optiontimer

I'm human, all too human ...

oanda finally, and mercifully, closed out my collosal loser with a final loss of 55% of the account's opening balance. I had started the month with $100K, traded it up to a a bit over $140K, and then saw one open loss consume $95K. While I am out of the running, I'm going to continue to trade the fxgame, and I am going to make my goal the recovery of that $95K, without allowing the account to exceed its current drawdown level. Toward that end, I will always double check to make certain I have a stop loss active on any open position before I exit the fxgame platform. FWIW, I actually remember having modified the order ticket on that loser to enter both a stop loss and a profit order, but I must have hit the "X" on the trade ticket window instead of hiting the submit button. Sloppy, sloppy, sloppy, even for a sim excerise.

Perhaps the problem is here: This implies, to me at least, that perhaps you are just not playing for big enough profits. While I would agree that the over the counter bucket shop forex model spread can be prohibitive, especially as your broker can execute you at prices that never occurred "out there," i.e. in the market-at large, I suspect that the fact that you find "paying the spread" to cause short-term trading to be cost-prohibitive suggests to me that your view of what constitutes short term may be much shorter than what I consider short term. Also, and probably more likely, I am very willing not only to let a winner run, but to add to it as it moves my way, assuming I am trading with the trend. I have not found spreads to be much of a concern, other than in this fx game where the spread can be manipulated to cause a trade to occur when price action otherwise had not triggered the trade.

Enter at market, with a stop order cut loss and take profit taking limit order. If this were a real market such as stocks or futures, I would enter on a stop also. However, it did not take long for me to realize that oanda's platform is designed to "rake in" stop orders, whether the market actually trades at the price or not. I can't tell you how many times my fill price on a stop order is a price that is often 1-4 pips beyond the actual price extreme. If I get stopped out with a loss because of it, no problem; but what I do not like is when I am filled on an entry order that never should have triggered, and then I take the subsequent loss. So I work the fxgame so that if I see a trade is setting up, I will log into the platform, and I use a market order to enter if and only if price actually trades through and thus triggers my entry. I really despise bucket shop forex, to tell you the truth. In real life I stick to currency futures for the most part, and if I do trade spot forex I do so at Interactivebrokers. Also, when this contest was held in 2011, both of my first two months had returns in excess of +40% for each month. I was not day trading those months. I had very few trades, hit a couple of trends, and let the positions run for weeks at a time. I started to day trade the contest a few months ago when some yahoo came on the thread implying that my success was a matter of luck, and that a real trader would be day trading. So I figured I'd show that trading is trading - you either have it (and yourself) figured out, or you don't. Take away the scales and look at a bunch of charts. You will not be able to distinguish a weekly from a quarterly from a 5 minute from an 800 tick from ... you get the idea. If you believe, as I do, that price action is price action regardless of how you collate the data, then you would see that there is no reason to trade a tick chart any differently than you trade weekly? Also, had I simply entered a long and hold trade on the eur.jpy from jump street, I'd be up a whole lot more than 40%. I've been continuously short 6J futures since October 15, with add-on sell made on 11/13 and 12/4, if I remember correctly without looking at a chart. I would bet that if you looked a chart of the eur.jpy or the usd.jpy you would see that those dates (give or take a day if my memory is off a hitch) would have been great days to go long euro's and dollars and short yen. Ok - I went to the eur.jpy chart. If you had bought and held since the 11/13, you'd be up nearly 1400 pips in two months. If you had then added a few times, you could have easily parlayed a nice amount on top of a relatively modest amount. At IB, for example, it would have taken a bit less than 3K to take a 100K long eur.jpy position in October, and there would have been sufficient profits to add 100K at 106.50 and 100K at 108, so a 3K margin could have been rolled into a +1400, +850, and +700 for +2950 pips and counting. At about $11/pip, that would have you sitting on $32450. I say all of the above because I would not want anyone to get the impression that day trading yields superior returns to swing trading. In real life, I have made most of my profits in my postions that I've held for weeks and months.

Well, onemove, remember that the market can only take from you what you let it. Without a stop loss, I was a sitting duck. In my regular accounts, every instrument I trade has presets that automatically load a stop loss when I enter an entry order. I usually will adjust its specific level, but I do it so that I am never in the market without a stop loss. As to the +40% that I had managed to put together, it was really quite simple. I traded the eur.jpy only. I selected it because technically it is moving and fundamentally it ought to be moving. I used a 15 minute chart with a 50 period simple moving average. If price was above the MA, I bought pullbacks, and if below the MA, I sold rallies. If the MA went more or less flat and price action choppy, I would stay out until price broke out from its trading range. Yesterday, for example, if you were to look at an eur.jpy chart, I entered short yesterday, 1/3/2013 around 2PM EST. That trade would have been a loser, and price rallied through what was meant to have been my stop a few pips above that 2-2:15PM bar. I would size the position as large as I could based on the margin available to me so long as I could maintain a 2-5% risk on the trade. The difference between a 2% risk and a 5% risk is based on things such as trend or counter trend (daily trend is up so I played long trades much more aggressively than shorts in this case), proximity to support/resistance. Why 5% max? Because in general that was about as large a size as margin would allow. While I did well enough on the counter trend trades to make them worth my while, it is interesting to note that nearly every losing trade I had (and there were a good number of them) were counter-trend short trades. Here is a 15 minute chart that covers most of the last two days. White arrows are places where I think the trades are obvious, and the two colored arrows show trades that I think are obvious, though perhaps not as easy to spot in real time without some practice. In each of these monthly contests I've done something different. But they all share this: I pick a time frame and define a trend, and then trade with that trend by entering short term moves against it. Even my counter trend trades were with the short-term trend, althought they were, without a doubt, counter to the intermediate term trend. In other words, I would only enter short when price was below the 50MA on the 15 minute chart, and I would enter long when price was above the 15 minute 50SMA with the following exception: Since the daily trend was up, I'd consider entering long if price made a quick dip below the 50 MA and had a strong reaction up off support (see the secong colored arrow on the chart above). I know the above could have been written better, but I think some here should nonetheless be able to make some use of it .

Thank you for the kind words, Ingot. I am sure that the drawdown limit has been quite smashed. I actually left the position open to see how long it will take oanda to close it out due to insufficient margin. I was and am surprised that the platform didn't auto-liquidate the position. My main broker is Interactivebrokers, and let me tell you, they would have closed that thing out before the minimum maintenance level had been breached. So at this point, I am out, and my fxgame account is an experiment in oanda risk management. I sure you and I will both be back at it for the Feb contest. My best to you and your wife during this New Year!

I have usually done ok, but that has come to an end. I just discovered this morning that after I put a trade on yesterday, in my haste to get back to real business, I exited the fxgame without setting my profit limit order or my stop loss. The trade went against me, and without a stop loss what should have been a 2.1% loss has turned into huge loss of all of December's profits and a significant portion of the starting equity. So I will not rank highly at all for the balance of this contest. Good luck to the other traders!

Not something I would consider a problem in the ocntext of the system.

Oats looks to have completed a three day pullback today, which makes for a decent long entry or an add-on point. 390-391 (March 2013), would be an ideal buy point, though I am not usuaully one to quibble for ticks when I am trading for points.

I'm not so much gunning for it as I am taking what it gives me. I'm not sure we are speaking to one another with the same thing in mind. For example, I'm sure I do not see how exiting at certain prior swing points helps one's cause, presuming one's cause is to get as much as the market is willing to give. Unless, of course, we are discussing day trading. I do often use targets to limit out of a trade when day trading, though that depends on market conditions at that moment for the instrument I am trading, and not the instrument itself. For example, crude is working on a second consecutive inside day. If I were day trading crude today, I'd likely use a limit order to take profits today rather than a trailing stop. However, if I were day trading crude the day it breaks out of what looks to be a likely three day range, I'd be inclined to trail a stop, and grab as much of whatever trend develops as I can. Also, I would not think that winning percentage will increase if you remove price confirmation from the picture.

I bought SP futures on 6/6/2012 when the market rallied back above the May low. Using an approach essentially the same as that outlined in the my thread from last year, I added to the position with follow on buys on 6/27, 7/13, 8/3, and 9/6, and I was stopped out of the entire position on 10/12. I lost a point or two on the contracts bought in September, a loss which was more than offset by the 25 to 125 points made on the initial buy and the other follow on buys. Twenty-five to 125 SPOOS points is decent follow through, I'd say. In each case I could have made "more profit" had I bought my add-ons on the signal day, which would be the day prior to my actual buys. But, like I said, this is a probablities game, and over the long run I think you will actually be "more profitable" by maximing your probabilities rather than trying to maximize your payoff. In other words, I would rather lay 11:10 odds on a 60% probablity than get 2:1 on a 35% probability. And that 2:1 is reduced to a negative expectation, i.e. no edge if your probability drops to 33%. Compare this to all the gurus who will tell you that you can lose 2/3's of your trades so long as you have a 2:1 payoff - at 2:1 odds you need a minimum 33.4% probability over the long run just to breakeven (actually you will have about a 0.1% edge). Have fun making any money with that! The point is this: Win rate (probability) is important, and so is the payoff when right (odds). Most people playing this game think the two are the same, rather than two distinct factors that together determine one's success over the long run. Payoff is important, as it determines what your minimum probability must be to obtain an advantage. However, a small increase in payoff will in general not offset the diminished win rate that results from it. I won't even get into the issue of dealing with a systems adverse standard deviation. But I will say this - it is the maximum standard deviation of your system which truly will determine your chances of losing all of your money. Remember, math is a tool. Now, if only someone would show me a system with a 50% win rate with 2:1 odds that traded three times per day ... we could all retire!

I always assume that "risk per trade" is included in any discussion of or reference to risk in general.

I've been in this trading game for more years than many TL poster have no doubt been breathing. I have been on either side of this debate at one time or the other, defending one and then the other with a dogmatic zeal that I now find embarrassing. I fit into neither of your camps: I neither swear by or sear at indicators. I am quite comfortable trading off a naked price chart; but I also have found that yes, there are situations in which using indicators properly can aid in defining an edge and deciding to make or refain from betting. Here are a few things to consider: 1) Trading is probabilistic game. Whether we are using indicators or price-only data, whether we are trading from a screen in an office or standing in the middle of the auction pit, any decision we make to place a bet is always at best a probabilistic decision. When we place a bet, we are simply saying that at this moment, we feel price is more likely to zig rather than zag. So let us agree that neither indicators, price action, nor direct immersion in the heat of the auction battle can provide an edge that approaches certainty. 2) Charts of price record past transactions, not future transactions, and not even concurrent transactions. Even the quick-paced tick chart lags the market by just that much. Even a price action trader cannot use a bar chart to pick a top or bottom tick with any certainty. A price chart is the raw data. Even a price action only trader will use other information from the record of transactions to make decisions, e.g. prior highs and lows, areas of support and resistance, volume (areas of high trade activity), momentum (is price rising or falling with increasing or decreasing momentum). The only transactions you will ever have a real time jump on are your own, and even then, unless you are entering with a limit order, you will not know with any certainty what your price will be, and if you are entering with a limit order, you have no certainty that your order will be filled prior to some confirmation from your broker. 3) It is misleading to call indicators math-based, implying that hey are arbitrary and abstract when they are in fact based upon market data, either price, volume, or some combination. Mathematics is a tool. You say that indicators do not do anything to tell you how the market works. This is manifestly untrue. If you know what an indicator is designed to collate and measure, you can then watch how the market acts with respect to that aspect being measured. Spend a day watching an intraday chart while plotting a short term stochastic, keeping in mind exactly what a stochastic is measuring, and tell me you haven't learned a thing about reading price action itself (and likewise tell me you haven't learned anything about how using a stochastic indicatormight aid in making bet decisions with a positive expectation). 4) Finally, you must use an indicator correctly. At the very least this means you must wait until the data series upon which your incdicator's value is to be calculated has closed before using that value as an input for making a decision. If you are using an indicator with a 20 period look back data series, and you act upon its value when the data series is only 19.25 periods complete, you are being unfair to the indicator if you blame it for having a different value (a value that that no longer suports your trading decision) when the twentieth period closes. Furthermore, it is usually wise if you wait for price action to confirm the decision your indicator is supports. For example, if your using an overbought/oversold indicator and it turns down from an overbought reading indicating that price may be more likely to head lower rather than higher, wait for price to confirm this by actually printing a lower low than the low of the immediately prior period. Again, I've spent a good part of my life first on one side then the other. In each case, I felt certain in my view. It is a false distinction, I assure you. It is all merely data, and how we collect it and interpret it. Even a plain naked bar chart is itself an indicator. Yes, it is simpler and certainly less refined (or more unrefined) than its more calculated cousins, but it is an indicator nonetheless.

Dec would have been stopped out, but that close to expiration you could have traded March and you'd still be long with a 15 to 20 cent open profit.

Starting with Tams response in post #14, the discussion has become one of the best I've read on a trading forum. Tam's responses are thoughtful, intelligent, well-written, and in my opinion 100% correct.

Risk is the least understood component of this game. This has two results: First, as risk is not understood, it confounds and instills fear. People who attempt to trade have responded to this fear with all manner of "money management" schemes to "control" risk. You cannot, however, control risk. You can only control your exposure to risk. Nearly all money management approaches begin and end with a fixed risk amount, expressed either as a fixed dollar amount or a fixed percentage. The problem with this is that it leads the trader to view all market opportunities as the same. This is fine when you are developing a trading plan, learning to identify your set-ups, and generally becoming experienced with seeing and identifying opportunities. In other words, such money management designs are fine for the beginner or amateur who is still grasping for an edge. But if you have an edge, you will maximize its results by varying your trade size based upon the preceived strength of your edge as it varies from opportunity to opportunity. Failure to do so will lead to subpar results more often than not if one does not learn to distinguish a trade with high probability of success and a better potential payoff from one with a lower probability and a lower potential reward. You must then bet stronger on the former and less on the latter. If you bet the same both cases, then your risk is higher on those bets with a lower (yet still positive) expectation than it is on those bets with a higher expectation, but because you risked the same amount or same percentage of your account on each trade, you are fooled into thinking your risk was the same. It was not. The second result is that since risk is for the most part universally misunderstood, it is almost always mispriced. Therein lies the opportunity.

I think they run a max 20% drawdown or some such. It was a rule argued for by a phony poster who knows nothing of real trading and never even stepped up to participate in the contest. Trading is a "long run" game, and even the best approach will suffer larger than normal yet not unexpected drawdowns at the hands of the approach's standard deviation. While three to five losses in a row at a 2-3% risk is never fun, it is nonetheless beatable (as you will see once Oanda updates again). In real life, I often will have more than 2% at risk depending upon the situation and my confidence level. By the way, if your approach has an edge, then 20% max drawdown rule has no place in your trading. If your system has an edge that delivers a positive expectation over the long run, then it is a mistake to have a rule that would have you quit the game at what is likely the tail-end of a larger than normal yet not unexpected drawdown due to a simple adverse standard deviation.

Too bad ... it's not the same party without Ingot! But thanks for the heads up - I had better get trading then, as kuokam has proven to be quite the champion trader! I'm going to see if I can rustle up some early pips ...

I thought the contest didn't start until tomorrow? Hey Mystic, why not retire this thread and start a new one for this contest?

Bravo! Bravo! Bravissimo! Next time I'm in Luxembourg, kuokam, dinner is on me ... my bag is packed, and as soon as the Euro goes par to the USD, I'm there!

Luck is, as in all things, a small part of it. But your application and your execution of your system is the greater factor by far. Kroll did it the same way you did it - patience and discipline. Great Job, kuokam!

Kuokam! Sim or no, an impressive performance at both making it and keeping it.

An impressive performance, kuokam!

If you believe that it is possible to time the market, and if you believe that you can learn to identify those moments when the market's next move might be guessed with a greater than 50/50 probability of being right, then the 2% rule is flawed. An individual capabale of such timing would find it to his benefit to vary his bets depending upon each situation and its perceived probability of allowing for a correct guess, i.e. bet more when the odds are perceived to be highly favorable, while reducing bet size when the odds are less favorable, and refusing to bet at all when the odds are even or against. If, on the other hand, you believe the market is more or less random, and if you believe there is no edge anywhere and that every trade is simply 50/50 guesses, then the 2% rule is wise, and in fact, may be generous to the point of foolhardiness. For such a trader, 1/2% to 1% may be better.

Looks like someone has been working on his trade timing! Nice job Ingot!