…
I like what have said. I will follow with interest
Sounds interesting.
Sorry edited as posted twice by mistake.
Hi BlueHenry & Tyrone Archer
I’m sure the experiment will be interesting and more importantly hopefully it will unlock some of that profitability we are all after. I look forward to getting your input and feedback as things progress. Your questions and/or advice are always welcome.
Hi BlueHenry & Tyrone Archer
I’m sure the experiment will be interesting and more importantly hopefully it will unlock some of that profitability we are all after. I look forward to getting your input and feedback as things progress. Your questions and/or advice are always welcome.
Just to confirm that this won’t be one of those “Guru” threads where I write like I know everthing better than everyone else and that everyone should be doing what I’m doing. What it is is me saying…” the success rate in forex is so low and my personal level of performance is not acceptable to me, shouldn’t I/ we look at a different approach, test that approach live and see if the results are better over a reasonable period of time?”
Ok, lets start by building a [B]crude model[/B] to nail down the concept, we can build more detailed models as we progress. If as we go along anyone comes across any figures that are more accurate than the one’s I use, those can be plugged in later.
To keep things really simple for now lets assume that the total number of Retail Forex Traders or [B]RTF[/B] for short = 100 people
50 of these guys are Kamikazee Traders ( [B]KT[/B] )who put little or no effort into studying forex but believed the easy money hype signed up for an account and blew that account within 2 or 3 months and never returned to forex
45 of these Guys are Aspirational Traders ([B]AT[/B]) they have at the minimum gone through the baby pips education have experienced winning months trading a real money account but are not what you would consider a profitable trader overall.
5 of these guy are In The Money Traders ([B]ITMT[/B]) they make money from forex full time and are what
Most of us aspire to be.
So [B]RTF[/B]= [B]KT[/B] + [B]AT[/B] + [B]ITMT[/B] in our model 100= 50+45+5
Now lets say that [B]KT[/B] put in so little effort into Forex that they never really had a chance of becoming profitable anyway so lets get rid of them. That means that now [B]RTF[/B] =[B] AT[/B] + [B]ITMT[/B] ie 50= 45+5 (percentage wise AT=90% and ITMT=10% after our adjustment)
We are going to concentrate for now on these In The Money Traders ([B]ITMT[/B])
For the sake of our model we need to make some assumptions about these [B]ITMT[/B]. The best way is to do this is to think of and answer some questions about them.
SO! [B][U]Questions[/U][/B]…How are these 5 ITMT guys doing it? Are they doing something totally different to us or are they doing the same things that we do differently? Are they all doing the same thing and did they all learn it the same way or have they found different solutions independently? Is there any connection at all between these guys?
[B][U]Answers [/U][/B]: I don’t think that we can totally discount the fact that these guys; or some of these guys are doing something totally different even though I think it’s unlikely, remember, we are talking about retail forex traders and not Commercial or Institutional traders here and remember too that most of us have had varying degrees of success with the “common” systems and strategies that we use. So lets say that 1 of our 5 [B]ITMT[/B] guys is [B]TD[/B] that is he is doing something Totally Different.
With the 4 remaining guys are they all doing the same thing?
If they are that would mean that there is only 1 real way of doing this for the masses and that their information all comes initially from the same source which in itself would mean they are all connected. Conspiracy theorists would love this idea lol
In reality though…would it be possible for part of that group as large a 10% to keep a secret from the rest of the group, remembering that they are all pretty focused, without things slipping out over a long period of time?
I think it possible but not probable.
It is probable though that some of these[B] ITMT[/B] guys know each other however and have learned the same method so lets say for our model then that 2 of these guys are [B]SSSS[/B] or Same System Same Source.
That leaves 2 guys who are [B]LI[/B] or Learned Independently
So,[B] ITMT[/B] = [B]TD[/B] + [B]SSSS[/B] + [B]LI[/B] in our model 5=1+2+2
In my next post I will consider the journey of these 5 [B]ITMT[/B] guys assuming that they used to be Aspirational Traders like we are now and how we can use that in our model.
Hopefully as this experiment progresses the format will evolve. If you have any ideas let me know, if not then please bear with me through these early stages and this evolution 
Have you considered that these professional retail traders and institutional traders may have a lot in common? another idea. Instead of only exiting at TP, what about entering a trade an exiting no matter how profitable or negative a trade is (assuming you are not stopped out) by a specified time? Example: Predict only the next hour’s direction, enter the trade, exit the trade one hour later. No one knows how far the market is going to move. I think pros accept this more than any other so they are less concerned about “TP’s.” Instead they try to predict a time interval’s direction. What makes them profitable? Their ability to predict larger moving hours correctly more so than they lose, therefore they are consistently profitable. Take out wishful thinking: (I want 150 pips this trade) replace with realistic return: (market moved 37 pips this past hour and I took it), continuously improve entry rules… Since exit is always constant, success constantly improves. What you think?
Hi Leg0nd,
Thanks for the thought provoking questions
A few things cause me to question the closeness of the link between professional retail traders and institutional traders.
The knowledge we have of forex trading originates in the financial industry. Banks and Brokers, Analysts and Hedge fund managers and trading desks etc etc. In simple terms, it seems to be accepted that, if we do like they do then we will make money. We keep the same percentages but just adjust for our level of capital. (do the results support this?)
In most areas in life and business we are accustomed to taking something small and scaling it up but do the same rules truly apply when taking something large and scaling it down? Will the functionality remain true?
Also…In Forex does a retail trader play by the same rules as a commercial or institutional trader?
Do we possess the same skill level, the same access to information, the same speed of connection, do we pay the same spreads, make the same number of trades with the same frequency as they do, do we ultimately get paid in the same way or have the same accountability to bosses and shareholders?
If we are profitable, at the end of the year can our profits buy luxury cars, houses, Jewelry or yachts? Probably not,
BUT we are playing the same game.
Surely there must be adjustments to be made on our level. Does lack of adjustment account for any part of the low success rate of the retail trader?
With regards to your example of “Predict only the next hour’s direction, enter the trade, exit the trade one hour later”
I think essentially what this comes down to is that realised profit has a higher value than expected profit. In other words if you go into the supermarket and get to the checkout and insist on paying with the money you hope to earn in the next 1min to 3 days from a trade you currently have running; the checkout girl is going to want to call for security! Where as if you close the trade at the current profit level, it will pay for some or all of your shopping no questions asked lol
I think there a are definitely pros to this type of thinking psychologically which will have an effect on your overall behaviour and results.
As you mention though entry and where stops are placed becomes critical and the value of entry rules and stop loss rises. Psychologically this can have an adverse effect.
Also…is exit truely constant in anything else than time? Aren’t things like momentum ignored?
I have previously seen systems where people basically take fixed profits say 50 pips regardless of how things are playing out. I think obviously “we” are trying to remove as much randomness from a random, unlimited environment playing out in the future, as it makes us more comfortable.
I would like to think about your question some more Thanks!
about 60% of this business comes from emotional/brain function. What state of mind is the trader in? Good mood? Whats the hurry? Do you need money today? Do you have 15 years? Are you annoyed? Do you have OCD? Its all about emotional state when you sit down…
IF your strat calls for 85% winners, but your only sitting there for 35% of the time, you stats are going to greatly influence your outcome…
When your mind veers off course, you make bad choices, or create shortcuts that are not part of the system…
Its all about mind control… Most of the losers surcom to A=Over trading(non-signal/tilt trading) B= RECOVERY/Which creates TILT, or TRADING NON-SIGNALS, and just dig a bigger hole for themselves.
“This system has a strike rate of 95%”, but you need to hit every-single-signal that is generated to get those 95% rates…
Some dont realize that…
WIth any business, only around 10% survive, so its basically the entire mind function stability per individual.
Before I delve deeper into the above questions & theories, I would like to say that I have got the privilege of questioning these professional traders occasionally because of my job. Taxi driver.
I have mentioned this before on another thread & one thing they all have in common is:
1 - A proven back tested profitable strategy/edge over then long run (minimum 500 trades)
2 - Diversification
Now many institutions banks will have many traders trading different pairs, instruments, strategies & time frames etc.
This is diversification.
Think about it…One year a certain strategy will be a loss while other strategies will be winners. The main thing is each strategy is profitable in the long run (many years). Banks are not interested in making 100% a year then loosing 80% the following year. They want around 20% consistently every year. Again this is what diversification does. It keeps you a consistent winner every year all be it only small. This reflects the amount they are playing with (millions/billions)
We as retail traders look for the holy grail to make 20% a month or 100% + a year (which very, very few may be cable of), but 99.9% will not achieve this figure. This to me is the answer I’ve always wanted. I now [B]don’t[/B] need to look for massive gains whilst experiencing massive losses. I know I need to align with how the banks are doing it. So lets get back to the above two answers. [B]This is the foundation of a successful trading business.[/B]
Lets say the four of us here found one individual strategy that made around minus 50% to plus 100% per year. Then we all traded the same account following our strategy & rules.
Two of us may have lost around 10 to 20% whilst two of us may have made 20 to 40% (the average edge coming into play)
Therefore we have a profitable year of 30% average.
This is in a nutshell what banks & institutions are doing. They employ many traders following different edges, different instruments, different strategies & different time frames.[B] DIVERSIFY[/B]
This is the easy part. Finding profitable traders or strategies is the hard part.
My point… We need to find multiple strategies which we all trade one strategy individually but work together as one account/business or we trade our selves but using multiple strategies/accounts which most of us do not have the time or patience to do. Catch 22.
Now that being said we can concentrate on the strategies. We need a criteria list to follow to building a strategy. We need to prove the strategy makes money in all market conditions over the long run (many years). This is where back testing comes into play. Lets see where this takes us…
Hi MoneyNVRsleeps,
I agree with everything you have written i’m just surprised that you put the figure so low (60%) on the importance of emotional/brain function hehe.
But lets take it a step further with a problem you mentioned Recovery and Revenge Trades.
In the very beginning when i first started trading and found myself in “Tilt mode” after a losing trade i looked for solutions and found in Mark Douglas book Trading in the Zone a part where he Wrote something like, “You have to look at things as a series of trades and not the outcome of a single trade” and the usual stuff about not having too much invested emotionally in a trade as this would effectively send you off on tilt if the outcome was negative.
Ok, so in my calm state i wrote a set of rules and put it on my office wall and wrote something on a post-it note on my computer screen. I would even check periodically during my trading session what i thought my emotional state was and rated it from 1 - 10 to try and give myself a heads up to stop things escalating into tilt.
Did that knowledge about emotional investment, the list of rules, the post-it note and the emotional state rating thing stop my revenge trade tilt ??? Of course it didn’t haha
That stuff was suggested to me and it seemed to fit the circumstance so i jumped on board, believed it, used it and even told others about it.
The way i solved my “Recovery Tilt” was… I figured out that yes i could create a trading system, environment and rules which would minimise my exposure to the type of emotional overload that causes tilt but that regardless of these steps at some point even if it was just once a year, Tilt Mode would rear its ugly head. I also realised that often the sensible rules written when you are in a calm state are written to be followed when you are in a calm state. Most of us can handle this and as we are most often in a calmish state so we feel a sort of security in having achieved our goal of following these rules.
The problem is of course that these rules cant withstand the intensity of a “full tilt” haha. I realised that the full intensity of tilt or the desire to revenge trade lasted about an hour for me and that my energy at this time had to placed not on following rules but on either braking tilt or getting myself to the other side of that hour without trading. I also realised that i would not be successful at doing this immediately as it was a new skill. I would have to practice it and as soon as i felt tilt kicking in and myself looking for that ridiculous trade i would say to myself practice the skill!
I managed to overcome that flaw and started looking deeper into psychology and at trying instead of looking and solving weaknesses, i started looking at exploiting psychological strengths etc I also read up on NLP
I will get onto that stuff later, but yeah…i agree with everything you wrote there.
Guys we can talk about psychology. We can talk about forward testing being better than back testing. We can talk about the rights & wrongs, but what we really need to concentrate on is each other’s strengths.
Here’s mine:
I can back test systems accurately but slowly real time. I enjoy doing this. This is my psychological strong point. So im up for testing strategies.
I trade large time frames only…Minimum 240min time frame with supply & demand up to monthly charts with mechanical systems. (Back testing proves to be profitable this way)
I stick 100% to my rules. (Back testing gave me the confidence)
I don’t get emotionally involved at all. (Back testing taught me this)
As you can see Back testing a strategy will be my strong point.
Now what else can be brought to the table? forget weak points. Wipe them out of the equation.
Good looks. I was thinking realism vs expectation . Exiting at a predetermined time instead of a predetermined profit is a very interesting concept. The beauty is you can always exit early if momentum changes or whatever… By using a time interval instead of a TP, the gains have the opportunity to exceed your expectations. However, if the gains do not meet your expectations and your exit time is up, you get out and take the profit regardless of size. This is important because in the scenario you are still in, waiting for the market to hit you desired TP and it does not, rather reverses and hits your SL, had you followed the time dependent exit, this loss would have been completely avoided. Thus increasing winning avg and overall accuracy.
Hope that makes sense. I trade time interval trading because I want the market to be random to an extent. I don’t have unrealistic expectations and would rather have the market do what it does at no emotional cost to me, and I take profit if my time is up, or loss. I try to predict being right first, then which pair has the highest probability to move.
I have been getting much more consistent and have been trading profitably for about a month now (total trading profit for the month). I view the market everyday as a test. I either pass or fail… How many pips I make per day is completely irrelevant to me right now if i can’t at least score an 80% (accuracy) avg per week. I’m already in the 60 percentile range and profitable. Imagine 80%.
Onto the information. Please do not be fooled into thinking all the “off limits to retail traders” information gives anyone an advantage. Maybe a tiny bit short term, but really not enough to make a critical difference. Do you know what fundamentally moves the market? The interest rates, unemployment, psychology, all that crap? No! Money!! All those other things are unpredictable and are what’s behind the money. They do not drive the market itself! The market does not move because of trader sentiment, or emotions… It moves because the money put in and taken out directly affects the value of price. All those other things cause the monetary direction to an extent, but trying to predict all the “symptoms” as I call them and instead of the “cause (money)” is a fools game to me, thus the 98% fail rate. If you can figure out the patterns in the money flow itself (in and out of the market), your chance of long term success increases. All this information to calculate what I just discussed is free! And available to all it’s called data. And everyone has access to it making forex an even playing field. Do you think the pro’s or banks or brokerage firms want you to know this? Hell nah, they want to keep you in the dark for their own personal gain. Let me know what you think. Maybe I am 100% wrong here, but I have math to back me up (numbers don’t lie). And an ongoing track record.
Hello again Tyrone,
You are absolutely right! If was setting up a Bank or a trading team that’s exactly the course of action i would follow. I would diversify, having traders trade various instruments and strategies and get the best of all worlds and protection against the worst of all worlds. In a bad year when my billions only made me £20 million at least i would know that the electricity bill would get paid lol
But like you mention…for various reasons, we are not setting up Banks or trading teams just yet. So how does this change things?
I’m not taking a position here at all but i’d like to get your feedback.
As a retail trader we are the analyst, the trader, the shareholders, the business coach, the psychologist and the performance analyst all rolled into one. Obviously we will perform some of these roles better than others. Now taking into account that we cant diversify the way we would like to for the reasons you mentioned and the fact that any given strategy performs better under particular conditions… is there value in giving up some of this consistency we talk about in favour of trying to exploit our strategy or edge when these particular conditions present themselves?
In essence what i’m asking is… in a seaside town the population might be 4 times or more as large in the summer as it is in the winter. In the winter its dead and the businesses make all their money in those 6 or 9 weeks of summer. Now in our case we know there is a season but unlike the seaside town…we dont know when it is, but when that season is there we are a money making machine. ([I]yes a rainy summer could put us out of business[/I])
[B]In your opinion can we the retail trader look to exploit this?[/B] (We dont have the overheads or accountability of banks and dont have to be in the market all the time)
What type of collaboration were you thinking about Tyrone, do you have something in mind?
Obviously without knowing the exact parameters and rules of your system and under what conditions you gained your results as well as how much descretion is allowed…you mention you can close the trade early, but can you close the trade late if momentum is with you too etc…its hard to comment on the absolutes, but as i said before as a concept its very interesting.
I’m not snobbish, if it makes money and i can trade it then its a winner.
Again, 1 month is a short period of time and as you are aware , any large position trader who sees big percentage gains is going to say …yes that type of thing would be possible trading a small account over a short period without even touching the system
lets say you are right in what you are doing, then we should all take a real look at it…if you are prepared to let us of course.
Fellas, awesome string of Posts, almost felt as if we are sitting in conference, lol.
Good stuff…
[QUOTE=“WinPsych;618566”] Obviously without knowing the exact parameters and rules of your system and under what conditions you gained your results as well as how much descretion is allowed…you mention you can close the trade early, but can you close the trade late if momentum is with you too etc…its hard to comment on the absolutes, but as i said before as a concept its very interesting. I’m not snobbish, if it makes money and i can trade it then its a winner. Again, 1 month is a short period of time and as you are aware , any large position trader who sees big percentage gains is going to say …yes that type of thing would be possible trading a small account over a short period without even touching the system lets say you are right in what you are doing, then we should all take a real look at it…if you are prepared to let us of course.[/QUOTE]
I appreciate the interest. Yes one month is a short period of time, I am definitely lowering my risk to attain greater probability of long term profitability. Account size is irrelevant due to scalability I believe. Do correct me if I am wrong here. Have you checked out my trade journal yet? If you are on a PC, it should be page 14 that shows where I currently am with the system (I have improved it some since then, but nothing major and the concept itself remains unchanged). Check that out first, if it still interests you after your review and you semi can understand it, I gladly will share it with you and we can go into great detail and really pull it apart. With some more help, I believe we have a really good chance at finding the real holy grail here! I don’t mean to distract the thread topic here… But I did want to point out access to “level III” information is in my opinion irrelevant to long term successful trading. Let me know what you think. Hopefully we can further this discussion. May have to create a new thread as to not derail this interesting experiment you have going on in this thread.
Great venue too, love these chairs! lol