4 info page so that it shows separate from the h4 and d1 in its own window. I attached it to the info page but it is overlaid and not in its own window?

thanks,
davek

Draw it to the top, where price is hidden.

Thanks Zentauro67, that did the trick.

[kwanann]

I am taking all that "loss money" as an investment, as a "crash course" on trading, as if I paid one of those courses to some "Forex Gurus" costing thousands.

In short, if it happens also this time, so be it, another experiment going wrong.

Thats the key VirtualFM!

Its all about the experience and knowledge gained. sure you might profit from it or get a loss from it, but what you have learnt is something that will never be lost and is unique only to your journey.

But all these little things will add up till one day you have your own trading strategy that just works for you.

Good luck with your trading!

[garyfritz]

I've been doing what you are saying and all, following the rules, using a SL at MA240 and taking it without even blinking (as I said on the post from last week). But this thing about making a SL at MA240 is really a long distance sometimes. And when it get's hit, it usually takes away about 10 previously profitable trades, and that sucks bigtime!

Sure does. So DON'T DO THAT!!

If your losers are 10x bigger than your winners -- so one loss wipes out 10 previous wins -- you have to hit over 90% wins to come out ahead. You CAN'T tolerate losses that big.

Put your stop at the right place for your strategy. Then SIZE YOUR POSITION so that SL represents an acceptably small loss -- maybe 1-2%, maybe more, depends on your strategy. **DON'T** size all your trades the same, because then big SLs will kill you!

If the correct stop is far away, use a smaller position size. So say you have a $1000 account and you want to risk 2% per trade -- a reasonable risk level. 2% of $1000 is $20, so you want to risk $20 per trade. Let's say your usual SL is about 20 pips. That says you should trade a 0.1 lot, so you lose $20 = 2% if you hit the SL. Now say the MA240 SL is 100 pips away -- you're risking 5x more pips. If you traded the same 0.1 lot size, you'd be risking $100, 5x more % loss. So you should trade 1/5 as big, 0.02 lots, so you're still risking $20. Then a 100-pip SL will cost you the same 2% loss as a 20-pip SL.

Your wins will be smaller with those small positions, but you will control your losses so you don't blow up your account with a few bad trades. You might want to see if there are good SL points closer than the MA240, so you can use a smaller SL => larger position size.

[nanningbob]

VFM, I agree you got **lucky**. Trading multiple positions is fine, as Bob said, but you made several serious mistakes:

But EURNZD was not getting back on track and even if it was not even close to DS3 I forgot how huge the volatility of EURNZD is, so I was already on a DD of 200+ pips on that and suddenly it dropped even further for 350 and on and on (reaching 455 pips on its peak DD).
If I closed it by then it would been an huge loss (at least psychologically speaking).

Holding onto a position because you don't want to admit you're wrong and take the loss is a good way to blow your account. The market doesn't always oblige by turning around to rescue you. This time it worked, but that's a dangerous practice. You should have an exit level in mind when you enter the trade, and you should stick with that. Limit your losses from any one trade.

This worked throughout the rest of Wednesday and Thursday, and as such Wednesday got a good 13% increase of my balance and Thursday was also reaching 13% at some point... but this implied much more screentime than I was used to, and suddenly I was caught by JPY hiccup strenght and USD weakness and my hands were full of trades and a margin call was arriving. I fought a valiant battle against it and won (sweating under an available margin of 19€!)

If you were flirting with an MC, then in addition to not limiting the risk on your positions (by exiting when they go a certain amount against you), you are also trading TOO LARGE. Making 13% a day doesn't do you any good if you blow up the account the next day. How many times has Bob said "trade to trade another day" ?? You WILL have strings of losses, it WILL happen, so you need to trade so you can SURVIVE those losses. Keep your size small enough, and your position risk small enough, so your worst-case losses are limited to much less than what would cause an MC. A single day's trading should never risk more than a set small amount -- maybe 5% or 10% of your account. You should NEVER be able to drive yourself into MC because a few trades went against you, because they WILL.

Keep your sizes smaller, and exit your losers, so your losses are contained.

Good comments by Gary. When I multi-level trade I dont use my full position to enter trades. I start with partial positions. For example is I trade 10 cents lots per 1000 dollars of an account my opening position maybe a 3 - 5 cent position. i dont enter the rest of my position unless I like the trade and is moving in the direction i want it to go. Then I can add positions to a trend. If market is not trending (like now) then I never use my complete position on a trade. The benefit of this is my losses will then be a part of a full position but a winning trade will get a full position in parts.

What this does is if a trade is just a bad entrance but it still looks like a good trade I can enter the 2nd part of my position. If it doesnt look good then I can cut the loss but my SL is only part of the full trade. This is multi-level trading or scaling in. Sometimes I use it to recover a bad trade to break even. Dont have to do that much with 10.4. If a trade is bad in a ranging market I will take the BE with my second trade and start over. It is very rare for me to get into a full position when I have a losing trade.

This last month has been a tough trading because of sudden unexpected spikes because of Central bankers not saying anything. I dont know how to trade not saying anything news. So I have had an unusually higher SL hit rate and taking trades out because they look bad. You go through periods like this but my account balance has stayed stable because I am not taking full position losses.


Eur/nzd and gbp/nzd are really wild pairs so I like trading them but I give them lots of room. I expect the Euro to head south in the future but for now it is doing a nice rally in the DT. It was time so not too surprised. Be ready though if Greece or Portugal hit the news again because they can drag the Euro down, which probably will affect the GBP and CHF also.

[zentauro67]

Not an easy subject the SL rules. The original 240 SL is for me perfectly valid in a 3 months average trends scenario. Just zoom the chart and study the behaviour of the market in the last 12 weeks. AUDUSD, for example, admits this kind of large SL. It´s trending fine and deserves a 240 SL.

When you find 3,4 weeks trends (quickie trends) as we see this summer in many pairs it seems wiser a 60 LWMA (20 pips above/below) SL. If price crosses 60 in the wrong direction the trend is still valid but becomes dubious. Beyond 60 the chances of resuming the trend or a reversal are for me just the same. I lost interest beyond this line. So, I´m using it now as SL. (Sometimes, also last swing H/L or even PSAR).

If you consider 240 LWMA too far and 60 LWMA too near, try a 94 EMA as last line of defense. Some statistics (computing 300 years of data markets) consider that beyond the 94EMA the trend is almost dead.

See how after the 94 cross price speeds into the reversal. That painful moments of acelerated DD where all we blame the market, central banks, etc, happen often between the 94 EMA and the 240 LWMA.

Screenshot - 14_07_2013 , 16_33_37.jpg

[garyfritz]

Another point I should have made: by sizing your trade appropriately, you can prevent a big SL from eating a huge part of your account. That's critical for survival.

But you also need to make sure you have a positive expectancy. You need to win more than you lose.

If you size down when you have a big SL, that keeps your SL losses consistent in size. But when you size down, it sizes down your wins as well.

If your wins and losses are usually the same size, and you win 60% of the time, you'll come out ahead. On average, you'll win 60%*1 - 40%*1 = 0.2 per trade. But if you have a lot of big SLs, and you size down accordingly, then the wins in those trades will be smaller. And that will affect your win/loss balance. If you still win 60% of the time, but your average win size drops to 2/3 the size of your losses, your average trade becomes 60%*(2/3) - 40%*1 = 0.

So be sure your expectancy (average trade profit, determined by win% and win/loss ratio) is high enough to stay positive even if some of your winners are smaller.