Elenmirie and her Quest for the Holy Pips

Trading Discussion Trade Journals
31

A fixed risk reward is wrong. IMHO, a person should trade like there isn’t one.There must be enough room for drawdown. (Previously there was a Trader called Adnan in babypips, he doesn’t believe in stop loss.) Thus, the position must be small enough to not hurt the account. However, an ultimate protective stop must still be in place for insurance. I sound paradoxical, don’t i. But, this is what i really think. It is hard to explain it. I’ll try to.

Now we are trading at a specific timeframe in hope that we can hit our targets. We will need a healthy dose of market volatility. Market fluctuates it can go both ways. A system like cowabunga is akin to going with the flow of the market. Like a surfer on a wave and balancing ourself on the wave, and moving along wherever the wave take us.

You must learn to recognize the pitfalls of this kind of system. When market trend. The cowabunga system works! But in a choppy market. the system loses its shine.

The important thing is this. Zoom out of your current timeframe chart. This is where multi timeframe analysis becomes important. The protective stop should be base on a timeframe from a larger perspective.

In the 1st place, you should never take trades that go against the higher timeframe charts. Basically protective stop should be base on a timeframe higher then the ones you use to enter a trade.

I know, now you will be wondering. Then isn’t the risk like 10 : 1? Maybe, but sometimes it can be less than that like 6:1 . Still big isn’t it.

There are a couple of ways to mitigate the risk.

  1. Averaging

  2. hedging and averaging ( i won’t recommend this)

  3. don’t set targets, let the profits run

  4. cut loss, hit and run like a sniper
    (tough, but possible)

The drawdown risk isn’t necessarily huge in relation to the reward. If market trends in your trading timeframe. You might just hit your target and obtain a result close to 1:1 . If you find that you are getting stop out too often. You were late in entering your position because all indicators are lagging in nature. You need to develop the trader instinct to anticipate the move. Or it could be because the larger timeframe is flat market.

Me too. I have the same exact issue. Primarily because we value time a lot. Some people call it GREED. But i think Greed is an important force that drives the trader. We just need to learn to tame it.

PS : Go thru Dennis SW chart. It will definitely help alot in terms of larger perspective. Trading in forex is risky business. Decide whether such a path is your calling.

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Thank you, Manxx, for your words of encouragement!

I shall do my best!

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Yes, I know you will. :smile:

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Hi alphahavoc! Thanks for all that food for thought.

All that about how to optimise your exits is quite difficult… the Cowabunga system says to wait for your target to be hit, and then, if there’s a clean break through it (which is not specifically defined but basically the candle goes through the target by a good bit), move your stop to the original target and set a new one. If it doesn’t make a clean break, take your profits.

The danger of moving the stop according to that system, of course, is that you get stopped out of further profits by market noise, but it does guarantee you the profits from your first target (instead of just watching it fall back into a loss.)

For where I am now, that system works as well for me as any. I still find it hard to make the decision… in this case (the one that I’m describing), the candle closed just a bit above the target, so I considered moving the stop. In the end, I just closed the trade. If I’d moved the stop I would have been stopped out in seconds.

And to your point, I’ve certainly noticed that Cowabunga works in strong trends and tends not to when ranging… as you said, the indicators are lagging, so when the market is only making small moves, you get to the party just about the time everyone else is leaving. As I move on learning, I envision that I’ll have a few systems available (just a few, I don’t want so many that I spin around in indecision all the time) that could be strategically selected according to market conditions. But I’m not there yet.

Sorry to be thick, but what’s Dennis SW chart?

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As an addendum to yesterday’s post:

Pip Surfer blogged about this trade. He didn’t get stopped out. Wait, why?

He set his stop 1.6 pips below where I set mine. I set mine bang on the low of the candle that formed the swing low. He set his below that (I’m guessing by an eyeballed amount, but I don’t know.) The system does actually say put the stop below the swing low, not on it. But, if he was only 0.6 pips away from being stopped out (or so), that still doesn’t feel quite right.

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I would suggest adding an additional 10pips below the swing low for buffer against widening bid ask price during inactive market hours. For commodity related pairs add an additional 20pips below the swing low for buffer against widening of spread. For market makers brokerage forget about setting stop loss totally.

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Is that because they can both see it and hunt it?

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I have no evidence. But i think some broker does it. It seems very logical to me. It is very easy for them to widen the bid ask spread ( my definition of stop hunt) . When you complain, they can easily blame it on lack of liquidity during off market hours, It is a natural phenomena for bid ask price to widen. There is absolutely nothing you can do about it.

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40

One thing I have become good at in my life is playing a game called Nethack. Before anyone gets excited, the “hack” part refers to hacking monsters, not computers. The “net” part came to be because the original development team coordinated over ARPANet, which in the early 1980s was a Really Cool Thing. That’s how old the game is.

Anyway, I dabbled in that game for a long time without winning much, or at all. Long time, as in decades. Then probably about 6 years ago, I suddenly got serious, and now I’m pretty good at it, by one measure ranked fourth in the world. (Other measures rank me lower, but that one happens to be my favourite, for some reason.)

So how did I get from dabbler to serial ascender? (When you win in nethack, you ascend.) Well, I think there were a few reasons for this.

  1. Joined a community
  2. Listened to criticism
  3. Studied obsessively
  4. Played a lot, and I do mean a lot. I gave up other hobbies to make room for nethack.

One other thing about nethack that gives it something in common with trading… you don’t get a second chance. If you die, you’re dead. There’s no “restore to previous save point.” Your character is gone. The dragon is picking its teeth with your bones; the orcs are fighting over your stuff.

And it’s a horribly complex game. There are bits of it that I don’t think the dev team even understands.

So when I was going from dabbler to expert… a process that took probably about 2 years to get started, and is still going on, really… I spent so much time just reading up on the nethack wiki. Trying to anticipate situations, making sure that I understood what to do in case they happened. What are the things that aren’t poisonous but can give you poison resistance? How do you handle it when an arch-lich shows up and you aren’t magic resistant? What are the magic cancellation properties of different cloaks? What are the techniques for getting unholy water? What do you do if you’re riding on a dragon over lava, and something kills your dragon? (Options other than burning to a crisp, that is.)

You get the idea. Obsessing, making sure I understood as much as I could.

So that’s what I’m doing right now with forex trading. And I think I’m about at the stage where I was consistently able to get to the late game, but then would make a mistake… you know, dumb things like wielding a cockatrice corpse and moving around a room that might have pit traps… oops, fell into a pit, touched the corpse, instantly turned to stone. I don’t do that now, now I have very strict health and safety rules about cockatrice-corpse handling.

But it took a while to learn.

On the positive side, I still have my first ascension on a public server ahead of me. These days, I’m calm, cool and collected, kicking angels in the teeth and dealing summarily with angry priests. But that first one, I was in full fight-or-flight, heart pounding, palms sweating, “oh my god I’m gonna die!” mode.

And nethack is an ascii based game. All that was reacting to things like a purple & on the screen.

That part is still ahead of me in this journey. And I have a feeling I know when it’s going to come… when I go live.

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41

More on nethack. I can learn a lot about my trading style from my playing style in nethack, as compared to my teammates and others…

I am not a creative player. I like to do the same strategy that’s proven to work. I kind of have a list of things that I need, and I have to have all of them before I proceed my game. For this reason, I’m not a pioneer in new variants, unless they are very close to the original version.

In trading, that means I need to find a strategy that works for me and stick with it.

I don’t like to do long setups, or long games. My style is not super-fast (although I have tried speedrunning) but unlike some players, I don’t like to set up a base camp that I keep returning to. I like to get on with it, and move from one stage of the game to the next with little pause in between.

In trading, this means (I think) that I don’t want to trade lengthy terms. I know some think day trading is a fool’s game (including Alexander Elder, to a certain extent), but all the indications are that it suits me. I like getting in and out quick. The thought of carrying a position overnight fills me with dread. How will I relax to sleep? I’ll be up peeking at the Asian session all night!

Also, I have a strong impulsive streak. I don’t like waiting to look around at everything before I make a move. Some players do, they will take as long as it takes to look around at everything they can see. I take a look to see if there are any major threats, then make a decision quickly. If it’s the right one, that’s a bonus.

In trading, I think this means that I will try to assess the situation quickly and make a move. That may be a plus, because unlike nethack which is a turn-based game, not a real time one, time and the tides and the forex markets wait for no one.

Now this last one is pretty negative. Despite being a good player by most measures, I have an abysmal ascension ratio. That means, I win very few games as a ratio of all that I start.

This is partially a result of some early and persistent bad habits that I had, which involve starting games and quitting repeatedly until you get some specific starting conditions. That’s called start-scumming and opinions vary about how cheaty it is, but the public servers allow you to do it.

But worst than start-scumming, is sometimes I get into a mode of play, when I have died a couple of times usually, where I get really, really reckless. I just play reckless. And I don’t stop, I just keep going. I’ve spent whole days in tournaments in that mode, and it’s really difficult to get out of.

That’s why my ascension stats are so bad compared to most at my level.

That scares the living crap out of me in trading. That means, perhaps I’ll have a prediliction for just trying over and over in a losing game, digging the hole deeper and deeper, until… what? I lose everything?

Okay. I’m going to try to think about this and come up with some new rules.

42

It was a day off today, because of the bank holiday in the UK. No London session, no trading. So I took the time to dig a bit further into the triple screen system. It’s a little bit strange, because the name (triple screen) and a lot of the words used to talk about it seem to imply that you will be looking at three different charts on three different timescales. For instance, Dr Elder keeps referring to the “intermediate” chart. So I was thinking that there will be one above and one below the intermediate one.

Last week I used that misunderstanding to find an excuse for a premature entry into a lovely uptrend, remember? Still blushing about that one.

The trouble is, all the discussions of the system seem to spend a lot of time on the second screen, and then just gloss over the third. They don’t actually say to go down an order of magnitude in timeframe. So, after reading what’s in the book (that’s “Come Into My Trading Room”) several times, and reading some stuff on the internet that attempts to explain the system, I think I’ve worked out what’s going on.

If someone is reading this and think I’ve got it wrong, please let me know.

The main thing about the third screen seems to be a way of selecting good entry and exit points when working without real time data, so that you only have the daily chart. He makes the point also that paying for real time data is not necessary, and may harm the beginner “who may slip into day trading”. (Ha.) This is an artifact of the time when it was developed and written… I do remember in the 1990s that if you wanted real time data, you could expect to pay a lot for it. Level 2 quotes, they called it, IIRC. I never had it, I just have heard of it.

So all that jazz is only relevant if you’re going to try to do the system without real time data, which in today’s world doesn’t seem like a thing anymore. Certainly not in forex. Interestingly, I found that system for the third screen described on investopedia, but totally devoid of discussion on why you would want to adopt it. They had something like 5 or 6 different ways to do the second screen, in great complex and wonderful detail, and then did a gloss on the third screen. Maybe whoever wrote the article didn’t understand it either.

Fortunately, once I twigged on that detail–which is stated clearly in the book, I just had to read it five times to realise how clear it was!–Dr Elder does actually describe what you should do for the third screen if you do have real time data. It’s not a separate chart, just some techniques for deciding on entries and exits.

Okay… so now I’ve made a system to try from the triple screen method. It’s got some things in common with Cowabunga, namely that it uses a higher timeframe chart to identify the prevailing trend, and then a lower timeframe chart to find opportunities for trades in the direction of the trend.

So the first screen will be the one hour chart, with a 22-bar EMA and MACD on it. Positive slope of EMA and positive MACD histogram mean uptrend (long trades allowed), negative EMA slope and negative MACD histogram mean downtrend (short trades allowed), contradictory signs or flat slope mean no trend (no trades allowed.)

Second screen will be the 12 minute chart. This is because I’m sticking right on the rule of 5… your trend-finding chart should be five times longer timeframe than your intermediate one. The system would perfectly well allow the 15 minute chart to be used, but I’m going to try it this way. On the 12-minute chart is a 22-bar EMA and stochastic oscillator (default settings). Long signal when price is below the EMA and stochastic is oversold. Short signal when price is above the EMA and stochastic is overbought.

Third screen is the 12 minute chart with 2 envelopes, both with 22-bar EMA. The inner envelope is calibrated to contain about 90% of the prices; the outer one calibrated to contain about 99% of the prices. This calibration is done by trial and error and eyeballing it, not very scientific, really.

The outer envelope is my addition, it’s for setting stops. The inner envelope is from Dr Elder, and it’s for gauging exits.

So, the idea is, for long trades, once a buy signal occurs, get in at a price below the EMA, and set the stop outside the larger envelope. The target is the upper boundary of the smaller envelope. If the trend up is strong you may wait for it to go through the boundary, but if it looks weak, grab profits as close to the line as possible. Of course, it’s the other way around for short trades.

If I can swing it, I’d like to try doing Cowabunga and Triple Screen in parallel for a bit, just to get a feel for how they compare.

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43

More G<d$/-mn, F?&%?g RULES!*

Okay, it’s time for full disclosure. I really am a risk manager. Or at least, I spent a good number of years in the risk management department of a global insurance company. We were the ones that were always telling the underwriters what they couldn’t do.

They loved us for it! … Not.

And we were also the ones telling the regulators why we should be able to take the risks we were taking. They loved us too. Or rather, they loved to torture us by asking us for more detail, always more detail.

Oh yes, they kept us busy. And a good time was had by all.

Now I’m trying to get my own business going. I have to be the all in all… I’m the risk taker seeking profits, the risk manager limiting losses, the regulator keeping everyone honest, and the board of directors who want maximised profits and minimised risks, all rolled into one. I’ve got to play all those roles, and play them well. So which one takes precedence?

Okay, my first priority is to make money. As it is for any business, even a non-profit one needs to be in the black so it lives to play another day.

But, with limited capital and little chance of re-capitalising if it all goes tango-uniform, surely the first priority is not to lose money.

This kind of suggests that I need to play it super-paranoid.

Luckily, I’ve found a friend. Yes, it’s Dr Elder! Bless him. He’s come up with more rules for me to follow, and I’m pretty okay with that.

Here are the rules I started with:

Never risk more than 2% on each trade.
Never have more than one trade on at a time. (Later maybe we relax that, but in forex, correlation risk is a thing.)

Then I evolved:
Set the position calculator to 1.5% rather than 2%, to allow for slippage.

There, all safe now! Right? RIGHT???

Using those rules, I blundered my way to a 10% loss in about 3 weeks. Okay, yes, I screwed up a lot, because I am on a steep learning curve. But if I carried on like that, I’m wiped out in 6 months if I’m lucky. Sooner if I’m not.

Which would be great, if my objective was to be wiped out slower than most. But actually, I’d quite like to not be wiped out at all.

Now I’ve got Alexander (we’re on a first-name basis) on my right shoulder telling me more rules. Here’s what Alex says:

Yes, you are free to risk 2% on each trade. But if you go down 6% in a month, you have to stop trading for the rest of the month.

Really, Alex? The whole rest of the month? But, but…

Yes. You are out of action for the rest of the month, if you lose 6% of equity so far.

Crap and corruption!

But that won’t happen, because you’re not going to be trading anywhere near that.

I’m not… Hang on. What are you saying, Alex?

Oh, you know what I’m saying. I’m not trusting you anywhere near 2% of your equity, until you prove that you can handle it. You start with a standard position of 1000 units. If you can turn a profit on that over two weeks, you can do 2000 for the next week.

Um… I’m hardly going to make anything, Alex!

Correct. And you’ll hardly lose anything either. You would rather your amygdala takes over, perhaps? Heart pounding, palms sweating…?

Well, no, of course not, but…

Furthermore, if you have a losing week, just one, then you lose 1000 units off your allowed position. If you’re profitable for two weeks following, you can have it back.

ALEX!

You have to earn it, you understand?

Yes. But…

No buts. You’ll thank me later.

I doubt that, you controlling sunuva wotsit!..

So, dear reader, them’s the rules. That might, just might, keep the fight-or-flight thing under control when I first go live. Which is not soon, but it will come.

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44

Excellent thread, following along on your journey!

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Glad you are here, my friend!

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So today things are back to normal, more or less, with the end-of-summer holiday weekends finished in the UK and US, kids back in school, etc etc.

I set up a fresh demo account so that I can try this business of limiting position sizes etc. The theory is that there’s a psychological effect that helps you stay cool when trading, because the amounts are relatively small. It seems to work for me. This is practice for when I have my real hard-earned on the line… I think it will help with the amygdala thing.

So today there was a setup on my triple screen system… a nice downtrend from about 08:00 this morning, and then a rally just before New York opened. So I took the trade and ended up with 32 pips. That sounds nicer than “ended up with a couple of quid!” But that’s the rules… it was a nice trade and my new demo account is in the black. That’s what matters.

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47

A win is a win. Can you share how you’ve set up the Cowabunga system? Stock settings or did you fine tune it to your liking? And did you take @anon46773462 advice and add in some price action approaches to your system/strategy.

Thanks for sharing!

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So, I’ve just been on a rollercoaster ride.

The good news is that my account (demo, that is) is quite healthy. The bad news is, I’m not sure whether I deserve a pat on the back for cool-headed quick thinking, or a kick in the backside for not following my system. Probably the latter.

Here’s what happened:

So this was my second “real” day trading my triple screen system. I say “real” because last week + Monday this week was just in the doldrums. Yesterday I had a nice textbook trade in that system and scraped some pennies loose.

Today looked much the same to start, a continuing fairly well-defined downtrend on my first screen (1 hour chart with a 22-bar EMA + MACD histogram with default settings).

So I spent the morning keeping an eye on my second screen (12 minute chart with 22 bar EMA + stochastic with default settings) waiting for a little rally to sell into. It came just before midday, and I took it although the stochastic wasn’t quite into overbought territory. It was heading there, and I thought, well, if it does go up further, I’ll consider selling another lot. It didn’t do that, so I watched it go below the EMA line, but unexcitingly nowhere near the bottom of my inner channel. I decided to hang on, and drew a line on the chart about halfway to the bottom line of the channel that I’d be willing to take the money and run.

And then… a BIG green candle appeared. I mean, that sucker was HUGE! It blew right through both my channels (the one that’s supposed to contain 90% of prices and the one that’s supposed to contain 99% of prices), and of course through my stop, because that was set just outside the 99% channel.

I think it was because Theresa May gave a little talk about Brexit in Parliament after PMQs. I couldn’t find anything else that might have triggered it. These days, if a back-bencher locks him or herself in a third-floor broom cupboard somewhere in Westminster and whispers something about Brexit, the market jumps up, spins around and either dives behind the sofa or dances an ecstatic little jig, and it’s anyone’s guess which one it’s gonna be.

But anyway, back to our story… so there I was with a stopped out trade and staring at a huge breakout. My first thought was “short that puppy! It’s bound to fall back to the average line.” Now, that has nothing to do with my triple screen system. In fact, my first screen had just gone nuts because of this sudden move, and it could have been interpreted as an uptrend. But with a huge lurch like that, I basically would interpret that as a stand aside signal.

So what I did was completely off-piste according to the system, but I don’t think it was entirely daft. The move was so sudden and so extreme that I thought it was inevitable to fall back into the channel and towards the EMA line… all of that of course was moving up to meet it.

So I shorted with a position size of 1000 and a stop set 10 pips above the high of the big green candle–in these conditions my usual stop-setting technique was meaningless. It went up some more. I took another short position with a higher entry point, same stop. It went up some more and I did it again.

This could be heaven or this could be hell… Okay, so I went and practiced piano for a while to calm my nerves, keeping an eye on the chart. It went up some more, and the whole thing was underwater for a while. I kept thinking, it may take a while, but it will come back to the fold, back into the channel and towards the EMA.

I could have been horribly wrong, and that would have been a big loss for my little demo account. But I was right. In fact, it came down almost as dramatically as it went up, just after London close, and I was there to push the button at the right time and got out quite advantageously. It came down through the bottom of the inner channel (the 90% one) but didn’t breach the outer one (the 99% one) and I thought “good enough for me, I don’t care what it does after this!”

What it did after that, was go back to the EMA line, where it is currently hovering like a tiger mother.

So that more than cancelled out the earlier stop out, and I’m net positive for the day. But do I deserve congratulations, or a kick up the backside? Was I being smart, or reckless?

More importantly, if this was real money, would I have had the composure to let that run as I did? It was a bit too exciting.

The saner behaviour would have been to accept the stop-out, shrug and say, “oh well, can’t win 'em all” and sit out the rest of the day, let the batshit crazy market do what it wanted to. There was no way that could have been predicted; it wasn’t linked to economic news. Politicians can open their mouths any old time, and there’s naught you can do about it.

But on the other hand, I’m kind of happy that I grabbed the opportunity when I saw it. Hm.

Hm.

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I’ve switched now from the Cowabunga system (which has its merits, and helped me quite a lot to learn more about how this all works), and am now using a personal variant of the triple screen system as described by Alexander Elder. Just got started with that one, the jury’s out on how it will work long term.

As for price action, I’ve not really got that far yet, but I think the next book I’m going to read is on that topic. Yes, still on a steep learning curve!

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Hello E, from what I recall, you are either the first, or one of the few who has read DR Elders material on this site, even though he has been recommended numerous times.

I have a recommendation, when you have a profitable trade, do not celebrate it. When we celebrate our minds will like the “feeling”, read this as the release of endorphins etc, this generally leads to overtrading. Also do not celebrate because it can take us too high, generally a loss will feel twice as bad, as our minds can become conditioned to receiving the “chemical” after a trade is complete, so when it is a negative number, it hurts the brain even worse, the brain is waiting for feel good chemicals and it gets feel bad chemicals.

Try to weed out these words, hope, happy, sad, joyous, etc. From your trading lingo, it will help you keep a more centered base.

The Ever Centered VIPER

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