thalestrader

You'd expect to see this kind of per bar range on a 15 minute or even a 60 minute chart. Here is the current 1 minute. Best Wishes, Thales,

Hi Folks, Quite a bit of movement already, and we haven't even gotten to Tokyo yet. Now what do you do? Best Wishes, Thales

There are many profitable approaches which, if followed correctly, still yield a less than 50% win rate yet yield a decent enough profit factor to trade that approach. In other words, there are approaches where the trade could pick his or spots correctly, and nonetheless win only 38% of the trades, but, because the average winner is 3.5 times as large as the average loser, the method is extremely profitable. Do not mstake picking your entries correctly with winning trades. You can still enter correctly and lose. Perhaps Kiwi or one of our other friends experienced with systems auto-trading could explain my thoughts on this better than I. As far as breakout trades, Linda Raschke once wrote that "[t]hough most breakout methods have a high initial risk point, their high win/loss ratio makes them easier to trade psychologically." I agree with her that trading breakouts has a high win to loss ratio. She also said that "[y]ou might get your teeth kicked in on the losers, but, fortunately, big losses do not happen very often." That is also true. I would add, however, that it is possible to trade breakouts in such a way as to cut your losses before one gets to the bloody "teeth kicked in" level. Best Wishes, Thales

Too much, and yet not that much at all. Based upon the distance between average entry to initial stop loss, we may be risking just 1-2%, but at other times the theoretical risk may be as high as 5% up to 10%. And yet, since we re-funded this account in mid-September, we have only had one trade run to our initial stop loss (and it was mine, not hers). This is for three reasons: 1) we are very quick to go to break even, and 2) when you trade breakouts, it is a very high probability approach (most do not believe this, but when you pick your spots correctly, you will win most of the time), and 3) we will cut the loss well before reaching our initial stop if price is clearly going against us, e.g. if we are short, and price rallies above our breakout point, and then pullsback, but holds at, above, or just below our breakout point, we will cut the trade at a new rally high against us, which usually means we have cut our initial risk by 40-70%. It is a small account, and while she knows about position sizing, we choose to trade for a minimum of $2/tick (two mini-lots or 20K). This lets us use multiple profit targets, and grows the account at a decent pace, while keeping the risk of ruin, presumably, to a minimum. Also, we do add to our position when a strong move gets underway, so while the initial position may be $2/tick, we may have $10/tick on the table by the time that trade is stopped or the profit target(s) are reached. By "hit rate," I presume you mean winning percentage. I would first caution anyone from falling into the trap of thinking winning % is most important. It is not. What is most important is the size of your wins relative to your losses. This ratio is far more important than winning percentage. For example, over time on my stock trades, I have a winning percentage in the high 30's. But I have a very consistant average winning trade of 55 pennies versus an average losing trade of 13 pennies. This fluctuates over time by +/-3 pennies or so. So even though I lose 60%+ of the time, I finish most weeks profitably, and I have not had a losing month in years. I do not keep track of the winning percentage over time of my daughter's forex trades. I just pulled up our trades from this week. We had ten trades. Out of those ten, we had 1 loss (mine for -22 ticks on 20k GBPJPY position for -52.48), we had 1 break even trade, and 8 profitable trades, with the average profit a very strong $117.87. The size of our average win this week was no doubt helped by the incredible volatility of the markets this week. For example, I just spoke with my currency trading friend, who averages about 200 ticks (pips) profit per week. This week he tells me that his net profit was 765 pips. Eyeballing the trades my daughter and I took for this week, it looks like we came in a bit higher just over 800 ticks for the week. Unusual, but perhaps not surprising for a week given the volatility and the range of the Yen pairs. Best Wishes, Thales

Hi MidK and Brownie, Here is a look back over the last couple of trading days on the EURJPY. Now, one thing to keep in mind is that the EURJPY trades 24 hours, and both myself and my daughter have found it nearly impossible to be watching every single one of them (though my wife insists that we must see each and every tick from Sunday in Sydney to Friday afternoon in NYC). So, why this BO and not all the others? Sometimes we're asleep at the switch. She is in school. I have other responsibilities to my own business as well as to the good folks who employ me to trade a portion of their client's capital. I post as often as I am able, and I try to post trades before they are live, and if I cannot, I try to post it soon after or not at all. In other words, do not assume that the trade I post is the only one the market offered or that it was the only one we took. As far as filtering trades, I do not think in terms of "filtering," but we do try to identify the relevant price levels, and we wait for a break of those levels. I assure you that every piece of information that we use to make a trading decision is on a plain vanilla chart. No secret indicators. No secret systems. No secrets whatsoever. Is it art or science? It is art in the ancient Greek understanding of τέχνη (techne) in the sense of being a skill developed through practice and artifice (as opposed to an ability that is simply possessed by nature). In other words, it is a skill, a technical skill, one learned by practice rather than possessed innately by instinct. Which is to say that it is both an art and a science (a skill based upon knowledge). Which is to say that it is teachable and learnable by human beings in general, rather than a special talent possessed by one individual (and his offspring) alone. In other words, I can do it, and so can you. Turning to the attached chart, we did manage to catch the break up on 10/29 5 minutes before she had to catch the school bus . We had two sells on the way down (both initiated by myself). There were other places where one could have bought or sold. I caught 150 ticks on the 28th (shown in an earlier post). Did we catch every possible entry on the EURJPY? No, not even close. Do we win every trade? No, not at all. In fact, my daughter was quite upset with me one morning to find that I had lost 22 ticks on a short GBPJPY trade where I absolutely entered in the middle of nowhere, thinking that I "knew" the breakdown was immanent. Well, guess what? It wasn't. But in the end, it didn't matter. We had a very good week with that little account. Best Wishes, Thales

Weekend Reading Here is a post by Leonardo from another forum, and long enough ago to have been another era. The Curtis whom he addresses is Curtis Faith. I have quoted from this post myself here at TL (specifically his points about attacking the market and about how one comes by a million dollars). I am sharing it here today in response to DugDug's post in another thread, where he wrote: Leonardo makes the point below that it does take money to make money. The story of how he got there is one of how to keep the dream alive. I printed this post out long ago and I have read and re-read it many times. It is an excellent story, and I hope Leonardo does not mind me sharing it here with you folks. I hope you enjoy his story as much as I have. Enjoy your weekend. Curtis-- I know you did the right thing when you told the unvarnished truth about trading. It does take money, and/or many correctly applied trades to have a reasonable expectation at profiting from trend trading. By being forthcoming about the realities of trend trading, you can only gain in credibility with those to whom it will matter the most. To trade long term you have to be able to probe (read: spend money attacking a market) over and over until a trade gets under way that you can ride for a little while. Timing is everything. That is, the time you start this whole process might be just before a lot of markets start exhibiting trending behavior, or a couple of years before they move. If your timing isn't very good (which is normal---no one knows for sure when profitable trades are going to happen in advance or the markets in question wouldn't exist) you make up for it with capital and persistence. There is one way I know of to get started trend trading with small capital that almost assures victory. It is the method that I used to get started trading over 25 years ago. Like most in this forum, I was not born to money. It was the early '70's. I started my own business when I was 18, reclaiming silver from fixer solutions, x-ray films, printing developing chemicals, etc. Due to the obvious monthly fluctuations of selling the physical silver that I separated from the chemicals, I realized that there was a lot more money to be made by buying and selling silver in the futures markets at the right time than just the reclaiming alone. Silver had great trends in the late '70's but in the early '70's it swung wildly back and forth while the Hunts were manipulating the prices and quantities for delivery. This was an era when there was very little easily available information about trading. I did find books by Gann, and read about Stanley Kroll’s exploits and research by Donchian, which verified my own ideas about trading breakouts. I had been researching markets for many years anyway, mainly ags, and then as now I realized that the only way you could deal profitably in the markets was by having sufficient capital. At the time, "sufficient capital" was $20K to $40K. I only had $600. After numerous wins and losses in silver, beans and wheat, I was able to increase that stake to $1800. I decided that to build a stake I would have to find a market which would inevitably have a large trending move. And low enough volatility to start with so I could build a relatively large position quickly with little money. I settled on one market that had a very long term upward bias but had been in a sideways range for more than 2 years. Cotton. Things turned out better than I expected. I was only interested in an up move, so the intent of my plan was to buy breakouts at new highs and if the breakouts didn’t hold on the day of the breakout I would exit by the close and wait for a new high to enter again. I was willing to keep at this for as long as it took, even if it took 5 years. Cotton had been trading in a 2½ cent range for those 2 years and was dull as puddle ice. No one at the brokerage house I traded at had ever traded cotton and they all thought I was an incredible idiot for watching it, much less trade it. (If I would have traded pork bellies and beans more I would have been considered at least somewhat “respectable”.) 9 months went by with a number of small losses, and much frustration while other markets were swinging around making others money. One day, after trading near the middle of the previously mentioned range for weeks, cotton opened lower nearly 100 points. The price was now only 25 points above the bottom of the range, which had 3 bottoms, all of which were many months apart. Even though my whole trading plan was centered on buying new highs; because of Cotton’s upward bias, I thought this was an extremely low risk situation. All I had to do was buy at the market with a sell-stop under the triple bottom for protection. Instantly, I told my broker to place the order to sell 4 cottons on a stop below the bottoms and then another order to buy me 4 at the market. Risking $500 on this trade, I didn’t have enough margin available to hold more than maybe two overnight, but I figured if I had to I could sell 2 off by the close. After putting in my orders, the market continued to fall---to 1 tick above the previous bottoms (making a fourth bottom, and only 6 ticks from my stops), sat there for 5 minutes; and then in a huge swoop went to unchanged on the day. It traded around there for the rest of the day and then closed up 50 points. It took 3 hours to get my fills (nothing has changed in all these years) and it turned out I got filled on all 4 contracts 3 ticks off the low of the day. I now had enough money in the contracts alone that I could hold them all overnight. A week went by and cotton was trading 25 points under the high of the (now) 3-year range. I had reservations to go on a 4-day skiing trip in Michigan, so I wasn’t going to be able to watch it personally for the potential breakout. I put in my stops to buy 4 more 5 ticks into new territory. Of course, the first day I was skiing, the breakout occurred. I checked with my broker every 15 minutes by phone and even though I didn’t know my fills yet, I placed my stops on the 4 at the day’s low. It turned out that this was a real breakout and the market didn’t look back for months. After my trip, all I did for weeks was buy new highs after 2-3 day congestions. Before the move was over I had ½ of 1 % of the open interest in the contract I was trading. I used a simple trendline-trailing stop to exit. I have been breakout trend trading ever since. (Another boy wonder ) What I just described can easily be accomplished by trading the turtle method today. Pick one market with low current volatility, like corn, or oats (which has been in a very narrow range for a year) and keep attacking it from the long side. In an inflationary environment, like we find ourselves now, you have an increased edge automatically. Keep putting in the orders, and fund it from recurring cash flow if you have to. Calculate what you can afford, and then go for it. It does take size to make money trading. Money is made in chunks. You can’t save $1,000,000. You have to MAKE it. Again, this was Leonardo's story,not mine. I thank him for sharing it with us many years ago. Best Wishes, Thales

quid est demonstratum

I do not know and I would not pretend to know what makes the market move as it does, e.g.in this case, why it moved so quickly. My conjecture in this case would be that there was a lot of "air" between yesterday's Breakup point and this morning's Breakdown point, i.e. a lot of price levels where no trades really took place, and therefore no real opportunity for the market to test and develop S/R in that area. But, that is conjecture, isn't it. I felt that with the range contracting and consolidating at the low of the day, that price would eventually (and soon) make a move one way or the other and the range would expand in the process. But that move could have been a reversal up as easily as the breakdown. And I really do not know how to determine by how much the range will expand, though using S/R you can reasonably anticipate where price may be heading as range expands. I do not see the significance of the 134.34 level to which you allude. Could you post a chart that shows why that level was significant? Best Wishes, Thales

It still amazes me how long it took me to be able to do something that really is so easy that even a nine year old can do it well. Best Wishes, Thales

Hi Folks, Current look at the EURJPY. Best Wishes, Thales

I use the current front month which is Dec. Currency futures are on the same cycle as the ES - H,M,U,Z Best Wishes, Thales

If he took Grey1's advice, he'll be back in 729 days when he finishes his paper trading. I am in the camp that generally finds paper trading of only marginal usefulness, primarily limited to helping one learn the mechanics of order entry and trade management. Once one has that down, it is time to trade. Trade small, but trade live. When I first started to day trade stocks, for example, my average trade size was 85 shares. I sometimes traded as many as 200 shares, but more often I was only trading 50. I made more real progress trading 50 share lots live than I ever would have made paper trading trading 5000 sim shares. And I always traded with a stop. Certainly there is a basic foundation that ought to be developed prior to live trading, and the time it takes to lay that foundation will vary from trader to trader. It was about six weeks for my nine year old daughter. For me, it took about ten years. But if I had known then what I know now, it would probably have been closer to six to eight weeks. Best Wishes, Thales

I often use +50 and +100 when I cannot be here to babysit the position. And if you look at the four hour chart, you will likely see that given the velocity and pattern of the recent decline, the targets were justified. Of course, I had no idea that the targets would be filled before I arrived back from my meetings, however. Best Wishes, Thales

Hi Folks, I did not have time to log in and post this EURJPY chart when I snapped off the first pic (I was late for a meeting with my accountant and attorney, and the attorney starts charging whether I am there or not). Anyhow, here is a short on the EURJPY at 134.30, with half profits at +50 and half at +100. Best Wishes, Thales

Hi Gabe, I would imagine that it is as safe as it is with any bucket shop, which is probably not very safe at all (though again, I have heard that UK does offer protection to FX account holders and that those protections extend to foreign holders as well. I prefer futures to spot, but my daughter likes what she is used to: trading spot fx on FXCM's platform. So, that is what we are doing with this account. I've mentioned that I have a very close friend who trades currencies only - he trades both futures and spot, and he does equally well with each. He does have some shorter term scalping type approaches that he says only work on futures because of some restrictions FXCM sets on entry orders, but otherwise he trades two accounts - FXCM spot and IB futures - as a matter of course. I do not think the level of account funding determines which he trades. Best Wishes, Thales

Why are you not considering the short side? Best Wishes, Thales

FXCM just needed me to fill out an on-line transfer request and it was done within a few days. I'm not a tax adviser, but I imagine that so long as you declare the existence of the account and any profits on your tax return, the tax treatment of those profits will be the same to the IRS. I do not believe that the UK taxes profits from retail forex trading as I assume that it is classified as spread betting, and last I checked, the UK does not yet tax spreadbetters. Perhaps we have a friend here from the UK who could let us know for certain. Best Wshes, Thales

We're still with FXCM, but we moved the account to the UK so we could use the old platform with contingent OCO orders. My forex trading friend was adamantly opposed to going offshore, but even he has given up and transferred to FXCM UK. Oanda's platform seems clunky and the spreads are terribly wide. My daughter had a GFT demo account, and she really liked the platform, but I thought the spreads at GFT also too wide. Best Wishes, Thales

That is a clean, readable chart, which is all you need. Best Wishes, Thales

Oanda does let you set up candle to white and down candle to black. Try it, you might like it. Best Wishes, Thales

Stop would now be at 137.14, which would capture +10 ticks profit were the trade still open. Best Wishes, Thales

If we were still long, we would move our stop to break even as price traded at and above 137.14. Best Wishes, Thales

Time to say "uncle" on this one. FXCM let us out at 137.07 +3 ticks Best Wishes, Thales

Hi Folks, A little long on the EURJPY: Buy stop 137.04, Stop loss 136.79 for a 25 tick risk. If price trades at 137.14 I'd move stop to break even. At 137.22 I'd move stop to 137.14. I'd take soe profits at 137.40 and 137.75. Best Wishes, Thales

Before & After - Here is the EURJPY shot posted last night as the breakout was occurring and the seocnd chart shows the subsequent price action. Best Wishes, Thales