Diary of a position trader

Trading Systems
250

I have been back-testing the system’s outlined in his book and with channel breakout’s it is relatively easy, but with trend analysis and the conqueror it gets tricky depending on what time you plan to enter and exit the trade. Enter on next day close vs enter on next day open and vice versa for exiting trades and to top this going back for 4 years and doing this for multiple currencies is very time consuming. I will most likely force myself to back tests the methods though just to gain extreme confidence in the systems and not to question myself whether they work or not. Whether I try them on all currencies, well I doubt I would go that far. The conqueror is a pain to back-test!

Also in reply to your taking a break, it may be good if your feeling like the system doesn’t work during this market, actually according to my back-test his methods did extremely well in 2008 and 2011 was one of the worst years (my entries may differ than yours).

The problem I have with it is that Smith’s systems are built on massive hits, not hitting singles with >60% win/loss ratio, if you miss one or two of these during the years it can have a drastic effect on the system results. For example in 2008 for eur/usd with the channel breakout alone I believe my back-test produced over 2,000 pips for the year, yet 1,000 of them came from a single trade!

Let me know what you think of all this

251

Smith has said he relies on a few big moves a year to make his profits, not trading every day, so I’d firmly believe that half the profits could come from one trade.

This also aligns with Ed Seykota’s comments that ‘One good trend pays for them all’:

The Whipsaw Song - YouTube

252

A turtle trader would make the majority of their profits from a handful of trades each year. This is the system in a nutshell. I would contradict the thinking that if you are on a draw down to take a break from the markets…if anything I would advocate increasing bet sizes at this time. But that’s just me :slight_smile:

The most important thing of all though it to consistently trade a system because as you say, if you miss that one 1000 pip move then all those small losses will start to add up without the winner that you should have been on recouping them.

Having said all that, I am assuming everyone here is short the Yen at the moment right? Should be more than making up for a couple of losing months…GL all!!

253

Hello everybody

I’ve been surfing this topic as thief in the night for the last pair of months and I must say it has been very helpful. Certainly, I have stolen a lot of knowledge, some bits of trading wisdom (which I clearly lacked), as well as having bought quite some time in interesting reading.

I’ve been trying to make my way into the FX market for the last couple of years. Needless to say, I’ve been part of that infamous 95% of losers for most of the time. I still am, though I believe I’ve made some major breakthrough in my trading lately, thanks to the advices I’ve collected here. I spent months trading intraday systems making all the common mistakes newbies do: over-leveraging, dropping good trades and keeping bad ones, forgetting to apply a sound money-management plan, risking too much of my equity on a single trade… I guess many of you have done the same at some point of your trading careers.

Thanks to Courtney D. Smith’s book I’ve begun to think differently. I switched, as the author of the thread (which I thank for sharing his experience, thus giving me a new hope when I was nearly giving up), from an irrational, emotion-driven behaviour to mechanical, stress-less trading.

I’m mainly using Conqueror and Donchian Channels, set up as per Smith’s instructions. I’m also applying some support / resistance concepts I found in the other book mentioned in this thread, Way of the Turtle by Curtis M. Faith. These came in handy, especially for buying pullbacks – which is something I always saw others do with great confidence (and profit) – finally understanding the reasoning beyond that made me feel both an idiot and a genius, if you get what I mean.

Today I’ve recovered 100% of the losses as regards the number of pips thrown in the market since I started my live, micro-account this summer. That doesn’t mean unfortunately I’ve recovered the losses in terms of equity, but I’m not that far anymore. I believe this thread should be taken in the highest consideration among those on this forum, and so should all the people involved. I hope it can help in the future others like me to develop a steady, safe-and-sound approach to trading. Though I’m way far from being a professional trader, or having all the knowledge needed to outperform the market on constant basis, I have much more confidence now than ever that I will end up winning the long desired financial freedom – which is why most of us get into this biz somehow.

Let’s go shorting a few yens more (and buying pullbacks hahaha).

Happy trading,
Filippo

254

That’s great news Filippo!

It shouldn’t be long before you have recovered your equity and are on you way to financial freedom.

255

Hey Cyco,

I’ve read over the thread and I must say, its intriguing and so contradicting to everything else on this site being so long term when everyone is thinking short. I was wondering what your account is looking like these days with the shrinking volitility and everything. Also, what pairs are you trading. I remember you saying you trade all the EUR, GBP, USD, JPY, CAD, CHF, NZD and AUD pairs which would be like 27 or so pairs if you used all the crosses.

Stefan

256

Stefan,

My Smith System trades gave me just over 14,000 pips in the 13ish months I have been using his system, and the pluses and minuses of my other systems (Turtle and self invented) have given me another 1000ish.

I had a few issues with trade sizes this year when starting to trade CFDs, and I did not follow Smith’s advice (get out straight away) to my detriment.

If I exclude those then my account is up ~50% over the last 13 months, when it was up well over 100% a few months ago.

I do trade all those currencies, but I do exclude some pairs. I don’t trade EUR/CHF (hardly any movement), nor do I trade GBP/CAD (it doesn’t like me). I have also been looking at some of the CNH pairs now my broker is offering those, and I will trade some of the Scandinavian currencies from time to time too.

Why don’t people here like this longer term trading and profit?

Beats me. Maybe its that they don’t realise it exists, maybe they just want millions now, maybe they like the adrenaline from the short time frames, maybe trend following doesn’t work any more (or so I’ve been told).

As Ed Seyokta says ‘Everyone gets what they want out of the markets’.

257

A talk given by one of the Turtles explaining the basics of the 20/10 channel system they used and the low risk approach they take:

Thanks to Cmac132 for the link

258

I guess they wouldnt have that clip in HD haha. I definitely agree on the fact that most are looking for massive gains in zero time – I wouldn’t mind that! In most cases, unfortunately, thats not a reality. I trade the CL in the morning and have made some very solid gains taking advantage of CL’s volatile and trendy nature. I found your thread while looking into a long term and sustainable strategy to diversify. I really like how cut and dry (mechanical) these methods are, leaving little room for interpretation.

I’ve been slowly backtesting the Conqueror on a few pairs over the past year. Boy is it time consuming! So far I’ve looked at the following pairs with individual returns for the 2012 year utilizing 2% risk per trade;
EUR/USD - 7.47%
GBP/USD - 9.07%
AUD/USD - 0.24%
EUR/JPY - 23.08%
USD/JPY - 13.21%
USD/CHF - 6.85%
GBP/JPY - 12.89%
NZD/USD - 4.39%

That cumulatively is ~77%, using extremely rough pooled compounding with all the pairs using a single account was around ~90% (to compensate for such long trades I used the 2% of the balance 8 trades previous to calculate position sizing to help compensate for the longer trades – I had backtested each pair individually and then combined in chronological order). Would your results be comparable with these pairs? No doubt I would need to go back a few years to see how smooth each pairs returns are (EUR/JPY looks very choppy in 2011 etc). My only concern would be a perfect storm type scenario that I think someone mentioned when highly correlated pairs might hit a few losses simultaneously. Have you experienced that this year?
On the flip side, a lot of pairs saw nice gains in May and December as well as a few in March, all to differing degrees of success depending on the pairs in those months.

With saying that it looks like even highly correlated pairs show somewhat of a difference with regards to entry/exit patterns sort of being staggered to an extent as opposed to having pairs enter and exit on the same days for the same amount. What do you think Cyco?

Stefan

259

Stefan,

I started this system on the 19 October 2012 and got completely hammered in a draw down period immediately for almost 2 months, the max draw down i experienced was 39.12%

I had my first week that increased in equity week ending 14 December, the last 3 weeks have been a ripper though, with the yen getting smashed, my equity is from today back in the green after flirting with it last week.

Powerful system, but 39% draw down is psychologically painful.

260

Ouch! That is some very hard drawdown from the start. Was this just from the Conqueror system or from all of the methods? Did you use it/them on all the ~25 crosses of the major currencies? What about risk per trade? Correlation seems to be a real problem if one was to trade all the pairs with a large risk percentage per trade but like you said, once a currency gets slammed or moves extremely favourably, it carries all the relevant pairs with it (JPY). Still though, 39% is huge!

261

I am using the three main systems, Trend, Chanel & Conqueror. LIke Cyco, I’ll trade anything I have equity for and the risk is right. I trade all pairs but EUR/CHF as there is hardly any movement. Also have Singapore Dollar on my lists. It doesn’t move much though; however I’ve made a couple hundred with a recent trade on the EUR which was stopped out last night.

Risk per individual trade was about 1% of 3% per pair (which I admit was too much given high correlation and multiple systems per pair) However since discovering my broker will do $1k lots instead of $10k a few days ago, I’ll swap to 0.5% per trade or 1.5% per pair.

I also trade CFD’s, mini gold and silver, WTI, anything with a reasonable spread that’s liquid (I’ve avoided anything with an expiry date though). Lately I’ve placed trades on a number of indices, major world markets, eg DOW, NASDAQ, FSTE, ASX200, etc The JP225 has been rocketing with the yen getting smashed and the US sorting out their fiscal drama, I’m up 800 pips on that however risk for CFD’s are usually half my normal (in these cases 0.5% instead of the usual 1%) I’m cautious Cyco’s comments about oversized CFDs burning him.

Please take everything I say with a pinch of salt, I’ve only been trading this method a couple of months and I’ll be in the learning stage for sometime yet!

262

djhenry, I also had some bad months then.

The markets moved just enough to trip the entry signals, then turned around and the trade died.

Good move on the change of broker, it makes it much easier to get close to the 1% when you can more accurately size your trade.

I’ve been trading this method for just over a year now, and I’m still learning too. I’ve e-mailed Smith and asked if he is coming to Aus or SE Asia in the near future, but he has nothing scheduled at this stage.

263

Cyco, do you use the bishop exit strategy with the Conqueror? He doesn’t specifically mention the bishop with that one in his book.

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Hey Bavarious,

I’ve read the book many, many times myself and I can easily answer this one :wink:

If I may paraphrase Courtney Smith himself, he always uses the Bishop to exit any trend-following trade. Therefore we can deduce that he uses it for The Conqueror as well because it’s exactly that - a trend-following strategy.

Hope that helps, have an awesome day.
Cheers

265

Hi Cyco

Have you ever considered using stochastic (divergence) to scale out of any of your methods? I read that Smith takes off some profit if he encounters divergence on the daily or weekly charts.

Great thread.

Dave

266

agent007,

I do use the stochastic divergence to scale out of a trade, but not as much as I probably should

267

Hi guys,

I have been backtesting the Channel system in 4 pairs I traded most (EU, UJ, GU, AU) for the last 3 years (2010-2012), and the results are not very impressive except the EU:

EU: up 12.68%
GU: up 1.77%
UJ: up 2.31%
AU: up 2.56%

That’s for the whole 3 years, assuming 1% risk per trade. The GU had a series of 15 losses in a row with a drawdown of about 10%. Do you guys have the same backtesting results or my backtesting is not very accurate?

Thank you.

268

Did you ADX filter on the way in and Bishop exit? Did you exit on the rejection rule?

Makes a big difference to the results

269

Cyco,

Thank you for quick reply. I did use ADX filter, Bishop signal, and the Rejection rule. So I assume that you do have different results?! Something is probably missing here, I should re-read the book and do the testing again.