The rags to riches story - The Journey

Trading Discussion Trade Journals
1

This is a story that I’m not sure I should tell. The reality is that the amount of risk that needs to be taken is huge, large drawdowns and excessive stress. I figured each person has their own right to their own agency and can decide what to do with what they read into my story here.
The following is not recommended.

I am trying to create a livable wage on a small account. I need to make about 2000EUR per month to live comfortably. I live in South Africa.
I have 20:1 leverage. I am taking 10% risk on each trade. Risk of ruin is very high, even with a huge winrate. The plan is to reduce this risk down to 5% then 2% and finally down to 1%. After that the goal is to be below 1% on each trade.
I have until 30 September to achieve my ends. This requires me to make a withdrawal of 2000EUR during October to pay for October bills. Thereafter I would still need money in my account to trade with.

The below is my August end of day equity as exported from my brokerage account.
|01.08.2019|348.4|
|02.08.2019|362.87|
|05.08.2019|376.59|
|06.08.2019|447.67|
|07.08.2019|494.72|
|08.08.2019|467.08|
|09.08.2019|618.78|
|12.08.2019|505.07|

My Targets are as follows (100% every 10 trading days):
1000EUR by 23 August
2000EUR by 6 September
4000EUR by 20 September
Due to the rule of 72 I don’t need to win every day to get 100%. Every 7 trading days it’s possible to double if I get one winning trade per day with a 10% win. The reality is that I will lose on some days. Other days I will make more than 10%. I’m basing my calculations off of my expected value.

Naturally this involves those all too common best case scenarios that people do on excel to calculate their ROI. Usually they don’t take into account the large drawdowns associated with large ROI and the reality of days where you just make nothing. Never mind the losing days.

To make matters even harder, I’m currently day trading the USD/ZAR currency pair, but I do hold overnight sometimes. This has a spread that is too large to day trade. If I second guess myself on trades or just plain get chopped up then these costs will run me out of business. I have to be decisive and hold fast to my idea but still ready to cut losses the moment the idea is invalidated. I focus on making quality decisions rather than many tiny decisions. This is tough because it involves a lot of waiting and potential boredom. The market doesn’t move all day, then suddenly all at once! xD
As soon as my equity is on 2000EUR I will then be able to switch to EUR/USD or GBP/USD to take advantage of the lower spreads. It will require some minor adjustments to my approach because those markets are much noisier than the exotics. I trade this pair because I can gain higher returns, not because I’m attached to my own currency. However this also entails higher risk.

The reality with an approach like this is that it will have large 20-30% drawdowns. That is very hard to stomach, especially when it is on the level of seriousness that I’m dealing with.
The Definitive Guide to Position Sizing - Van Tharp shows people by way of example that if you want really high returns there are huge drawdowns that you would need to take. Psychologically people can’t handle 20% drawdowns, maybe 10% but even that is hard to deal with and then trade smoothly afterwards.
Trading is very taxing on the mind and body. It’s of utmost importance that I protect my sleep and relaxation time. I must exercise, eat regularly and stay mentally balanced.
If any of these slip I can spiral down.
Keeping fear at bay is essential, it clouds the mind and warps reality. Fear causes profits to be taken too soon, losses to be avoided, revenge trading and position sizing that is too large for the strategy.
Mark Douglas - Trading in the Zone provides a great antidote. Accept that you will lose but win in the long run.

“I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain.”
― Frank Herbert, Dune "

I protect my mental health in a number of ways:
I meditate daily. I spend time with people who challenge me but also make me feel welcome and accepted. We discuss ideas and support each other. I live with my brothers so I am not completely alone in my room trading and suffering in silence. The loneliness isn’t an issue and this helps tremendously.
I have hobbies, however all my hobbies are probability related. I play Magic The Gathering and Poker.
Poker is something that I’ve excelled at, the mental models from trading apply directly there too.
It’s much much easier than trading, by orders of magnitude.
The trouble is they all involve losing in situations where you have no control over the outcome. So if I’m struggling in trading I can’t necessarily do those activities. However they do help build mental resilience.
I find engaging in simple activities that are not so uncertain help a lot. Watching a movie, going for a walk and playing computer games. Especially mindless open world games where you can run around do simple things. This helps remove from the situation and often ideas come to mind as well as solutions for how to resolve trading questions I’m dealing with. Very relaxing.
Getting away from the computer helps.
I’m a voracious reader, this helps me relax too.

Why am I writing this out?
I’ve worked my entire adult life as a software developer. Resolving problems and thinking about solutions has been a constant in my life. Many times when thinking about something we found that we’d speak to a colleague to explain what we were doing and before we were done, we’d have the solution. We suggested putting a little fluffy animal somewhere for people to explain their problem to so they could find a solution without bugging someone. We never did that tho, we just bugged one another xD
You never know what someone might say that could help you, always worth a listen.
I’m laying out the groundwork of my undertaking. This is to help me work through the ideas.
In addition to the idea of me truly accepting what it is that I’m doing. Accepting the risk, so to speak.
I definitely do not recommend others to take my path, it’s far easier to swing/position trade.
Intraday trading is very hard, the market is noisy and is full of false signals. You can get led about by the market and lose all day and miss the big move or catch small ones and be blown out by spikes. You might zoom in and trade countertrend without even knowing it and then bam you get smacked by the move or you misunderstand a retracement as a reversal. Sure these can happen to you on higher timeframes, but they happen less frequently and you’re taking more time to make each decisions. So hopefully then you’re making quality decisions instead of reflexive and reactionary decisions.

Recommended Reading:
Trading in the Zone - Mark Douglas
The Mental Game of Poker - Jared Tendler
Trading to Win - Ari Kiev
The 33 Strategies of War - Robert Greene
The 50th Law - Robert Green + 50 Cent
Mastery - Robert Greene
The Power of Concentration - Theron Q Dumont
Market Wizards books - Jack Schwager
The Definitive Guide to Position Sizing - Van Tharp
The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust - John H. Coates

My trading history in a nutshell:
Found out about trading in June 2011
Traded on and off with boom/bust cycles in my account, typically taking a break after a bust.
Studied many trading and psychology books
I achieved some levels of consistency in my trading after a few years but tended to get overconfident at later stages and blew up. This then spiraled me downwards and I ended up going backwards.
After a while everything clicked but it was only once I had taken the leap to truly commit to trading seriously.
I had to accept that I was a losing trader. In my mind I had some wishy washy ideas about how great my trading was but I was taking a single huge loss that would wipe the account. This is destabilizing to your ability to trade, both mentally and financially.
I looked at my data and came to terms with the reality that I wasn’t as good as I thought I was. Like Elder Alexander says, show me a trader who keeps good records and I’ll show you a good trader.
This was a huge wakeup call and I worked out the bugs and improved my trading immensely.
Look at reality, not fantasy.

Much later I started conversing with another trader and we’ve become good friends. We talk politics and trading. We have completely different trading styles and it’s great camaraderie. Especially in helping each other through the psychological difficulties of trading.

I used to use various indicators such as RSI and 50EMA + 200SMA and I was quite successful with them
Now I trade pure price action, I gauge retracements/reversals and continuation+exhaustion on a discretionary basis. I saw these same setups with the indicators and realized I didn’t need the indicators. They tended to create confusion and provided more information than I needed.
The key is to simplify and then simplify some more.
It’s complex to make something simple and simple to make something complex.

I have never once asked other people for their strategy.
I have never once asked someone what trade to put on. No tips, no rumours.
You can test and develop your own strategy. Only then will you have the confidence to trade it and risk your hard earned money on it.

We shall see how it plays out.
I will be posting my equity once a day here.

2 Likes
2

Good luck!

3

I read your post. I don’t understand why such draw down is required for large returns?

I was under the impression that drawdown started to increase when thetrade started going to against you.

I hope you can clarify that for me. Thanks,

KC

4

It involves trading a large position size. Losses are magnified.
Technically if I did lots of quick trades my drawdowns would be quite low if my stops are extremely tight and the size is large. However the chance of getting whipsawed increases so I might make nothing.

5

One, you haven’t explained your strategy
Two, you’ve said this is not recommended
Three, you used sma/ema and rsi and was successful but now you use discretionary ‘price action’

What’s the point of this? Wheres the accountability. You’ll just say you traded and your equity figure will go up and down until you’re a millionaire. In the meantime no one learns anything. Or is this another psychology thread. Maybe hoping to be a mentor to people who will pay you. Theres other people saying the same thing on other threads ‘test your own strategy, in the meantime I’m profitable’. Lol.

6

Why would I share my strategy? I worked hard to discover it.
I have used other strategies in the past and they have worked for me.
It’s not hard to pull up a chart, throw an indicator on and test with your eyes to do a manual backtest.
At that point you can test on demo and presto. You’ve created an edge, a statistical chance of making a profit.
But still incurring losses. Differentiating built-in losses and losses caused by not having an edge is a tough task. You have to do the work and test your own system.

I wouldn’t recommend what I’m doing because the risk is very high. Dealing with large losses is not easy psychologically. Much better to take smaller paper cuts over a longer time period.

Sure I agree with you that there isn’t real accountability. I could definitely just make the numbers up and post them.
Trading is 90% mental, the other half is good math

Are you mostly looking for someone to give you a strategy?

1 Like
7

I can understand why people might feel this way.

Think about it, if somebody did share a successful trading strategy here… And everybody adopted it … that would have a dramatic impact on the forex market and reduce the profits for the person who made such a horrible mistake as to reveal their strategy to the citizens of babypips. “Oh the humanity!”

There’s something not right here. :rofl::laughing::rofl::sweat_smile:

KC

1 Like
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|13.08.2019|371|
Took a large hit today
I was expecting a large move in the dollar, which happened, however I missed the congestion on USD/ZAR and it ended up causing a spike.
I expect the market to recover tomorrow and make new highs

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I just dont see the point of this thread if you’re not sharing your strategy and also recommending dont try this. Lol, what a waste. It’s just a pointless exercise. You can just make up numbers.if everyone started doing this, this forum would become like all the others… BS.

Trading is 90% mental and the other half is good math. :joy::joy::joy:. You obviously don’t believe this as you dont want to share your strategy. So why lie? Why say what everyone else says? Are you going to eventually try and sell something. Be honest and say 90% is the strategy everything else is the rest. Otherwise you would trust that people dknt have the psychology to trade a profitable system. You’re just another charlatan scam trader. Eventually we’ll find out why you have started this. I just want you to be upfront and honest instead of trying to trick us.

10

I stated why I wrote this in my post.
You are simply trolling multiple threads. You keep repeating the same lines and people tell you the same things.

11

I’m really sorry to say this, but I’m not trolling. I actually mean what I’m saying about this thread. I’m looking at your thread and truly dont understand the point. Even you agreed you could make up the numbers and post them. But if you want to continue please do. Eventually others will clock on. Just think everyone is telling me and everyone else the same things but everyone is not profitable so it cant be the right advice. I’m unfollowing. Best of luck with your experiment.

1 Like
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The idea that “it’s not the system, it’s the trader” has become common knowledge to this point. It has been repeated over and over. The market wizards books harp on about this and the traders in there explain why.

However, I agree that simply because it’s repeated all the time that doesn’t mean we should blindly accept it. I will provide an example from poker. I find that poker is a great tool for conceptualizing a lot of trading concepts.
I play poker in the casino from time to time. I noticed that at our casino there are generally some good players and a lot of weak players. Upon closer inspection I noticed that it’s a far smaller subset that is really good. I picked up that if I simply waited for strong hands and played an ALLIN or FOLD strategy, I would come out on top.
The reason is that multiple players call the first raise. This means if you go all in with good hands and everyone folds, you pick up a nice pot. Keep this up for a few hours and you’ll have a few hundred dollars (I translate to first world currency to make it easier to understand, we’re playing in ZAR)

So here I have a pretty simple formula for winning, it doesn’t always work because even with aces you lose from time to time. But if you repeat it then you win.
I play in a casual game with a bunch of fellows. I invited one of them to come play and follow this strategy.
He assures me that he can play tight and wait and do the all in or fold strategy.
He doesn’t, he bleeds money all night long calling too much.

He couldn’t follow the strategy.
It’s far easier to explain this edge in poker than it would be in trading.
He understood the edge. I tested the edge to great success. He lost money.

People can’t follow a system they don’t believe in. Believing in a system requires testing it.
If you throw a system my way and I test it and I believe in it, I can execute it.
Most people can’t execute the system correctly. They do things that the edge will not survive.
Revenge trade for example.

13

I don’t understand much here, including why -
you play poker instead of chess, a much better exercise for developing traders
you are trading something with such wide spreads as USD/ZAR
you are day-trading
you think you should use a 10% risk per trade when you are so under-capitalised
you believe you will make 100% profit in 10 days again and again and again
you have already burdened yourself with the need to pay for your life expenses from trading profits

2 Likes
14

Thanks for the message to let me know you replied. Unfortunately we will not agree. I’ll explain it one more time, maybe it will make sense.

The whole post above is to explain that some people cant trade your strategy because they cant execute it. If you truly believe that then theres no problem in sharing your strategy. If you believe that people can not execute your profitable strategy then what harm is there in sharing it. If you dont share it because you think people will use it, then obviously psychology has no part as they will be profitable (if the strategy is profitable). If you dont share it because you feel everyone should work hard to find a strategy then you are not here to help but repeat things that have been said before. You say believing in a system is important but thats not for you to decide, if someone wants to use your strategy let them. That’s about as much as I can say, every week theres someone new repeating old advice through their ‘experiences’. Good luck.

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Well it’s not to say that nobody else can make money with it.
Certainly if any system was given to someone who is a consistently profitable trader and that system has an edge, then that person would definitely be able to make money with the system over a set of trades.

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|14.08.2019|490|

Recovered some of the move but lost my courage near the end. The impact of the loss the day before had a rather stressful effect on me

17

Tuesday became a difficult day when the US announced a narrower range of tariff-prone goods than had been talked about. My +10% unrealised gain turned into a -2% unrealised loss. The prior trends are only slowly showing signs of resumption. Very annoying.

But the key is to trade through. If you have a statistically reliably 70% win rate for example, the only way to reduce the win rate over the next month without changing the system is to reduce the number of trades.

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No cuz. It’s an absolute must to learn others then stand on their gigantic shoulders. I owe to my teacher thy good life said Alexander the Great

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|15.08.2019|430|

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|16.08.2019|450|