GBP/JPY Equity Building Profitable trading strategies

[mykungfuisgood]

Well I think its because people have a poor understanding of margin/money management and leverage.

I think its what you describe 4xstar. Where people open too many positions and don't fully realize the risks that they are taking when they have a high leverage. I mean an easy example would be 100:1 or 400:1 on a 500 USD account.

At 100:1, a 1k lot on GBP/JPY costs approx 20 USD.
At 400:1, a 1k lot on GBP/JPY costs approx 5 USD.

Its written all over the site here to never risk more than 3% of your total account. So people go for the 400:1 and open 4 lots where as the person with 100:1 leverage would only open 1 lot. (each of these is 4% of your 500 USD account)

The trick comes in that at 100:1 with 1 lot open you are playing about 0.09 USD a pip and with the 400:1 with 4 lots open you are playing about 0.38 USD a pip. So with the 100:1 you can sustain a 5000+ drawdown, but with the 400:1 you can only sustain a 500 drawdown

<edits>
I think if you wanted to really blame anything, its that people don't sit down and take the time to work out the arithmetic. Just exactly how much drawdown can I sustain, exactly how much of my account am I using/risking if I open 'X' amount of lots, etc.

Its the same if you look at people deciding win/loss ratios instead of taking into account the risk/reward ratio aswell. So many people look for a 90% winning strategy even if its only 5 pips and they risk loosing 50 pips. But a 40% winning strategy that wins 100 pips and loses 40 pips will beat the first system. In fact the first system ends up being unprofitable over the long run.

[4xStar]

Andrew what is your timeframe on the candles below, is it always 3 hour?

I just got a LL at 212.76 and another at .88, I plan to sell the second at +25 pips and let the first one run to +100 if it is Her Majesty's pleasure, of course.

Originally Posted by Andrewunknown

Are you calling me a fool? Trading the pair up and down is chaotic if you're day trading it (what everyone calls scalping here), but I don't operate that way. The combination of spread and (potentially adverse) volatility makes lots of intraday RTs unattractive.

Short from 213.63; but, I'm leery of a reversal candle at the 213, and by the look of it, a bullish reversal may be in the works - a harami/inside bar. If the 2200 ET candle closes above the 2000 ET candle, that will complete a three inside up pattern, which turns things back up, momentum permitting. The last time a three inside up pattern occurred on the Guppy? 0600-0800 ET on 07/16 in the low 208s. How many pips did that reversal signal produce? If any of those occur and is validated overnight, the HL/HH (higher low/higher high) beginning with the high on 07/17 would remain intact. 214 remains the level to close above.

[trav72]

Originally Posted by 4xStar

so if you have 400:1 leverage and are 40% into margin, that is much riskier than having 100:1 leverage and being 40% into margin .. is that it?

There is two types of leverage.
The leverage to open the position (ie deposit required) be it at 100:1 or 400:1, all is different is your deposit ie 1% of lot size or .25% of lot size. The pip value is the same for both. so the risk the same...you will make or loose the same amount of $ regardless of leverage.

Then there is true leverage....which is different,
That is the leverage of your account in relationship to your open position.
The broker platform wont tell you this, the broker figure is for the one above, this true leverage is something you calculate yourself...if you want...i dont...but it is true here that the higher leverage the greater risk, because your account isn't as big as your open position.
if you have $1000 account balance: and you open a $10000 lot (pip value=$1) your true leverage 10:1 but you may be using the 400:1 broker leverage to open the position so you deposit the $25. Therefore you have $975 left to lose/risk.
If you have $500 account balance: and you open a $10000 (pip value=$1) your true leverage 20:1 but you may be using the same 400:1 broker leverage to open the position so you deposit $25. Therfore you have $475 left to lose/risk.
Therefore the higher true leverage the more risk.
The higher broker leverage then just means less deposit, more margin available to play with..open positions etc..
True leverage is where the risk is associated.
If your true leverage was 400:1 it would mean you would be opening a $10000lot with only only $25 account balance, so as soon as you open the position with the brokers 400:1 leverage it would cost $25, therfore your balance would be $0.
if you used the brokers 100:1 leverage you couldnt even open the position cause you would need $100 deposit (ie account balance would be -$75 to open position

[4xStar]

Ah! Thank you for that .. finally I think I understand leverage and what true leverage means .. I mean, I knew the definitions but did not fully get how they worked in practice.

Did you see the spreadsheet I made? traderstar dot com/excel-link.htm.
Maybe you could check it out & see if the formulas are correct, I think I am almost there. If so, this could be a useful tool to help people figure out how many lots they can own or how much dd they can take based on acct size & leverage.

Originally Posted by trav72

There is two types of leverage.
The leverage to open the position (ie deposit required) be it at 100:1 or 400:1, all is different is your deposit ie 1% of lot size or .25% of lot size. The pip value is the same for both. so the risk the same...you will make or loose the same amount of $ regardless of leverage.

Then there is true leverage....which is different,
That is the leverage of your account in relationship to your open position.
The broker platform wont tell you this, the broker figure is for the one above, this true leverage is something you calculate yourself...if you want...i dont...but it is true here that the higher leverage the greater risk, because your account isn't as big as your open position.
if you have $1000 account balance: and you open a $10000 lot (pip value=$1) your true leverage 10:1 but you may be using the 400:1 broker leverage to open the position so you deposit the $25. Therefore you have $975 left to lose/risk.
If you have $500 account balance: and you open a $10000 (pip value=$1) your true leverage 20:1 but you may be using the same 400:1 broker leverage to open the position so you deposit $25. Therfore you have $475 left to lose/risk.
Therefore the higher true leverage the more risk.
The higher broker leverage then just means less deposit, more margin available to play with..open positions etc..
True leverage is where the risk is associated.
If your true leverage was 400:1 it would mean you would be opening a $10000lot with only only $25 account balance, so as soon as you open the position with the brokers 400:1 leverage it would cost $25, therfore your balance would be $0.
if you used the brokers 100:1 leverage you couldnt even open the position cause you would need $100 deposit (ie account balance would be -$75 to open position

[trav72]

gee, these bears i can catch with my eyes closed

[rrram2]

I still have my LL at 213.28. I got one at 212.49 and 212.25 scalped both of those for 45 pips between the two of them.

SItting with just my loss leader, I got a good nights sleep, she looks a little toppy now but same plan. 212.49 212.20 211.65 and I will thicken them up depending on market considtions. But all of this is mechanical and no indicators. As If I was using an indicator, it would have told me to sell at 213.28, but looks like she dipped and is back.

If you had more margin than me or a higer risk tolerance you shold have made more than 45 pips last night. But nonetheless made those pips while I was sleeping. And 45 pips a night isn't so bad while you are sleeping

[Andrewunknown]

Originally Posted by 4xStar

Andrew what is your timeframe on the candles below, is it always 3 hour?

I just got a LL at 212.76 and another at .88, I plan to sell the second at +25 pips and let the first one run to +100 if it is Her Majesty's pleasure, of course.

Sorry I didn't make that clearer: that was on the 1H, though there was actually the same pattern building on the 3H; but, the 2200 ET candle didn't step up to confirm. Good upside pips off the hammer on 0400 ET at fib fan support, though! That was the higher low we were looking for - now to see if NY pushes this over the edge.

[trav72]

off she goes again toot toot!!

[Andrewunknown]

Head and Shoulders forming on 1H, with first shoulder marked as swing high on 07/17?

Just playing the antagonist.

[rrram2]

I had to sell my LL for 34 pips. I am flat GJ again, looking to get long around 213.00/20 she is going to have to come down and get me. My last LL was @ 213.28 so 34 pips on that was good but looks like I could have rode it all the way a few pips hugehr into the fib.

In any event She needs to come down and get me as I will be away today so I want to get one lower.

/me waves to m2p on the sidelines.

I think she is very violently going to jump up, But hope she comes down to get me, if not I will miss the bus. BBL

GJ Stats for the week so far 77 pips and with that I am off