The 10 pips a day man?

Beginner Questions
1

Hello all,

A while ago, I read the book “Millionaire Traders” which was compiled by interviews done by Boris Schlossberg and Kathy Lien. Its a very interesting book, highly recommended.

In the book, I read about a trader by the name of Hoosain Harneker (Chapter 5, Rags to Riches, P 111-140). Harneker started trading with a $1000 stake in a mini account.

According to what Harneker says, he had a 10 pip profit target, and a 20 stop loss. He trades just once a day, makes his ten pips and then comes back the next day. Assuming commissions are calculated in the profit, that gives us a 2:1 risk reward ratio. Harneker claims that he’s doubled his account three times in a row, in under a year, using this risk to reward ratio.

Frankly, I have a hard time buying it. If he reached a return of about 600% in under a year, he would have to 1) risk more than 2%, and 2) be right over 90% of the time.

Let’s see what happens if you stick to the 2% risk rule.

10 pips a day would be 1% increase in your account, 20 pip risk is 2% decrease in your account.

20 trading days a month means that if fortune smiled on you and you batted 20 straight runs, you’d get a 20% return in one month. Just two bad days (10% error rate), and that’s already down to 14%. Just four bad days (20% error rate), and you’re down to 8%, or less than half. Five bad days (25% error rate) and you’re already 5% down for the month. And this is including commissions in the profit target. If the commissions were not absorbed in the profit target, we have an even worse picture.

Something really doesn’t sound right here. Either this guy is so good that he’s more than 90% accurate, and he takes on more than 2% risk, or something is missing from the picture.

2

Maybe he did it by compounding.

3

You are right, he must be staking more than 10%. And he is really lucky getting close to 90% hit rate.

4

are you trying 1 trade with a 10 pip goal and a 15 pip stop? or multiple trades with smaller goals and a 15 pip net loss as a stopping point?

6

It sounds like he may have had the luck that a number of initial traders do, when they risk a lot and get a string of winners so their account equity booms.

The guy’s general strategy seems to be all technical: moving average crossovers, watches 4 hour charts, signals off of 30 minute charts, 1 primary indicator, 2 to confirm. He focuses on just a few pairs. Never trades during news. Now he built a robot which trails his stops for him, five pip trail. He’s a software programmer by profession.

I really have no idea how you can have a 90% success rate. It just seems impossible for that to be sustainable, maybe it will work for a month but by the time the system starts to bomb, with such a risk reward ratio its pretty easy to give back all your profits.

Plus, we always need to remember to account for commissions. If the 2:1 risk reward is accounting for commissions that’s one thing, if not then we have an even higher effective risk. Some crosses have HUGE spreads on them, enough to make such trading totally unprofitable.

As for a 15 pip stop loss, I really think you’ll get smacked with that. I personally think that FX trading requires at the very least a 25 pip stop even for intraday work. That makes it all the more important to have a solid 30-40 pip target.

7

A 2 to 1 risk/reward ratio is not the same a risking 2 per cent.

8

Well, let’s look at it this way…

You net 10 pips if a trade wins. 1 pip = $1 per one mini lot, so each 10 pip win is $10.

You net 20 pips loss if a trade goes south. 1 pip = $1 per one mini lot, so each 20 pip loss is $20.

You can risk 2% on the 20 pip loss ($20 is 2% of a $1000 account), or 1%, or 20%. But the ratio stays the same.

If I risk 20% of my $1000 account (10 mini lots), that means my loss is $200, my gain is $100 - 2:1 is still there.

Either way, the ratio of wins has to be the same regardless of what risk you are taking. The only difference is that if you’re using a very high percentage, your drawdown may put you out of business faster if you hit a string of losses.

To me, the 2:1 risk reward is simply not worth it. Why trade a strategy that is working against your favor?

It would make more sense to do the opposite. For example, if you trade for a 1:3 risk reward (including commissions), you have to be right only 30% of the time and you’ll still make a profit.

9

I agree trading a strategy that works against you is not worth it.

10

I’ve been doing a lot of homework on risk reward lately, and I’ve discovered that essentially, here is the scoop:

1:1 R/R ratio you need 60% accuracy over a lot of 10 trades to sustain a profit (4% with the 2% risk rule)

1:1.6 R/R ratio (I call it the Fib ratio) you need 50% accuracy to sustain a profit (6% with the 2% risk rule per 10 trades)

1:2 R/R ratio you can get away with 40% accuracy (4% with the 2% rule per 10 trades)

1:3 R/R ratio you need to be right only 30% of the time (4% with the 2% rule per 10 trades).

The larger the moves you go for, the less commissions eat into your returns. I calculated that if you go for moves in the neighborhood of 100 pips or more, that is probably an optimal target for a trade (figure 100 pips reward, 30 pip risk, commissions 5 pips). Get 100 pips 30% of the time, and you are ahead. Get 100 pips 20% of the time, have 4 scratches (net neutral) and 4 stop outs over a 10 trade sampling, and you’re likewise ahead of the game. If your system gives you just 10 setups a month, you can make a 4% return each month by being right just 3 out of 10 times.

Personally, I like the idea of having the room to be mistaken. I don’t like the idea that I have pressure on me to be right as often as possible.

11

Tony Iommi ? Black Sabbath ?

12

I am the Balkan incarnation :slight_smile:

13

Do you play guitar? I know off-topic but I was a big Sabbath fan.

14

You know, it was either I got back together with Ozzy and did another album, or I would just keep trying to re-do the lineup and make it sell right. My thinking is that instead of doing this reunion BS everytime I want to buy a new house or boat, I’ll try Forex. I’m tired of the road… :stuck_out_tongue:

Actually yes, big fan of Tony’s guitar playing. If I do well with my trading I might just by myself the signature Iommi SG :cool:

15

If you are going to try to trade a with an upside down r:r you need to know what your average success rate is.

You can then fine tune your stops. If you are trying for 10 pips I assume you are looking at 1,5,15 min charts I think using a preset stop is fine when you are basing your trades on a short time frame. s/r does not mean much on a 5 min chart and a 10 pip stop.

My experience is 10 pips is an awkward goal to hit in one trade if your r:r is close to 1:1, 5 to 7 pips is better. I rarely see a “reliable” signal on a 5 min chart that makes me think price will move 10 pips before it bounces back some. With a tight stop its that bounce back that can get you. I do see and trade when I see a situation that might make me 5 pips in one move. I try and close before any retrace. I think you would do better trying to reach 10 pips in 2 or 3 trades with a r:r closer to 1:1.

10 pips a day average is plenty if you are consistent, manage your risk and size your trades appropriately. You will grow an account. Making 10 pips every day is not easier than trading off the 4h chart and having bigger stops and goals in fact it requires more screen time. That said, trading like this does suit some people. I like to trade this way.

16

Hi… i know HH personally and well to be honest, i didnt even bother reading the book. But what I can vouch for is Hoosain’s system of getting his 10 pips a day. The markets have changed between when he was interviewed and now… it’s been a few yrs now.

These days it is safer taking 10 pips manually in 2-3 trades daily. as an added bonus one could easily get an additional 10 pips a day using his EA’s (yes there are a number of them).

He is still true to 10 pips a day on average. Using his ‘tools’ you could easily walk away between 180 and 250 pips a month… all you need to do is ensure you have enuf capital in your account to manage Risk and Greed.

The one thing you dont know about this guy is his mental state… he is really solid. If he is done trading for the day, he’s done and that’s it! That is the missing part of the story in my humble opinion.:wink:

17

Where are the EAs?

18

Well if you ask nicely…lol… just kidding.

He offers training courses and the ea’s are part of the deal. I’m sure I can hook you up with HH. PM if you interested.

19

Are your PMs turned on? Or do you have to wait for 50 posts to get PMs?

20

Interesting…

I’m not saying the guy is full of baloney, but my big question is how does he trade with such a horrible risk/reward ratio and manage to stay profitable?

According to the assumptions in the interview, the guy does 2:1 risk reward, and manages to “double his account three times in a row” in a matter of a few months. The guy started with $1000 in a mini account and in under 3 years he’s got a six figure account where he’s making on average $500-$1000 a day.

How is such account growth mathematically possible, especially with such a horrible R:R ratio, unless you are 90% accurate CONSISTENTLY, in all market conditions, and to top it off, you definitely must risk more than 2%? I mean, its probably more like 5% you end up risking to get those kinds of results. 5% risk is maybe doable if you have 90% accuracy (Larry Williams bet 20% a trade when he turned $10K into $1.1M), but if you get a string of losers - OWCH! 10 bad ones in a row and you’re not half the man you used to be, to quote Paul McCartney…

Let’s look at it this way:

2:1 Risk reward ratio

Win = 2.5% account growth.
Loss = 5% account hit.

9 winners in a row = 22.5% growth.
1 loser = 5% less

Total, 17.5% growth per 10 trades.

Let’s assume his system is so conservative that it allows 10 trades a month, one trade every 2 days.

17.5% compounded every month, at the end of the year your account is 6.9 times what it was in the beginning. This way, with 1000 bucks, you’ll get up to six figures in three years, no problem.

That’s CONSISTENT 90% accuracy, mind you. 90%!!!

The moment the system decides to perform at 60% accuracy, you’re 5% in the hole. Get so unlucky as to have 30% accuracy, that’s 27.5% drawdown. I mean, you just have to be so right so often. Its a bit scary to trade that way, imho.

21

He must be doing something that makes him money. Success leaves clues.