I want traders to be able to speak about their trading styles. I have had people wanting me to talk about MM and trading philosophy. I always thought about writing a book about it but I am tired or writing. So as questions and thoughts come up I will post them here. Hopefully Steve and the gang wont mind. I am in a debate again over at FF over trading styles. Not everyone agrees with me. In fact the majority of traders would, I understand I am in the minority. I am not a big SL person. I understand that but how I trade works over the long run and is profitable. Here is a summary of my trading philosophy and MM and some of this comes from my debates at ForexFactory (FF). Feel free to disagree or post a different point of view but I wanted to keep my trading philosophy in one spot instead of hodge podge all over my threads. Any good luck and have fun.
If you have not read Khalaad's 'Nuggets' you should go there and enjoy a ton of trading wisdom. I enjoy going there and reading the thoughts in my free time.
http://www.stevehopwoodforex.com/phpBB3 ... f=23&t=248
This if from a post at FF.
3 years ago, I got hammered here at FF for teaching some of these things. I decided to spend more of my time at another forum. Since then I have had many PMs and Emails thanking me for publicly sharing such thoughts as others had been trading similar styles. Since then many traders have come out now and wont put up with the garbage posted by a small but very vocal group of trading with a fraction of a penny SL. Decades ago I used to work for Disney world and they had a program where you bought their stock every week using a percentage of your income. It was based on the simple fact that you believed over a period of time the stock would go up. No one was putting in SL or going for fractions of penny profits. You just bought in small increments and eventually you were on the winning side. Some entrances going profitable sooner than others. The key was to just keep buying into the trend.
Forex is different in that there is no such thing as a currency going up forever or going down forever. What it does is range between two points as business takes place. If you study the monthly charts and go back 20-40 years you can see that price stays with a certain range with a couple of exceptions. For example the eur/usd for the last 15 years has stayed between 1.25 and 1.50 with the exception of a handful of months in 2008. It stays in a range. Knowing this you trade that range. Going up with it until it gets above 1.40-1.50 and go down with until it goes below 1.25-1.30. You play those ups and downs inside that range and you can be a very successful trader. In the last 7 years there have been 11 major trend changes in the euro. All you have to do is follow those long term trends. I actually take more SL than I need too and that is mainly because I have a tendency to overtrade playing with smaller lots and I have to close some out if my total trades to account size starts getting to big. When you have 20-40 trades going at all times every day I can take a profit, several times a day. Occasionally when I see the trend direction has changed on a currency I close out and start the other way.
They snickered and laughed and mocked but every month my account grows and after several years of trading I have taken back my original investment out a long time ago and have been playing with house money. No more beating myself up about my entrances and exits, no worrying about leaving the computer on all night or going out. No more worrying about news stories or avoiding news events. When I travel and fly overseas back and forth from Asia to the USA and back I dont have to close out my trades and restart. I land get a good nights sleep and check my computer. AHHHHH look at all those trades that went into profit. One time there wasnt any and I set my next set of trades as I caught all the reversals back to the median. Day in, day out, week in, week out, month in, month out, year in, year out: over and over and over my DD is statice between 0-10% occasionally going to 20% (thats when I cant believe a currency is changing direction and get stubborn, usually the CHF) but at 20% I take that 3-7% loss and continue on.
The only thing that matters is my account balance keeps growing and occasionally I have to use my profits to close out some negative trades. DD is static day after day, month after month, year after year but the account balance grows. It is like interest every month being applied to your account. 5-10% every month. 5% a month over 3.5 years equals 7X your original account balance. If you dont understand compound interest and how it grows money over time you wont understand this. If you do and can understand that trading ten or twenty cent trades on 10K of account can constantly accumulate an a account to grow to 70K in 3.5 years then trading seventy cent to one dollar and half per lot and build to 490K in 7 years, etc. You then begin to understand that a frozen or fixed DD in the 5-15% doesnt bother us you can then begin to grasp how we trade. We may not use the same trading methods and you can be like ..................... and argue to your blue in the face that you can trade the same way using single trades (you really cant, it wont work using SL). The reason it is so difficult to trade with tight SL is when you close the loss you face the same problem. It is like negative interest, instead of a floating loss that never accumulates you are accumulating losses that act just like interest in reverse on your account and it slowly or quickly drains it away. (Depending on lot size to account size)
The bottom line is I went to bed at the beginning of the USA session on Friday and wont touch my account until Monday. I had nothing to worry about. No matter what price did I will be able to trade again on Monday.
I trade in a way that allows me to trade again the next day. I trade in a way that allows me to sleep all night, take multiple day trips away from my computer, watch a movie on TV when NFP happens every month. Yes that is what I do every NFP. I set my trades for the night about 15M before the market open and watch a movie. Come back in 2 hours and see what happened.
Occasionally when I am convinced a currency has changed directions then I close out and start looking for my best trades the other way. When you finally get really really really frustrated with trading. Go to a monthly chart, find your direction, go to a daily, 4H, or 1H chart and trade in that direction. Then put a 1000 dollars in a account and trade 1 penny lots. When price goes against you 100 pips and its 1 dollar in the hole you go thats nothing. When it goes 1000 pips in the hole and its 10 dollars down you wonder what everyone at FF is getting all excited about. However, since you followed the long term trend you start getting 200 pips here on one currency during a week, and 300 on another and 150 on another and you enter into a trend with mutliple positions and instead of getting 200 you learn how to get 3,4,500 pips on one currency in a week and some SL nut is screaming but you are down 200 pips on some currency but you pocketed 500,1000, 2000, pips on others. You go SOOOOOOOOOOOOOOOOOOOOOO ...................
There are people beginning to understand this about Forex trading. They see that you play the ranges, the long term trends, you trade small lots and in 3 years you are trading ten to twenty cent lots and you now have 7000 in your account and the same bozos are still arguing with you that you are not a trader and you dont know what you are doing and ............................ meanwhile the brokers cant margin you out, SL you out, spike you out, increase your spread and force you out of the market, and they are on the hook for your profit at some point. They hate us because the only profit they will get out of me is the pip spread. You wonder why bluesteele, nubby boy, (I would never put Hanover in this group) come here and spill their vile language all over the screen making sure you dont follow this small group of profitable traders that get it. Some day at some point you will understand the guys who trade with million dollar accounts trade small lots to account size, low leverage, use multiple entrances, follow long term trends, and never trade in a way that puts their account balance at risk. I finally learned those lessons and 3-4 more years of this and I retire. Have a good day. |
