Second day of trading Forex - I love stop losses!

[Jason Rogers]

I checked some of the most popular strategies in MirrorTrader (PMInvestmentCapital, ThirdBrainFx, Taiyo, Sphynx)and although long term they look very good, I noticed that few of them made any money in the last year or two. It sometimes takes them more than 12 months to exceed the previous highs. The guys who created these strategies are very experienced, most have over five years of experience and none of them can say they were profitable for any selected 12 months period. This shows me the game is a lot tougher than what I was expecting.

You make a great observation.

One thing to keep in mind with automated strategies is they tend to focus on a particular type of trading (eg. range or trend). Range trading strategies may struggle if there is a long term trend, and trend trading strategies may struggle in ranging markets.

Mirror Trader has a feature that lets you view the combined equity curve of several strategies you are considering. It's possible that the combination of two or more strategies could result in a smoother equity curve overall due some strategies doing better and times when others do worse.

If you can recognize that current market conditions are bad for a particular strategy, you can even turn it off altogether and swap it for a strategy better suited to current conditions.

Thanks for pointing that out. You are right, I am also afraid of longer time frames because of risk of losing too many pips. But I also closed short term trades at the worst moments because I panicked and I thought there is no end to a fast move, only to find out I closed it on the very top or the bottom.

What trade size are you using? As I mentioned, with a micro lot, you can risk as little as 10 cents per pip. If you keep your risk to 2% of your equity per trade, that will reduce the chances that you will panic and make emotional decisions.

For now, my personal challenge is to get a better month by month performance compared with last year (i.e April 2015 (last week only) = -2.5%, April 2016 = -14.05%, May 2015 = -23.97%, May 2016 = +1.66% (at the moment). I will also try to stay on the positive side, no matter how small the profit. A +1% for the month is a lot better than anything negative.

Reducing your trade size and keep your risk per trade to 2% of your equity should also help you with that goal.

 

[ukulele]

Let me preface this by saying I am also a newbie trader. But I see you making the same mistakes I made/make.

To put it slightly bluntly; I think you are going about this the wrong way. From your posts you don't seem to have a defined strategy.

An example: You said you saw a head and shoulders pattern on the SPX500 on the daily timeframe. You went short and closed out your position less than half an hour later! Why would you make a judgement on the daily timeframe and then take profits only half an hour later; this doesn't make sense. Before going into this trade you have to ask yourself a few questions like
a) did the neckline get broken, if so how convincingly?
b) what were your targets and stop loss levels. Do they provide a good enough risk:reward ratio?
c) did you adjust your position size so if you are stopped out you are only risking 1 or 2 or xx percent?

Another mistake you make is revenge trading. Go short, stopout, go long stopout, go short again, stopout. I have done this and its not a good feeling. You will blow up your account trading this way.

Honestly I think you should go back to the drawing board. Perhaps start with seeing what type of trader you are, trend follower, range trader, mean reversion, dividend stripper whatever... Decide what timeframe suits you. Develop a hypothesis. Develop rules around that hypothesis and test them. If you find an edge then focus on the process. Be process orientated, I can't stress that enough.

Have a listen to chat with traders podcast and better system trader for more in depth analysis into trader psychology and ideas for trading strategies. As a fellow newbie Good luck champ! We both need it...

 

[NickF]

Let me preface this by saying I am also a newbie trader. But I see you making the same mistakes I made/make.

To put it slightly bluntly; I think you are going about this the wrong way. From your posts you don't seem to have a defined strategy.

An example: You said you saw a head and shoulders pattern on the SPX500 on the daily timeframe. You went short and closed out your position less than half an hour later! Why would you make a judgement on the daily timeframe and then take profits only half an hour later; this doesn't make sense. Before going into this trade you have to ask yourself a few questions like
a) did the neckline get broken, if so how convincingly?
b) what were your targets and stop loss levels. Do they provide a good enough risk:reward ratio?
c) did you adjust your position size so if you are stopped out you are only risking 1 or 2 or xx percent?

Hi Ukulele,
You may also be beginner trader, but it seems your mind frame is years ahead of mine. From what you say, your approach to the market is much closer to what it should be. Your observations are correct and although I know a bit about all what you mentioned, I didn't apply any of it. I stopped using Stop-Losses because it seemed to me that always the price reached my set stop losses before going the other way around. Possibly, my stop losses are set too close to the noise level, so any fluctuation will take me out. But even when I set my stop losses larger, I still seem to first reach the stop loss before seeing the profit.

One way I dealt with this problem is setting my take profit point lower than my stop loss. It makes me feel good for more small successes and I also don't feel that bad about taking only one large loss once in a while. Definitely not going to work long time.

Another mistake you make is revenge trading. Go short, stopout, go long stopout, go short again, stopout. I have done this and its not a good feeling. You will blow up your account trading this way.

What a proper name for this method of trading! I could not find a better name for it. That's exactly what I was doing, without being aware other people are doing it as well and there's even a name for it. I expect that my wins come as easily and naturally as my losses. But that's rarely the case and I am still not sure why After all, I choose to be lazy and I deserve to win!

Honestly I think you should go back to the drawing board. Perhaps start with seeing what type of trader you are, trend follower, range trader, mean reversion, dividend stripper whatever... Decide what timeframe suits you. Develop a hypothesis. Develop rules around that hypothesis and test them. If you find an edge then focus on the process. Be process orientated, I can't stress that enough.

Have a listen to chat with traders podcast and better system trader for more in depth analysis into trader psychology and ideas for trading strategies. As a fellow newbie Good luck champ! We both need it...

Great advice. I should not need such advice when trading with real money, but I do. I sort of think of doing all these every day, but I have a very chaotic approach. And when I trade, I approach it from a practical point of view, not a theoretical (or philosophical) point of view. I feel like I am on the battle field. I take decisions in seconds, I rarely check more than one timeframe, I often forget to check indicators such as RSI, Alligator, SSI or MACD (not that I care too much about them anyway). And what's the point, because I already know where the price will go! When I see a very predictable pattern, such a channel, I disregard it. It would be too easy and I won't fell for it! To my surprise, I found I would have made some money on a few occasions if I had done it.

I am listening to the podcasts once in a while and I find them interesting and informative.
May I ask how long since you started and if you are on positive or negative? Best of luck to you too.

Nick

 

[NickF]

Oh boy, I am getting scared now. It looks like I lost almost 4% of my funds in one day, betting the S&P500 will go down "soon". But is soon, soon enough? What if the stock market will raise another day? Or if, god forbid, it will raise for the entire week, instead of crashing down? I know I am good and I know that I don't make mistakes. But am I perfect to the required level of accuracy?

Should I consider setting a stop loss point? Is there a light at the end of the tunnel? It seems that I am carried away from that light by a train that goes in the reverse direction! I was so proud when I discovered I became a sucker of level 2 (as Jesse Livermore described, suckers of level 1 lose all their funds in 3 to 6 months; suckers of level 2 usually last up to 3.5 years before losing everything).

I'm just wondering, did anybody analyze the statistical chance of success for praying in cases like these?

Nick

 

[ukulele]

There is another thread which I reckon is a good read: Canoz's "Transitioning to markets available in Australia's time zone". Some gems in there in regards to planning, but nothing really on strategy specifically.

My results are nothing to write home about!!!
Start 13/11/14, 137 trades, +3.8% on a 10k account. I trade FOREX through CFDs and also in shares (both CFD and actual). At the moment I have one strategy for each but it is not yielding enough trades.

I am always on the lookout for another strategy but I find it hard to back test because I don't have amibroker or similar. For shares I have done manual backtesting with yahoo data and excel. It's so cumbersome. I guess I am proving to myself that my original 2 strategies work before going down the automation route.

I take solace in the fact that I revenge traded twice and lost 10% and 5%, I have now grinded back to break even and now I'm a bit up. I will never ever revenge trade. If I didn't do those trades and just stuck to my plan I would've been a lot better off; I'm a newb, I make newb mistakes.

I am still making mistakes. I often exit too early; I did so even today, I didn't know what effect the RBA minutes would have on the stock market. Each time I take a trade its uncomfortable, it will take time to get used to it.

 

[NickF]

There is another thread which I reckon is a good read: Canoz's "Transitioning to markets available in Australia's time zone". Some gems in there in regards to planning, but nothing really on strategy specifically.

My results are nothing to write home about!!!
Start 13/11/14, 137 trades, +3.8% on a 10k account. I trade FOREX through CFDs and also in shares (both CFD and actual). At the moment I have one strategy for each but it is not yielding enough trades.

I am always on the lookout for another strategy but I find it hard to back test because I don't have amibroker or similar. For shares I have done manual backtesting with yahoo data and excel. It's so cumbersome. I guess I am proving to myself that my original 2 strategies work before going down the automation route.

I take solace in the fact that I revenge traded twice and lost 10% and 5%, I have now grinded back to break even and now I'm a bit up. I will never ever revenge trade. If I didn't do those trades and just stuck to my plan I would've been a lot better off; I'm a newb, I make newb mistakes.

I am still making mistakes. I often exit too early; I did so even today, I didn't know what effect the RBA minutes would have on the stock market. Each time I take a trade its uncomfortable, it will take time to get used to it.

You are on positive 3.8%? Who do I have to kill to get back on positive (other than myself)?
I tried some strategies with Amibroker a few years ago. I remember I was able to download in a few minutes all the ASX market (just the bigger stocks) and then I could run backtests on it, without having to purchase the full program. I remember it was nice and easy to run, modify and optimize strategies.

I wish I could say I will never ever revenge trade again. But I guess it only depends on me if I'll do it again or not. Revenge is so sweet, but the taste of defeat is so bitter!

I was reading today in the newspaper that due to the interest rate drop in Australia, the AUD has fallen a lot since then. I trade (only) Forex daily and I had to read in the newspaper about the long term impact in the currency market of this rate change! I felt that if I miss the first few seconds of trading after the announcement, there is no profit to be made. Sometimes I get flashbacks about how monumentally stupid I can be

Nick

 

[Jason Rogers]

Oh boy, I am getting scared now. It looks like I lost almost 4% of my funds in one day

It seems like your trade sizes are way too big for your comfort relative to your equity. You can trade micro lots on CFDs like SPX500 just like you can with forex trades.

 

[CanOz]

It seems like your trade sizes are way too big for your comfort relative to your equity. You can trade micro lots on CFDs like SPX500 just like you can with forex trades.

Yeah. i'm using FXCM at the moment and i've got total flexibility in position sizing, which is critical in the preservation of captial

 

[NickF]

It seems like your trade sizes are way too big for your comfort relative to your equity. You can trade micro lots on CFDs like SPX500 just like you can with forex trades.

Yes, that is correct, I went too far, purchasing three units (one "unit" as I call it is the minimum I can select) of S&P500. In the future I should keep it to 1. I was lucky and yesterday I recovered all my loss. This morning I was even ahead $20 and I didn't close my positions. I try to listen to the Old Turkey that Jesse Livermore mentioned. about keeping one's position in a trending market (which I hope it is).

I don't know anything about CFDs. I am also with FXCM and I am on a mini account. I don't pay commission, but I am limited to 19 currency pairs and I don't know if I can trade these CFD's - I will have to look. I don't think I need to go under 1 micro-lot, all I need is to be more considerate while trading.

Also, I suspect that George Soros overheard I am shorting the S&P500 and he decided to double his position as well. Great minds think alike!

Nick

 

[Jason Rogers]

I don't know anything about CFDs. I am also with FXCM and I am on a mini account.

CFDs are contracts for difference. The SPX500 contract you trade in your FXCM account is a CFD. You can also trade CFDs for other stock indices, metals, energy products and international shares.

I don't think I need to go under 1 micro-lot

Probably not, but if you had traded only one micro lot instead of three, you most likely would stayed under the 2% risk limit I mentioned previously.

Also, I suspect that George Soros overheard I am shorting the S&P500 and he decided to double his position as well. Great minds think alike!

I agree with you both that stocks seem long overdue for a correction. Don't be surprised, however, if the S&P 500 hits further highs in the short term. The latest data from the Speculative Sentiment Index (SSI) show the overwhelming majority of retail traders are short SPX500. SSI is a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that SPX500 may continue higher.

 

[NickF]

CFDs are contracts for difference. The SPX500 contract you trade in your FXCM account is a CFD. You can also trade CFDs for other stock indices, metals, energy products and international shares.
Probably not, but if you had traded only one micro lot instead of three, you most likely would stayed under the 2% risk limit I mentioned previously.

Yes, that would have been the best option in my case. Now I have only two microlots of S&P500. At some point I sold all three microlots for a nice profit. I thought I will let it raise a bit and do short it again. It didn't work the way I expected. Although it raised a bit since I sold it, later I watched it dropping heaps (without me). I remembered again that I didn't want to lose my position (which I did), so I repurchased two lots close to the minimum. I was aware that I could be buying them at the wrong time, but I didn't want to risk losing more potential profit. In total I think I made about $40 and lost about $60, so I am down. But I will keep them for longer time. I've seen some statistics on https://www.youtube.com/watch?v=b7exn88S3mU that more often than not the market will drop in June.

I agree with you both that stocks seem long overdue for a correction. Don't be surprised, however, if the S&P 500 hits further highs in the short term. The latest data from the Speculative Sentiment Index (SSI) show the overwhelming majority of retail traders are short SPX500. SSI is a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that SPX500 may continue higher.

Yes, there is always such a risk and I dislike that I am trading against the SSI indicator. But I traded based exclusively based on SSI indicator (in fact, I should have used another strategy and the SSI just to complement it) and sometimes I made money, sometimes I lost.

I spent the last days, including the weekend running countless optimizations on some personal strategies. They are very simple but the results are quite spectacular sometimes. Occasionally after performing optimizations for a year (Jan 2015-Jan 2016), I was obtaining profits of 70% and drawdown of 33% in out of sample tests from Jan 2016 - May 2016. Sometimes the account drops to zero and that's a bit of a disappointment.

I will soon trade the strategy with real money, but I will obviously reduce the lot size (simulation is done with $10000 and 1 lot). In order to improve the chances (I hope), I will use a few different strategies simultaneously and I will re-optimize them every week or so. I find it encouraging that pretty often the first four-five transactions seem to go up. Of course, simulations are different than real trading, but I'll see how I'll go. Probably I would not do much worse than April, when I lost 14%.

 

[NickF]

I decided to play smarter. So, I checked what are the spreads for various currencies pairs, so I will limit myself to EURUSD (0.4 pip), USDJPY (0.4 pip), AUDUSD (0.5 pip), EURGBP (0.7 pip), USDCAD (0.7 pip), AUDJPY (0.8 pip), GBPUSD (0.8 pip), EURJPY (0.9 pip), NZDUSD (0.9 pip), CADJPY (1 pip), USDCHF (1 pip). A few days ago I've done a trade where I was down almost 5 pips just for entering the trade and it felt a hard fight only to cover the transaction price.

This morning I also enabled one of my strategies on a demo account. Around 5:30 pm it performed the first transaction (using 1 lot) and in about two hours, it reached $130, then it dropped to zero. My Take Profit point was set higher, but when I checked the statistics, it showed that the Expected Payoff was around $58. So, next time the profit got above $58, I closed the transaction. It's a pretty good feeling, even if it's just paper money.

I am running optimizations for the above currency pairs and I will enable the strategy on each of them. At the moment I am not sure if it is better to optimize a longer period (such as last two years or the last year only). I suspect that the parameters change smoothly in time and perhaps a longer period of time would be safer, while a shorter period could be more rewarding but also riskier.

 

[cynic]

In addition to spread size, the impact of egative slippage ideally needs to be taken into account.

(Even moreso if one happens to be unfortunate enough to be trading "off exchange" products via a broker/provider that has chosen to take an additional point and a half profit from each side of the trade.)

 

[Jason Rogers]

in fact, I should have used another strategy and the SSI just to complement it

I agree with you that SSI seems to work best as a complement to other non-sentiment-based signals such as technical indicators and/or fundamental analysis.

Sometimes the account drops to zero and that's a bit of a disappointment.

What percentage of your equity were you risking per trade in these tests? If you limit your risk to 2% of your equity per trade, it will give you more ability to sustain draw downs in your strategy.

In order to improve the chances (I hope), I will use a few different strategies simultaneously and I will re-optimize them every week or so. I find it encouraging that pretty often the first four-five transactions seem to go up. Of course, simulations are different than real trading, but I'll see how I'll go.

It's good you're already aware past performance is not necessarily indicative of future results. In addition, beware of curve fitting: http://www.jarrattdavis.com/what-is...ting-and-back-testing-a-forex-trading-system/

 

[Jason Rogers]

In addition to spread size, the impact of egative slippage ideally needs to be taken into account.

Great point, Cynic

We discussed this earlier in the thread: https://www.aussiestockforums.com/f...t=29809&page=2&p=905235&viewfull=1#post905235

Since Nick is using Trading Station, he can take advantage of the Market Range and Range Entry features of the platform to limit his negative slippage (but not positive slippage) on Market Orders and Entry Orders respectively.

 

[cynic]

Great point, Cynic

We discussed this earlier in the thread: https://www.aussiestockforums.com/f...t=29809&page=2&p=905235&viewfull=1#post905235

Since Nick is using Trading Station, he can take advantage of the Market Range and Range Entry features of the platform to limit his negative slippage (but not positive slippage) on Market Orders and Entry Orders respectively.

Thanks for that Jason, however, it only partially addresses the issue to which I was referring.

Several wèeks ago, I had an experience that led me to suspect a certain FX provider of implementing the practice of taking an additional 1.5 points from each trade execution. Isn't it curious how that same provider is advertising "New Low Spreads"?

 

[Jason Rogers]

Thanks for that Jason, however, it only partially addresses the issue to which I was referring.

Several wèeks ago, I had an experience that led me to suspect a certain FX provider of implementing the practice of taking an additional 1.5 points from each trade execution. Isn't it curious how that same provider is advertising "New Low Spreads"?

Hi Cynic,

Your mention of "New Low Spreads" seems to be a reference to my forum signature. I don't want to take Nick's discussion thread off topic and would appreciate if you can tell me more about your concerns in the FXCM discussion thread: https://www.aussiestockforums.com/forums/showthread.php?t=14878&page=5&p=722251#post722251

 

[NickF]

Great point, Cynic

We discussed this earlier in the thread: https://www.aussiestockforums.com/f...t=29809&page=2&p=905235&viewfull=1#post905235

Since Nick is using Trading Station, he can take advantage of the Market Range and Range Entry features of the platform to limit his negative slippage (but not positive slippage) on Market Orders and Entry Orders respectively.

Hi Jason,

I read that Trading Station has some advantages on providing a better slippage than what's typical.
For my automatic system I am working on some Expert Advisors in MT4 (it's easier for me to work with C code than LUA code, plus there is heaps of MT4 code available). Is there any information about average slippage for FXCM? I need to make sure I use the right value. The original code suggested a slippage of 4 pips and I will need to check if I inadvertently didn't remove or disable that part of code, because it could make a big difference to the end result.

 

[Jason Rogers]

Hi Jason,

I read that Trading Station has some advantages on providing a better slippage than what's typical.
For my automatic system I am working on some Expert Advisors in MT4 (it's easier for me to work with C code than LUA code, plus there is heaps of MT4 code available). Is there any information about average slippage for FXCM? I need to make sure I use the right value. The original code suggested a slippage of 4 pips and I will need to check if I inadvertently didn't remove or disable that part of code, because it could make a big difference to the end result.

Trading Station has Market Range and Range Entry functions that limit your negative slippage (but not your positive slippage) on Market Orders and Entry (Stop and Limit) Orders respectively.

FXCM's MT4 platform has a Maximum Deviation function that works similarly to Market Range to limit your negative slippage on Market Orders. However, MT4 has no function like Range Entry to limit negative slippage on Entry Orders.

The stats for orders executed through FXCM over a 12-month period from September 2013 through August 2014 show our clients received positive slippage as frequently as negative slippage overall: http://bit.ly/1qLierb

• 76.2% of all orders had NO SLIPPAGE.
• 13.5% of all orders received positive slippage.
• 10.2% of all orders received negative slippage.
• Over 58% of all limit and limit entry orders received positive slippage.
• 52% of all stop and stop entry orders received negative slippage.

 

[NickF]

Trading Station has Market Range and Range Entry functions that limit your negative slippage (but not your positive slippage) on Market Orders and Entry (Stop and Limit) Orders respectively.

FXCM's MT4 platform has a Maximum Deviation function that works similarly to Market Range to limit your negative slippage on Market Orders. However, MT4 has no function like Range Entry to limit negative slippage on Entry Orders.

The stats for orders executed through FXCM over a 12-month period from September 2013 through August 2014 show our clients received positive slippage as frequently as negative slippage overall: http://bit.ly/1qLierb

• 76.2% of all orders had NO SLIPPAGE.
• 13.5% of all orders received positive slippage.
• 10.2% of all orders received negative slippage.
• Over 58% of all limit and limit entry orders received positive slippage.
• 52% of all stop and stop entry orders received negative slippage.

Thanks Jason for these details, it sounds good.
I am running my own EA with different parameters on various instruments and this morning I received two emails informing me that Sell trades were executed for USDJPY (Sell 109.743) and EURJPY (122.502).

About half an hour later, I received an email from DailyFX Trading Signal Alert, about sell trade opportunity for EURJPY, USDJPY, AUSJPY.
Unfortunately I can't see from DailyFX's email what were the prices where they sell - would have been interesting to see if they picked up better entry points than my system. It would also be nice that when a trade is closed (at a profit or at a loss) to see the profit/loss made, in pips.

I still have a lot of improvements to do in my system, since I just started working on it, but I am pleased with its progress. On my $5000 virtual account, I reduced the lot size to 0.1, because 1 lot is too much (just lost over $200 in a trade overnight and that's too much to swallow, even in a virtual account).

My real account is not doing too well, I am down to $1710. Jason, you were right about possibility of S&P500 to target a new high considering the SSI was strongly expecting a drop. However, now I train my patience and although I am about $160 down from a few days ago, I am not selling (but I'm not buying either). If the index will not go through the roof, I could keep my two positions for a few months (that would be a first for me). After all, all we're talking here is just money - easy come, easy go. Well, maybe not so easy come, but you get the point