That makes your dealing costs relatively high as a proportion of profit.
That makes it terribly difficult to calculate your position-sizing, as you can’t predict the maximum number of pips you can lose in a trade. If it’s possible for you to lose more than 1.0-1.5% of your account in a single trade, I suggest you re-think your staking-size, anyway. If the system you’re using has a genuine edge at all.
I’m afraid not.
Some of the Michael Harris book is available free on “Google books”, but you probably need to read the Van Tharp one first, anyway (it’s available through Amazon and/or the author’s own website).
With apologies for sounding a skepchick, I’m having a very hard time believing that an MACD crossover can, in itself, be the valid trade-closing parameter of a profitable system which has a genuine edge. I urge you to trade this (if at all) on demo, and not with real money, until you’ve monitored enough to be able to determine the [U]profit factor[/U] (total profits divided by total losses) from a minimum of [I]300 consecutive trades[/I] using the method.
Do a search and get a money management calculator that will allow you to plan your money management strategy. There are free ones all over the net. [U][B]You can not measure profit[/B][/U]; [U][B]you can only measure risk[/B][/U]. That’s why it’s the most important of the 3 things you need to have a chance at long term success.
You need to give your money management and trading method enough time to work. You need to be patient and exercise discipline. Easy to say; not easy to do. Everyone has different ways to do this and you will need to find out what works for you. Trading Psychology is a great place to start.
Your trading method. Nothing works all the time. That’s why money management is the most important. You need to have a system, plan, strategy or what ever else you want to call it, that based on the long term, your system will based on the balance of probabilities will give a chance at giving you more positive results than negative. Again different traders have different methods to accomplish this long term.
Most of us when we first started made the same mistake you seem to be making; worried more about how we could make money over night, rather than how we can lose the least amount as possible while trying to add to our account balance.
Hope that helps
Gp
One more thing. Before you can trade without a stop loss [B][U]“First”[/U][/B] you need to be able to trade with one.
[QUOTE=AMoussa;721593I developed a system using the following : BB, MACD (24,52,9), PSAR, Stochastic (70,3,10). My strategy is i look at 4H chart, i wait for entry position in MACD 5M chart and then i press the button. [/QUOTE]
I am by no means any kind of expert in these matters but I wonder whether the problem may be due to using 2 time frames that are too far apart? If I understood right, you are establishing your trend from the 4H and then entering/exiting from a 5M? Maybe you are trading too much “noise” from a 5M chart within a 4H timeframe? Might be worth looking at e.g. 4H/30M or 1H/5M etc? Just a thought from another novice!
thanks for sharing your thoughts. Look how i do it. i check 4H chart. if going up. i wait 5M to go up until it goes down then i exit. I enter again when it’s going up. because i believe the time will be spent going up will be more than the time spent going down ! hopefully i said it clearly.
Your I idea is great, worth trying. Thank yo for that.
If you made 300% in 3 weeks, you were most likely trading very heavy positions in a period of outperformance for the given system you were trading. Then, as you came out of that period of outperformance the losses mounted. The question remains as to whether you are trading a system with a positive edge. But even if you are, you must understand that trading too heavy can negate a positive edge.
Example: Suppose I will bet against you in a coin flip game. Heads you win, tails I win. If you lose you will lose whatever you bet, but if you win you will win 120% of what you bet. All you decide before each flip is how much you will bet. You would have a great edge in this game. If you bet $1 every flip you would lose $1 each time you lose and you would win $1.20 each time you win. And because this is a coin flip game you would win 50% of the time and thus make money in the long run.
Suppose then that you have $100. If you bet 1% each flip you will slowly increase each bet as your total account size rises. If you bet 2% or 3% you will make money faster. But if you bet anything bigger than 16.6% you will actually lose money in the long run! You will actually negate your edge. Certainly everyone can see that betting 100% each flip will cause you to win big each win but will also cause you to go completely bust on the first loss. But most people cannot see the fact that there are many fixed percentage risk sizes below 100% that will also make this system a loser. In fact, most sizes will (all sizes greater than 16.6%).
Imagine betting 50%. If you lose the first flip you are down to $50. Then you bet $25 on the second and win $30, now you are up to $85. Betting 50% with these odds will cause you to lose over the long run.
Position sizing can make or break your edge. Even a powerful edge can be destroyed by a heavy position size.
The problem you are facing is nothing new. Every beginner as you are have faced the same problem which is not enough trading education and not enough experience. You said that you have developed a trading system and it worked good on the beginning but after that collapsed. I just want to tell you that in order some trading system to be recognized as a successful it need to be tested in a longer time period, at least one year, and if after one year the system is making profits that you can believe that you have something.
Forex market is really unpredictable and not lot of people can succeed.
Please do not take this as a discouragement. If you are enough persistent to go through all the necessary levels of education and experience than may be you will succeed to.
Clearly your logic here is ok. You cannot have a strong move on 4H without significant moves on 5M in the same direction. However when the big moves are too short then the 5M will tend to whipsaw. But I was thinking about your situation last night and I wonder whether it would be worth analysing your 5M trades. Are they initially producing a gain which is then eliminated before your method gives you your exit system?
I think this can often happen where the same indicator setup is used for both entry and exit and moves are too short-lived and/or, as I suspect in your case, the volatility picks up and the method cannot react in time before the profit is too quickly reversed even into a loss. Most indicator settings (especially with lagging indicators like MA’s) are tuned to optimise according to both underlying trend lengths and price volatility. E.g. an MACD signal might react beautifully when a directional change occurs over 4-8 bars with typical price movements per bar of 5-10 pips, but if suddenly the turns are occuring in 2 bars with 15-25 pips per bar then the exit signal will be too late to lock in a good profit and may even give a loss.
Perhaps you could consider basing your exits on a different method or with several techniques, eg:
1: First portion of position after fixed limit, say, 20 pips (depending on what typically your method could regularly and consistently produce on the 5M moves)
2: Second portion targetted using e.g Fibonnaci extensions to catch possible peak moves or RSI returns from 30/70 levels
3: Residue close when method gives normal exit signal.
This would give you a chance to reduce stops after stage 1 (which also gives buffer against possible loss from remaining position), chance to profit from extreme spikes, and still allows you to profit from your basic system when it is working well.
Personally, I think the exit strategy is the hardest thing to optimise!!!
Sorry Manxx but you’re not entirely right…
Think about it. Price falls 400 pips in the first 3 hours of a 4 hour candle, then retraces back 100 pips in the last hour. The 4 hour candle will still show a big fall, 300 pips, but the last 12 5 minute candles will show a steady rise of 100 pips.
This happens all the time, nothing unusual. Over the first 3 hours of the 4 hour move your thinking is correct but, since the 5m candles are used to pinpoint an entry point, we wouldn’t look back at the whole 4 hours in 5m candles but would focus on the most recent upward move as signalling a change in direction or a retracement at the least
Thanks Eddieb, I understand what you mean. However, I think this method is not based on one single 4H bar but on direction based on a MACD signal from a series of 4H bars. In which case, it would have traded the 5M falls during the first three hours of the 4H bar and ignored the 5M rises during the last hour of this same bar (if I have understood it right - and probably haven’t! ). However, you are perfectly right about the imperfections here because probably all the possible 5M sell signals during a likely choppy correction in the last hour would have lost money! All I meant was that you couldn’t really have a drop of 400 pips in 3 hours without any corresponding good moves on a 5 min chart.
Actually, I mentioned in an earlier post that I thought maybe 4H / 5M fractals were too far apart and your advice seems to reflect exactly that - how do you feel about this? What do you consider to be an optimal choice of 2/3 timeframes? I do not have any great experience in this (or anything else when it comes to that!) so I would appreciate your thoughts on this
Hi Manxx.
I generally trade using the 3 ducks system on my Balls of Steel thread.
With 3 ducks, 3 time frames are used, 4h, 1h, 5m, and I agree its a big jump from 4h to 5m.
Ive explained how 3 ducks works here, its a simple and effective system with its own thread and free downloadable ebook
Hi Eddieb,
Great that you should mention that - I actually came across that thread last night whilst browsing around and immediately liked the look of it and started catching up with it. Thanks!
It is important to realize that forex shouldn’t become high risk high return business although there are some people who tried to do that. For long-term of your business, high risk high return is bad choice because if your capital is high enough then the pressure will be higher too. Example : it is easier for traders to risk $10 in account with target to gain $30 in single transaction with using full lot size. But do you think you will do it too if your account is $10.000 and you targeted to gain $30.000 in single transaction? So my suggestion, you must use your good money management and risk management if you want to be succeed in forex business.
Well basically, this is general situation. Here like in casino it is needed to stop in time, especially if you’re a new trader. It is good that you stopped at -100, because you could possibly stop at -300 as well.
Isn’t it obvious you are only trading on technical analysis when fundamental analysis is important also.Check Septembers Economic Calendar and you will see some major upcoming news releases eg,the fed rate hike is the most important this week therefore technical will not do for now until this news is release.
This is well said. Too often one assumes that technical signals mean that the market must subsequently fulfil some pre-set achievement. Most technicals will only tell what the price is doing [I]now [/I]relative to what it [I]was [/I]doing earlier. It is only an assumption that the follow-through will occur based on what has often happened previously in similar set-ups - which indeed is often the case. But the technicals do not drive the market (except for a short burst of self-fulfilment if many people follow the same indicator set-ups). Upcoming news releases will undoubtedly impact follow-though both before and after their release if they are sufficiently important and if their content is significantly different to anticipated. For example, in the week before NFP the USD pairs may fluctuate quite strongly and erratically but are unlikely to follow through in any one direction very far. It is perilous to ignore the economic calendar.
Be aware, also, guys, that “technicals” and “indicators” are not the same thing. “Indicator analysis/signals” is just [I]one part[/I] of technical analysis: there’s a whole lot more to “technicals”, as well, that has nothing to do with indicators.
(I’m not pointing any fingers at any individual posts, here, at all: I’m simply reminding other readers, for the sake of clarification. )
Regarding the OP, I must admit that I am amazed that using:
“BB, MACD (24,52,9), PSAR, Stochastic (70,3,10). My strategy is i look at 4H chart, i wait for entry position in MACD 5M chart and then i press the button.”
managed to grow from 5000 to 12000 in 3 weeks and then to minus in a further week - using[I][U][/U][/I] 5min MACD signals?
This sounds much more like a money-management problem than a faulty system or method. After such a successful start did you go for the big size positions and blow over 12000 in a few trades? Or how did this happen?
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