How did you start your strategies?

Beginner Questions
21

I’ve started the following idea - I check the trend that London established at its open. If London is trending in the direction of the prevailing long term trend, I would seek to enter in that favor when NY opens. If it is trading against the long term trend, I would be more predisposed to seek entry against it as NY opens. How does that sound?

edit:
oh the closes are artificial?? I think the market is pretty damn closed from friday afternoon to sunday afternoon :smiley:

:slight_smile: That it is

But how would you go about determining the “close for the day” in FX? Session by session?

22

Oh I see something you misundertand already. A good trade can be a losing trade. Trading is about having an EDGE on each trade so that over many trades, you will come out ahead. It is an absolute must to understand that concept, no matter what you trade or how often. If you only need 2-3 winning trades a month to make a good chunk of profit, who cares if you waste a couple of days on a bunk trade is my thinking.

Unless you’re shorting AUD/JPY, the carry isn’t going to make a difference if you are aiming for 50-200 pips (which you would be on a higher TF). It is the SPREAD you should be worrying about, that can get very costly if you are trading all the time. IMO that’s a huge benefit of long TF trading, you are taking only a few trades a week and thus your broker is barely making a dime off you, meaning more money in your account bottom line.

edit:
and if you’re worried about disadvantages, you are always at a disadvantage. The institutional traders wouldn’t even be trading a particular TF unless they thought they had an edge there. This may be by trying to predict economic reports, or watching order flows like you said. But still there are a lot of times they are just watching technical levels just like you, and you have the same opportunities in that department

23

I think your idea is simple enough to work, but understand that it’s not the “answer” yet, but somewhere to start. After many months of following that you might discover little signals that might hint at one direction or the other. Again, watch for support and resistance. Ask yourself what the short player might be thinking? same for the long player…

As for the close, think what makes a close significant in trading? It’s the fact that the market players have to make decisions for “overnight” price action. So some players will treat the end of the session as a close, but still there are others who just pass their trades over to another desk, so even that isn’t all that reliable. I really like analyzing the weekly close/open because like I said I got the COT reports to work with and it’s a definite start and finish to the trading action.

24

A good trade can be a losing trade. Trading is about having an EDGE on each trade so that over many trades, you will come out ahead.

No, that part I understand for sure. Its just hard to feel good about a bad trade in the beginning, esp. when you have like 5-10 in a row, because you don’t have the level of confidence that your edge will statistically assert itself yet. Once I see that, I’ll feel much better about a loss.

IMO that’s a huge benefit of long TF trading, you are taking only a few trades a week and thus your broker is barely making a dime off you, meaning more money in your account bottom line.

Yes, of course you are correct. I have always been telling myself that I need to simply force myself to do stuff more long term, because eventually I want to get into doing carry trades. If I ever decide to manage other people’s money, higher timeframes will be the only way to go. What do you suggest is a good timeframe, the 4 hour chart? 200 pip targets? Shoot for 2-3 setups a week? Do I have to start integrating fundamentals? This is where I have a bit of a weakness. I’ve seen the COT report, so that’s not a hard thing to grasp per sey, and I did very well in my economics class, but I just don’t know how to exactly integrate it into my trading. Pundits are always talking their book, data is just raw data, so its somewhat intimidating.

After many months of following that you might discover little signals that might hint at one direction or the other. Again, watch for support and resistance. Ask yourself what the short player might be thinking? same for the long player…

Many months? I thought I’d have this down by the end of the week :wink:

Yeah, its a bit silly when you pick up these daytrading books from the 90’s where people just got locked into the crazy NASDAQ phase. Back then it looked like you needed 6 months to get profitable, lol.

I tried to take apart the action after NFP today on Euro USD. As of 9:47 am today, it looks like its really a draw between the bulls and bears. No real commitment from either side, just a lot of fakeouts and stop running (I like to call that “knifing”).

I really like analyzing the weekly close/open because like I said I got the COT reports to work with and it’s a definite start and finish to the trading action

Okay, the weekly close does sound like a good idea. I will be sure to outline it on my charts from now on.

One tough time I’m having right now is distinguishing what’s more important, horizontal S/R, or trendlines? I would imagine the former is much more objective, the latter more subjective, but the former works best in a range market, latter in a trending.

Edit: and thanks btw for your advice!

25

If you’re going through extended drawdown like that, you need to step back and stop trading for a while. At the very least, it is mitigating any further loss. Losing 5-10 trades at 2% is 10-20% drawdown. But that is not even the whole picture.

The probability of losing 5 or 10 trades in a row, assuming an even odds of price going up and down, is 3% and 0.1%, respectively. That should really make the warning bells go off in your head. At that point, you should be looking at the environment of the market as a whole.

26

Tony,

How can you have 5-10 losing trades in a row? Was it 6 or 8 or 9? I find it hard to believe you don’t even know the exact number!

I sense that you have a fear of losing on a trade, and let me tell you that when you are scared of losing on a trade then the market has a HUGE advantage over you already! If you’ve ever read Trading in the Zone, you’ll know what I mean by that…

I didn’t start making any money until I got over that fear of losing. Perhaps you should lower your risk per trade to 1%. One thing that really helped me too is taking my trades One at a time. I really underestimated the importance of trade management, thinking once I found a good entry that I was done and could move on to the next idea. The hardest part was when I lost on one trade, I’d put to much emotion into my other trades that were open, like they would “avenge” my losing trade. Also taking it one at a time gives you proper time to analyse what you did wrong and learn from it without having to worry about other trades. Then when you are ready to take trades with confidence again, the markets are there waiting for you.

Risking 1% and not taking simultaneous trades can drastically reduce the impact of drawdown. Taking 5 losses in a row will become a rarity and this is only 5% drawdown! If you’ve got an edge and have the time to take 10 trades a month, there is nothing conservative about the profits you could make with a 1% risk :cool:

edit:
and remember this:
your confidence can’t come from winning, you’ve got it backwards man! Winning comes with confidence! Your confidence should be in your edge, and if you find it hard to be confident about something that isn’t certain, welcome to the reason why 95% of traders fail :wink:

27

Well said, akeakamai. :slight_smile:
Lots of people mistake confidence for arrogance, ego or being “holy”.
You don’t win in FOREX consistenly if you are unsure of yourself & with the way you trade.
Confident traders [U]don’t do[/U] system hopping and [U]do[/U] make money.

28

Thank you all…

Here are my stats

Two weeks ago, when I started keeping track:

Profit target wins: 2, Part wins: 3, Losers: 6, Scratches: 5, Total trades: 16

Was correct on direction 75% of the time.
2 absolute wins, 6 total losses = 33% accuracy in hitting profit target.

Average win, including part wins: 26.6 pips
Average profit target win: 45 pips
Average loss: 26.5 pips

Traded 7 crosses, 3 dollar pairs.

Average time per trade 116 minutes.

Net total p/l: (16) pips

= = = = =

This past week (traded 3 out of 5 days, Sunday+Monday counts as 1 day)

Profit target wins: 0, Part wins: 1, Losers 6, Scratches: 2, Total trades: 9

Was right on direction 25% of the time.

Average win: 11 pips
Average loss: 18.1 pips

Traded 3 dollar pairs, 1 cross.

Average time per trade: 42 minutes.

Net total p/l: (86) pips

Prior to that, I had a month’s worth of trading which was more sporadic and very part time. 16 trades total, 30% wins (including part wins), total losing pips to winning pips ratio was 2:1. Earlier than that and I didn’t keep records, I did about 5-10 short term trades a month on average, since March of last year. Was not really organized at all. So I’ve gotten a bit better, because I’ve adopted a more organized approach.

This past week I switched strategies (tried pullback to a moving average), and 4 of my 6 losses came from getting chopped shortly after the news, and 4 losses were from the Euro USD (plus one scratch).

I’ve noticed that I tend to do better on Cable, and I also seem to have a short bias (or maybe its just the bias of the current macro trends playing out).

29

P.S. Weaknesses noted:

  1. Finding direction after news (even 30 minutes to 1 hour after)
  2. Not being patient with the best entry, afraid the opportunity is going to run away from me.
  3. Wanting to make back a loss asap, not thinking calmly enough about the next trade.

Granted, these problems have actually improved over time, but I still need to work on them.

30

P/L does not get measured in pips it get’s measured in money.

You don’t pay for your groceries & gas in pips.

You pay with money.

A pip is a place holder for whatever value in money terms you decide to put on it through position size & the number of lots & the money value each lot represents.

It should be part of your Money Management Plan & Trade Management Plan to maximize profits and minimize risk & loss.

I can make $10.000 with 10 pips.
I can make $1000 with 10 pips.
I can make $100 with 10 pips.
I can make $10 with 10 pips.
I can make $1 with 10 pips.

Flip it on it’s head.

I can lose $10.000 with 10 pips.
I can lose $1000 with 10 pips.
I can lose $100 with 10 pips.
I can lose $10 with 10 pips.
I can lose $1 with 10 pips.

31

True of course, but I hear its better to use the pips as a measurement because that gives you an idea of how well you’re performing as a trader.

I could use money, but the problem is that at the moment, I’m not taking time with position sizing (I’m trading one of those nano lot accounts, so we’re talking pennies per trade here). Because of my small account, I’m probably averaging around 3-4% risk per trade, because I can’t go lower than that really (the lot size would have to be smaller). My feeling is once I get a steady positive pip flow going, I will start paying attention to position sizing. If I blow this account, all I have to do is deposit another $20 - that’s no big pain. I am not into demo accounts because I like the idea of having something, even if its just a few bucks, on the line. I believe that will help me when I begin to slowly increment my account size. If I make a few cents, great, I’ve made real money and my ego is fine with accepting a few cents for a day’s work.

32

It’s probably a good idea to measure p/l in pips. It’s a better gauge overall simply because if you were to theoretically build your account from $2,000 to $200,000, average p/l (in $) would be skewed by the relatively lower p/l you had when your account was only $2,000. Measuring it in pips means you’re agnostic to the dollar amount and only measuring relative profitability.

33

Basically the way I planned it was when I upgrade to a larger account ($500), start with 1% risk, which should be easy given micro contracts. This way if I risk 1% ($5 per trade), it somewhat hurts if I lose. If I gain that amount or more, I feel like I’ve made a tangible sum. Once that has gone well, I’m going to up it to $1000, $2500, then finally $5000. Once I get good enough there, I will risk 2% instead of 1%. This way each step is like a psychological barrier that I have to cross, increasing account size and increasing risk.

Prior to consistently closing each week positive, its just going to be frustrating so I decided I’m just going to stick to playing on pennies. My main focus right now is strategy and keeping discipline in check through introspection, building the right habits. Before I went through periods where I’d try to be organized, then I’d walk away for a few weeks or even a month. Now I finally decided that I better get this right and throw all my focus on it, otherwise I might as well play the lotto.

34

Generation of profits & maintenance of profits [U]consistenly[/U] over time is the performance yardstick of a trader.
Consistent maintenance of profits is the real challenge.
It sounds easy but it is very, very difficult to archieve because you have no control over how much profit you are going to get.
It is up to the market.

Generation of profits & maintenance of profits is not about “steady positive pip flow going”.
It is about high probability/low risk entries combined with maximising money value out of the milage of your entries & minimizing your risk exposure at the same time.
That’s what MAP stands for.
[B]M[/B]inimum [B]A[/B]cceptable [B]P[/B]erformance.
Any possible exposure to the market needs to have a high probability/low risk angle to archieve MAP before it qualifies for further examination.

Combine that with a focus on minimizing loss in your Trade Management Plan and you’ll have a tight model that reduces your expenses [losing] to a bare minimum.

Yes, believe it or not.
There are traders out there who double their account in one day because of having such a tight model in place.

Good luck to you. :slight_smile:

35

Thank you for the well wishes, I’m always happy to hear any advice from you, including the tough love :smiley:

I just don’t understand, mathematically, how if you risk 1-2% of your account per trade, you can double your account in one day?

36

I’m not sure why anyone would look at their performance in ANYTHING BUT percentages of your account balance.

PIPS do not accurately compare performance in a pair with different quote currencies and they are only as meaningful as the position size behind them like used said

but if you do not look at the money as a percentage of your account, $100 can mean 10% for a $1000 account or 1% for a 10,000 account!

Risking 1% of your account balance per trade is the same RISK on every trade, regardless of the size of your stop or the size of your position! Without a consistent measure of the risk you are taking on each trade, your results are baseless. If I hear a trader say he made 100 pips or $5000 or 10% that means NOTHING to me. Who knows what that trader risked to earn that amount?

Now if the trader tells me he risked 1% of his account balance and closed the trade with 1.5% profit, then I at least know how that 1.5% profit stacks up. If he then averages the performance of MANY trades made with 1% risk, he will get a number which tells him how much he has earned on EVERY trade, win or loss, and this represents your EDGE, pretty much the only thing that matters. This method of tracking performance is called Expectancy. Systems/methods that will make you money over time are said to have positive Expectancy and those that will drain your money over time are said to have negative Expectancy.

37

Of course, in the end that and the risk taken to get there is what matters the most - I agree. But for the time being, since I am not working with proper position management yet (I just trade one lot size, regardless of the SL), it would be tough to gauge return on equity properly.

I have another question, maybe even a topic for a new posting - do you suggest that I try to develop my own system and method from scratch, or should I use one of the established systems as a starter, such as Cowabunga?

Thanks…

38

This FOREX gig is about flows.

Money flows --> moves the market

Cash flows --> moves your own account; P/L

Noobs neglect both because they are so concerned about strats, systems blahblahblah.

Understand money/cash flows & get that sorted out [B]first[/B].

It requires your own thinking & reducing information instead of putting more & more information into your head.

And don’t rush it.

39

I can see that, but unless we’re talking about the money flow technical indicator, or we have access to institutional order flow, the only thing we have in the end is a chart, and raw fundamental data (GDP x%, NFP y, etc). Is there any other way to extrapolate money flow outside of price action and raw statistical surveys?

40

I don’t see that as an excuse really, there’s brokers that offer microlots or Oanda where you can trade any lot size you type in (even 1 unit if you wanted!). The money management side of this is more important than finding a strategy and you’re choosing to forego it right from the beginning?

How much do you want in your account when you start trading for a living? I’d hope it would be more than $10,000 at least. Eventually you are going to have to get used to trading large sums of money, and if you can’t stomach losing a $1000 account you will NEVER be able to trade a 5-figure account. That said, with a solid money management plan in place, I don’t think you should ever blow an account. If you do, I think it’d be good for you, you seem really fearful of losing ANY money and that’s such a dangerous mindset my friend…

As for strategy, my personal recommendation is to design something yourself. I might lose you here, but I would recommend never adding a single indicator to your charts. All the information you need and more is right there in the candlesticks and the dance they do 5 days a week. A couple of lines is more than enough to get yourself in on some very nice trading opportunities IF you understand what is happening that causes the price to move. Remember it’s about those longs/shorts (bulls/bears) always trying to position themselves for their beliefs to play out. The shorts are going to come out when they think price is too high and the longs are going to come out when they think price is too low.