Tuesday, 27 September 2011

Trend trading

One of the most famous trading strategy that was ever used was the trend following strategy. This was evident to current economic climate, if an instrument was in established trend ,it will more or less continue in its current direction regardless up or down.Amplified by trend followers ,the movement probably will sustain ,towards weeks or even years.
Then there was a statement released publicly towards trading , 95% of most traders often lose, similar to 95% of business startups.But we will focus on trading for now.
Stops, or stops loss almost always accompany any trend following strategy. In my opinion one of the ways that most traders lose money. But without a SL preset,the account will in much potential to lose especially with overleveraging. The results, with or without stops both will lose money, one slowly or the other quite fast. The reason was the way the strategy is executed. The strategy is geared towards professionals or experts with years of trading experience. If you teach this to newbies ,or even apply this to robots it will lose money some way or another. Traders often got 'killed' in ranging period which can occur anytime anywhere without any warning. You can imagine how many times they will stop out. Once the trend is back in place will the trader hold on into their position to recover some of the losses?
Using hedging or using a bidirectional grids or using williams MM which is adding trades to winners, the trader can not only make money but withstand drawdowns during the ranging period.Most strategy are not much equipped to endure prolonged range period which is their biggest weakness.Standing the dd is a must to eliminate losses and getting the needed profit.
Most cash in during losses which is not the way business work.WHo would cash in during losses? We will only close 'trades'/cash in during profits.Such is the way that most teachers tought their students. Plus there is a psychological advantage,since we would look at dd as temporary. On the other side DD is looked as permanent which is booked loss. Loss and wins are never permanent unless booked. They would book during losses, which could be psychologically damaging. Some traders even said trading is a lot more mentally challenging. But they always tell to damage their own mental state.eg book in a loss.

I conducted in an experiment several months ago using EURUSD using bidirectional grid, i added to winners.Eventually the account suffer a total DD of -900 pips which i closed with regret. The trend eventually appears,which on paper,if i would continues using the strategy would nett me profit,eliminating -900p with a plus. That was a lesson learned. We must be able to withstand initial dd,before getting the profit.But this would be easier to execute rather than the usual trend strategy MM.In the basic trend strategy ,if you missed the winners, thats a death blow to your account ,plus suffering losing streak.Even sleep is not permissible, you must catch all trades.
Using stop entry orders(hedging), no trades will be missed, you could have a nice night sleep.To me the advantage outweights the disadvantages, even by having bigger DD.
Each to their own. If your not comfortable trading, dont, trade only when your comfortable.Does that make psychologically sound?

Thursday, 8 September 2011

More questions to ponder

Have you ever looked at how the three pairs move in conjunction or relation to each other?Each of the pairs has its own side of story.Sometimes the other will lead ,somedays the next pair does.One also leads one almost always follows. This could be a hidden gem, since the three "always" go everywhere together during my observation. Yes they do split sometimes but in the end they always band back together. With higher TF's we could see the main direction of where it should go,no matter how far it went even towards 1000 - 2000 far apart in due time it will go back to its direction, like the sun.
In retrospect this could be absolutely powerful tool,even more than very long term trend.The trend as you can see ,even the most powerful/longer ones will change in due time,its past cannot foresee the future,the train will run but you wont know for sure how much fuel is left, you will be playing a guessing game which its why so many has failed in forex.The notable difference is that with this 'tool'/correlation we could see the destination, yes the destination matters, its what matters most. Twist and turn it be, but reaching the predetermined place it will.Think about it, i did not see anyone teaches this anywhere,even if they do its incomplete or vague at best. Combine it hedging / locking then you will minimize those DD's.

Nowadays i also have traded additional pairs ,EURUSD as well as EURGBP.The signals on EURGBP has become a bit rare ,even waiting for weeks now. I had placed a trade on EURUSD naked based on correlation out of boredom , and reached +60 quickly. I had thoughts that maybe i could ditch all of those technical analysis and just place the trade at random, knowing the main direction provided. The risk had to be determined before hand,but we know since we could calculate the maximum deviation by the charts a max of -200p DD should work since i'm looking at statistics here. Backtest is good to calculate max drawdown.Using sl's we could be stopped out anyhow.But without currency exposure,how could we profit? Stops/hedge, lock whatever must be large enough to account for currency fluctuations ,by fluctuation i could mean 50 -150p up/down. Throw the risk/reward out of the window here ,thats only good to lose your account eventually.Statistics are what matter here. A boxer couldnt win any match after suffering 2 - 3 punches and gave up.He wont be champ forever. He must absorb it and keep duking it out. A 50 pip sl and 100 p tp? no way, i had not make it work ever.