By the way:
I posted the below on a another thread today. Should have done it here.
Today is a Quadruple Witching day (see link below). Statistics that except for only once: the Dow has fallen by 1% in the ensuing week for the past 20 years.
Also: Dodd-Frank bank stress tests results coming out today.
OK, that’s easy enough. It would be $150 in my case (but check that I have understood it correctly):
MT4 also allows one to set a monetary value to the stop, kind of. You would place a stop somewhere, anywhere, then drag it and the pip value and monetary value are displayed for wherever the line is at the time. So no actual calculations needed.
You asked which pair it is. It’s AUDJPY, but the only reason that’s relevant is that the pip value has to be taken from the first two numbers after the decimal, being a yen pair.
Correct. It’s one thing you have to make sure of i.e. to compensate for the tick (pip) values. This is very important because it’s a mistake that I made of late and that’s actually caught me in the tail on another account (and another long story which is of no relevance here). Especially with CFDs you have to make sure what the minimum contract size is and what that equates to in tick value. In other words: a lot size of 0.01 may have a tick value of $1 per tick at one broker whereas a lot size of 1.00 at another broker may have the same tick value. The reason being that the contract sizes are smaller at the second broker in my example.
Wow, OK, so you are talking about real emergency stops then. I would call 100 pips a fairly big stop and would seldom go beyond that, but with this calculation, let’s say you have a $10,000 account. the stop value for a trade would be 5% of that, which is $500. Something doesn’t make sense here. What if I decide the trade is a bit risky so I pull down the lot size, and also what if there are many of trades being placed or already in place one would have to share available equity among the three and then stops would come down accordingly. Does that make sense? Maybe this is more applicable to EFTs and indices?
Look: this position sizing will probably not be for everybody. And in the vast majority of cases it will not be possible to implement it either due to capital requirements. And that’s just unfortunate. But for sure it’s the way I’m calculating position sizes.
Also bear in mind it probably depends on what your goals are. I only need to make around $2 500 USD per month given our exchange rate in order for me to get back to where I was. And that’s pretty easy on a $55K USD account (which, by the way, and not to jinx it, but after today, may very well have in the not too distant future). Bear in mind that my trading account is like-for-like so for demonstration purposes it’s of no consequence that my profits are in ZAR i.e. if it were a USD denominated account the profit figure would simply be in USD instead of ZAR. The point is I guess: I really don’t have the need to try and squeeze the largest possible lot size out of a trade and run the risk of being stopped out for 5% every time.
Well that’s not how I’m implementing it i.e. the possible lot on each trade / different instrument would be 5%. So if I’m trading six instruments and they all went pear shaped and hit these emergency stops well then I’d be down 30% in total. But I’m sure you’ll agree that with the TPS: the chances of those stops ever getting taken out are nil i.e. you’ll get an RSI(2) signal to close out, even at a loss, that will be far less than the 5%. So far as I can tell anyway. My Gold trade of last year being the possible exception (but then again seeing as I ignore early signals to get out of the long position this is probably a nonsense statements to be making).
Bear in mind you can always reduce the stop distance by reducing the ATR(10) multiplier. In the example a 3 x ATR(10) was being used. You could use that or even cut it down to 2.5 x ATR(10). Truth be told: I just like things that match hence 5% risk, 5 x ATR(10), 10 is divisible by 5, you get the picture. But I’m happy to be getting, for example, R2 or $2 per point on the Dow for instance (as per the current calcs. which will vary according to the current ATR value of course).
Problem is the TPS. Because of the way it works you have no way of knowing whether 100 pips or 150 pips or 200 pips is a reasonable emergency stop that will not interfere with the trading system. With other trading systems where you implement stops: no problem. They’re different in the sense that you know beforehand where your stop loss order is going to be and the lot size is calculated based on this. You’re not able to do this with the TPS obviously. So in essence what you’re trying to do here is give the trades some real room to run (and based on something more than just thumb suck) but relying on the system to force you close out losing trades at a loss that theoretically should be far less than 5%.
They say a picture paints a thousand words so this may explain all (even although it doesn’t pertain the the TPS).
AUDUSD. Using the RSI Rollercoaster which is based on RSI(14) you would have taken a trade when RSI(14) went below 30 and then popped back up over 30. And your initial stop would have been placed a couple of ticks (pips) below the lowest low or low swing point (obvious place for it to be). And look what happened. Trade went in your favor for a while and then you got stopped out. But look what happened after that. You got stopped out and then price turned again. And worse still: with that particular trading system there wasn’t even a second signal for you to go long again. So that loss was a loss was a loss. Period. However: using these carefully calculated wide stops you were never stopped out of the trade. And were I in this trade I’d be trailing a profitable stop probably using the lowest low of the last five bars. Something like that. Maybe that makes my logic clearer.
AUDUSD Daily
It’s not the logic that I’m struggling to get, that’s fine. It’s just how the calculations work, and how they shift under different conditions. But I get it - whichever way you calculate the stop, it is far from the action and in most cases where your strategy is sound, unlikely to be hit. And where it is hit, it’s painful, but better than what would happen if price goes the wrong way for an extended period of time, and we all know how easy it is to inflict that sort of pain on ourselves!
I’ve just noticed this:
So basically it should be quick and easy to work out what 5% of available equity is and then to set a stop accordingly, perhaps aiming lower than a loss of 5% and even looking at chart structure to assist. The basic principle is sound.
Well put it this way. I figure if these stops are hit: thehn it would be safe to say that the trade ain’t never coming back in your direction. And not sure it’d be that painful. Well: 5% I guess is painful. But the idea really is that the TPS should get you out even if it’s at a loss for a lot less than 5% and that’s the idea really.
As to your second point: pretty much on the mark I guess. I’d just rather work it out than look at a probable place to put a stop order because in my mind the tendency to do it by looking at a chart would probably have most traders (myself included) once again place stops at an obvious place.
Taking into account the allowed lot size of course. That’s the point of the calculation really.
Just thinking:
It’s but another reason why I’m no longer having an issue trying to buy or sell at extreme pivot levels. Because the position size has already been calculated beforehand: the potential loss by the close is nowhere NEAR 5% on any given day even if price goes against you and doesn’t obey the pivots. So what in my case if the lot sizes are way smaller than they would have been had I been setting stops at one of the other pivot levels i.e. the net of only three pivot trades using the TPS as a filter this week is probably around R200 ($200). And there were a few that I missed that would have worked out nice. $200 is R2 800 ZAR no matter which way you slice it. Do that often enough and add to that TPS profits during a month??? I’ll take it. Sure not going to double my account in a day that’s true. But hey: as I said I’ll take it.
Quadruple Witching:
https://www.bloomberg.com/news/videos/2019-06-21/beware-quadruple-witching-day-video
Spike in volume usually occurs at around 15h30 ET.
This the kind of thing I spent years obsessing about. Keeps it interesting.
A thing of beauty.
Apple into the close (but trading continues for another hour).
Note the spread band!!! LOL!!! (Which has now widened to 70) (but price still dropping).
Apple 15m 21062019 2200
For some time out.
I posted the first part below in another thread in “The Lobby” but I don’t think people visit that section too readily (I know very rarely do I take a look over there myself even when I do see a new thread that’s been started over there).
Anyway. If you’re in any way enthralled by the stock market and the world of high finance then here’s some stuff to watch. I myself am still to this day enthralled by the financial crisis, the housing crisis, credit default swaps, sub prime mortgages, Lehman Brothers, Bear Stearns, AIG, House Financial Services Commission, Senate Banking Committee, Paulsen, Bernanke, Geitner, Sen. Dodd, Barney Frank, Freddie and Fannie, State Street, banks, the list goes on. Nostalgia maybe??? History???
Anyway and moving on to the present.
For those that appreciate the stock market and the financial industry and for those that were privileged to witness history in the making in 2008 (financial crisis) the movie “The Men Who Stole The World” is being broadcast on Aljazeera on Sunday night at 20h00 GMT.
Here’s the trailer on Vimeo to wet your appetite:
Then just today I found GOLD man!!!
Take a look at the stuff on a site called WATCHDOCUMENTARIES under the Business & Economics section:
In particular for me:
And there’s even something on Bitcoin (which Buffet refers to as “rat poison”) (and which doesn’t interest me in the slightest bit just by the way):
And of course on Vimeo my old favorite “Floored - The Movie”:
So I guess that’s gonna be my break time today and tomorrow.
Well I’ve been having a good day watching some of the above.
At the end of one of the above the below was suggested by YouTube so I ended up watching it. It’s about the flash crash of 6 May 2010. And this got me to thinking: what would happen with the TPS vs. another trading system that required stops. In addition and possibly even more importantly: how would my risk based position sizing play out vs. traditional position sizing. And here’s my findings.
Let’s assume that on 5 May 2010 you went long the Dow at the close @ 10 866.
Now:
A traditional (let’s call it that) trading system and that would have you place your stop at the low of the same bar which was 10 814. Assuming the same risk of 5% of your account of $55 000 USD this would allow you to have gone long 52 lots or contracts @ $52 USD per point movement.
With the TPS and using risk based position sizing and with the same amount of capital you would only have been able to go long 4 lots or contracts. Your soft stop would have been at 10 178.
So here’s what could have happened:
The Dow tanked by 1 000 points from its open on 6 May 2010 to its low after which it took a few minutes to recover from the low.
With the TPS you either would have manually closed out at for a loss of 5% or $2 750 USD (had you been sitting watching) OR your loss would have spiked to $4 000 USD but eventually priced crept back and closed at 10 520. Lo and behold: on 10 May 2010 the trade would actually have closed out at a profit (not going into detail as to why but take my word for it or study the chart on Yahoo Finance). So: a loss capped at 5% or a profit after the flash crash.
Now the other scenario of a traditional trading system. The chances of your stop loss being executed at the price at which it was set are absolutely NIL. It would have been slipped on that day. Exactly how much we will never know. Worst case scenario: you would have been margin called because at the low your loss would have been $52 000 USD (remember that margin would be in use and you may even have other trades open using up margin). Alright: this probably would not have played out that way. Your stop would probably have been executed at SOME point during a pause on the way down. But you can be almost sure it a) would have been at a far far worse price thus resulting in a sizeable loss by far exceeding 5% and b) you would have been out of the trade period.
Now it is true that since 2010 circuit breakers have been introduced. In other words: the markets can only fall certain percentages (or climb for that matter) before trading is halted. But it is worth mentioning that the flash crash would still not have been prevented by these circuit breakers because on a percentage basis the fall was not enough to trigger them. Furthermore: once a circuit breaker has been triggered trading is halted. So even if you’re no sitting on a huge loss and wish to close you simply are not able to do so and will have to wait for trading to resume. (https://en.wikipedia.org/wiki/Trading_curb)
Not only does the above demonstrate a) how the TPS would hold up under an abnormal condition and b) the merits of trading with little to no leverage (at that time high leverage was the norm so it would have been no problem to open such a lot size with such capital) and c) the robustness of risk based position sizing as opposed to the traditional fixed stop method.
Very interesting.
Now I do not know if the same would have applied to the EURCHF crash for the simple reason that I do not know if price simply jumped from its closing price the previous day to that low that occurred (I think this was actually the case). But after checking the chart and assuming risk based position sizing: I do not think you would have been margin called and price retraced after the spike down (but I cannot say for sure). From the documentary the Dow basically tanked in 100 and then 200 point increments on that day. So you would have been able to get out had you been watching and at the same time at some point the stop from the traditional trading system would have been executed (although there is no way of telling at which point of course). But do note: the circuit breakers described above do not apply to FOREX.
Anyway. As I say. Interesting.
In the documentary though: HFT is discussed again of course. And much of the technology is described. As i noted on another thread: why retail traders believe they can trade the news is absolutely beyond me. Information is given as to how the data centers for the big banks and investment firms are conveniently located in New Jersey given it’s proximity to the NYSE. This is for nothing other than speed. By the time your retail broker is showing price those firms are already getting out of the trade.
In addition: just take a look at the investments made in HFT technology and automated trading. But we have on sites like this EA creators that think they’re able to beat the market with huge gains. It is beyond me. And frankly: it comes from nothing other than ignorance. Amazes me that some talk about “passion” for trading. And yet I will guarantee you that not a single one has spent even a few hours learning about stuff like this.
Anyways. Enjoy.
Moving back to the present…
Below is a chart of the Dow Cash Index. It’s a Yahoo Finance Chart which shows the CORRECT and ACTUAL volume from the exchange.
Note the spike in DOWN volume on Friday. Could be a good week.
Same for the S&P 500 and the NASDAQ.
Well I enjoyed that I have to say.
I do think it’s unfair though for Lehman Brothers to always bear the brunt. Bear Stearns were the first but people tend to forget. They were just fortunate enough to be able to deal themselves out of the limelight really. No matter that Lehman took bigger risks: I am still of the opinion that they should have been bailed out. The entire financial crisis could have been averted. And as somebody said: the actual cost (human and other) by far exceeded the bailout amounts. True that as a result the financial industry was reformed (supposedly) but no reason they could not have instituted such reforms without the meltdown.
Was also very surprised to find out only this weekend how Lehman got shafted by Merrill and Bank Of America that weekend.
Interesting times.
Can tell you that if I had my time over and knowing what I know now: would have love to have been a part of it all. I guess Wall Street still has its pull for me. Just don’t think it has the pizazz of those days anymore. Was pretty hardcore back then.
Back in 2008 after the big crash into 2009 Ford was tradng for 1.16 or 1.10. I told my wife we should plow a bunch of money into it… she’s the accountant in the family both professionally and personally! She was too apprehensive.
Course hindsight is 20/20 sometimes it’s even better! but in 18 months or so was trading around 12 to $14.
The market’s been so high for so long we definitely due for correction in the next few years.
KC
Tell you one thing. I just finished watching the documentary “Inside Job” that I posted about above. Possibly the best I’ve seen in the way it explains the who, the what, and the why it all happened as well as why the fallout and possibly even the reasons it could happen again. Even although it was made in 2010: the fallout can still be seen today. Fascinating stuff. No question about it. And if that’s what you’re after i.e. real money and the lifestyle that goes with it: then New York is where you wanna be!!! LOL!!! Not trying to scrape a few bucks from Trading-R-Us!!! LOL!!!
I’ve seen that. Iceland…wow… They had the “great society” and for the love of money threw it all away. Just started watching it again last night!
Edit: This is another “eye-openner” about Goldman…
Goldman Sachs - La banque qui dirige le monde on Vimeo
It’s a french documentary with english subtitles
KC
