But how to realize the change of the long-term trend? I know you say that price crossing the MA240 is trend changing, but it is not so rare event than I expected, causing my SL hit many times. In these cases the trades were opened according to EDSEL rules, but while the hit-rate is quite good, the few big losers (SLed) overweight the small winners. And many times the trend continued in the direction of the original trade, after stopped at MA240...
Do you have a good strategy to recognize trend changes early?
When price is ranging and you are around the 240 line I change to a ranging strategy, which is what the market has done most of the year. The TMA is really good for range trading and 240 60 is really good for trend trading. It is like the gbp/usd trade of last week we discussed in the 10.7 thread. I was really going for a continuation of the trend trade and it became a range trade. So instead of a stop loss I entered a 2nd trade off the top of the TMA and profited from that and almost BE on my original trade.
Again the only answer is the CSS. USD was stronger so I played that it would range back against the GBP. That is the only way i know.
So it looks like something this (with a few questions):
1. let's assume a long trade: you open it above ma240 & ma60 when sto7 starts upward
2. unfortunately the price falls back under the ma60
3. you change to range trading (do you close your losing long trade here, or keep it?)
4. you open a short from the top of the range (ATR channel) -- if you have kept the long trade, then this is a hedge, right?
5. you close the short at the bottom of the ATR channel (and so the long trade - if hedged - or play for the bounce?)
Retail traders, don't sell yourself short. What we looked at as far as technical, charts, fundamentals, etc is pretty much the same thing that you look at as well. The Spot guys would always talk about highs and lows and support and resistance. Some would use that to "run stops" (meaning getting the price to trade that level to uncover s/l loss orders in order to make a few pips. So be careful where you put your stops, the bank traders will gun for them if they can!!!! Also, there was never any Hedge Fund's that did anything you and I wouldn't do, if eur was selling off because of Draghi's comments they sold like the rest of us only in size. Don't be impressed with Hedge Funds at least when it comes to the spot market. They don't know anymore or are anymore sophisticated that you are, its just a matter of degree. I give you another example, the biggest FX fund (or at least most well know) out there when I was in the business was FX Concepts. They gave back their customers money a year or two ago because they couldn't make money trading FX.
Give yourself some credit guys, if your making money be proud of yourself's....if not then you have to keep at it if you truly love it.
So it looks like something this (with a few questions):
1. let's assume a long trade: you open it above ma240 & ma60 when sto7 starts upward
2. unfortunately the price falls back under the ma60
3. you change to range trading (do you close your losing long trade here, or keep it?) Yes your chances of placing a 2nd trade and breaking even or even still making a profit are very good. If you break from a trend to a range a 2nd or 3rd trade will most of the time pull you out of the fire and still be profitable. I do this all the time. Its when you go from ranging to trend that can get you into trouble. I did that earlier in the year because I range trade the gbp/cad alot. It is one of the best ranging pairs out there. However, the CAD collapsed on that pair and I dug myself a big hole. I just couldnt believe after years of range trading it was going to go on a 1000+ pip run. It has taken me almost 4 months digging my self out of that hole. The only reason I tried is because of positive swap and I enjoy the challenge. I had a chance once to bail with a 1% loss and I just couldnt find a reason for such a collapse of a currency without a major news story going with it. So I ended up playing with it until I can now see a BE point on the mess. I now could close it out and still be profitable for the year but I love the challenge.
4. you open a short from the top of the range (ATR channel) -- if you have kept the long trade, then this is a hedge, right? I cant hedge trade in the USA so the only thing I can do is take a loss or set up a second recovery trade.
5. you close the short at the bottom of the ATR channel (and so the long trade - if hedged - or play for the bounce?)
I had only started playing with hedge trading when it got banned in the USA. The only real use I see for hedging is to take a time out so I could plan an exit strategy. For example I have been range trading and price breaks out bad against me from some news story. I then could hedge the trade and relax to plan recovery strategy, sit out the move until it retraced, or figure out that a loss would be the easiest course of action. Hedging allows you to walk away and say, I will deal with this tomorrow. That is the one value I see in hedging, a time out. To think people see this as dumb is beyond me but I wish I still had that ability. Sometimes before the USA open there will be a run and I have to go out or teach. I wish I had the ability to just hedge and say I will get back to you later and get out of my trouble during quieter time in the market. For example a unexpected move of 100 pips puts me in the hole. I could hedge it come back later and get 4--25pip trades elsewhere and then call it a BE. OR I could pick up the trade later and follow the retrace back down after profiting the winning hedge and seeing price retrace back and close with a 30-60 pip loss instead. It just gives you a breather so you can decide what you want to do later.
From 1mil to 25mil in a span of 12 years, that's 34% compounding annually.
That is a comment from a true professional trader. 30% plus a year is considered very very good in the field. If you can do better than 15- 20% a year, you are a very good trader.
Here is a another comment from a professional trader. He would disagree with some of my trading practices but still he gives some good advice.
I thing the first you should realize is institutional traders don't really know any more than the "retail" trader ( I put retail trader in quotations because what makes you (and myself now) retail is we get horrible spreads and position rolls for those who carry trades overnight. otherwise you are just as much a trader as I was when I traded at my bank.
Before I even begin, you your trading account is you primary source of income then you are at a disadvantage from the start. If you are paying your rent from your trading p/l it's tremendous amount of pressure. I realize trading is about making money BUT if you basing your trades on how much money you want to make on it or how much your are willing to lose on it then it will be a struggle (not impossible, just not a healthy environment financially and emotionally)
I can only speak for myself as far as what made me successful from a prop or discretionary trading point of view (I won't include the skill set needed to manage a trading book in a bank)
I'll try and put it in order of importance.
1. I (tried) never followed anyone else's trades or trading styles. You have to find your own way and style of trading that works for you based on your personality. Advise is fine, and when I started out I would ask the senior dealers what they were looking at and how they thought about trading but ultimately you need to develop your own trading style.
2. I wrote down (tried) every trade I executed! You need a big enough sample size of trades to see how and where you lost and made money. I would see if I suck to my "plan". If I did then maybe I need to change my strategy (which I did a few times before I came to the system I trade now which has proven to be successful for me) or maybe it just wasn't a good market for my trading style. In that case I would sit back and wait, you don't need to trade everyday!!!
3. I (tried) never average a losing trade. There are times where it may work but over the long-term its a recipe for disaster.
4. I never (tried) to pick tops or bottoms. I can't tell you how much of my p/l went down the proverbial toilet thinking "this currency is way over done to the topside or it's gone down way too much it has to bounce any second".
5. I (tried) always to trade with the trend. I know you and everyone else has heard this time and time again but it is true.
6. I (tried) didn't feel the need to trade everyday. Sometimes the market just plain sucks and its best to do nothing.
The above is what worked for me, others may disagree or have differing opinions which is fine if that's what works for them. We can all have different styles and still make money. Also if you noticed I have put tried in parenthesis to point out that I still make the same mistakes I did years ago only not as much as before
Man I love these guys. It helps me to understand myself more. People ask me why did I take a trade. I feel like saying I dont know but here is a good explanation. 1.2 Million DD in one month, wonder if that was more than 10% of his account
For me "feel" is very important. The only way I was able to get that feel or"intuition" or "hunches" was to sit in front of my screens and just watch the markets constantly whether I had positions or not. Something I do to this day. Even though the majority of my trades are generated by my model I take advantage and trade on certain feeling or hunches. Feel or intuition or hunches are your sub-conscientious telling your conscientious mind "listen you dope, I've see this pattern or price action a thousand times before and the probability is a certain thing will happen. Don't question it just do it."
Max trade sizes are really different for everyone based on seniority and the product you traded. Suffice to say I had plenty of rope to hang myself or make my budget. My max drawdown was 250K in one day, if hat was reached I had to go to my boss and explain the position. The DD for the month was 1.2 million, if I reached that then they would shut me down for the rest of the month.
Thanks Magix, I forgot you were an institutional guy too. I just wanted to make sure that my risk profile made sense. What I do is if my floating DD exceeds 3% then I will trim positions until we get underneath that number, I try to keep that DD static while I accumulate positions.
It looks like this is what the big boys do too, and that is something I have wanted to know for quite some time.
Another guy, 20% DD is my max also.
What Magix has said is right on the money. I would imagine those are the guidelines Funds and money mangers would use. The thing you have to realize trading for a bank is sometimes I have no control over my position because I am there to facilitate corporate and/or institutional (i.e real money funds and Hedge Funds) business. I may get positions dumped in my book(s) that are to big for me to get out of right away without driving the price against me. Usually when the market goes screaming up or down, as a market maker I am invariable on the wrong side of every customer trade. Those positions can sometimes show a big loss or gain until I neutralize the risk. So if this happens in say January I may have little to no p/l in my book(s) at the time so the percentage gains/losses are grossly over reported. Under that scenario I could easily have a DD over 20% or more. My boss would never tell me to get out of that position because I was down 20%, my job then becomes to manage the risk and see if I can make money on that position. Banks use risk guidelines like NOP (net open position) Value at Risk (VaR), DV01, etc.
Stop hunting is most of the time not the brokers but:
On a lighter note, for us Asians, sometimes it's just for pure superstition. We run the noob stops at the start of sessions because for us, the first couple of trades just HAVE to make money, otherwise it's just gonna be bad luck for us the rest of the day! LOL
Thanks skenobi, that information alone was worth joining the factory. I only recently stopped putting hard stops in the market and decided to trade smaller position size insted. It's good to hear it from a professional that stops do get run.
Anyways I have to go. Hope you enjoyed what others who trade have to say.
Retail traders, don't sell yourself short. What we looked at as far as technical, charts, fundamentals, etc is pretty much the same thing that you look at as well. The Spot guys would always talk about highs and lows and support and resistance. Some would use that to "run stops" (meaning getting the price to trade that level to uncover s/l loss orders in order to make a few pips. So be careful where you put your stops, the bank traders will gun for them if they can!!!! Also, there was never any Hedge Fund's that did anything you and I wouldn't do, if eur was selling off because of Draghi's comments they sold like the rest of us only in size. Don't be impressed with Hedge Funds at least when it comes to the spot market. They don't know anymore or are anymore sophisticated that you are, its just a matter of degree.I give you another example, the biggest FX fund (or at least most well know) out there when I was in the business was FX Concepts. They gave back their customers money a year or two ago because they couldn't make money trading FX.
Give yourself some credit guys, if your making money be proud of yourself's....if not then you have to keep at it if you truly love it.
!!!!!!!!!!!!!!!!!!!!!!!
Some really fascinating stuff in these posts Bob!!! Please keep them coming.
