arvo

Based on my calculations, you could not do it with 10K or even 100K - you would not be able to ride this strategy risk-free and fear-free. If you hedge, as you do, the requirement for locking up capital is even greater. I suppose, if you really play random and pay no attention to price action technicals for higher probability, anything less than 300K and you still run the risk of having to close out with a big loss or get completely locked out. The fact that SPY did not go below 100 recently does not mean it cannot do that - it's been there as recently as 2009. A simple thing: under your strategy you don't look to predict price movements when you are in profit to determine how long to hold, do you? You just take profits when they become available, on the bar-trail basis or some other simple method, right? You don't need to do anything more to take profits when you are riding a big winner from the outset. If you check a few posts back by me and SIUYA, you'll see how adding to winners (without increasing size) increases the profitability of positions added to winners vs losers - giving you more profits faster. The same principle applies to scaling in with different size. Since you are scaling in with increasing size against the move, the opposite and more profitable way is to scale in with the current move BUT FROM A LARGER POSITION, adding decreasing sizes as it goes in your favour -- just the mirror version of what you do, only it will give you a huge advantage in that you don't have wait for your position to "work off" the open loss - just close the profit when you feel like it. This would produce much faster gains. Of course, starting with max size may not be an option (well, you never get profits on your max size in trading countertrend either), but since you do hedging anyway, as you say you do, a viable option might be entering with, say, moderate or medium size with the current momentum and scale in with decreasing size. If you're not lucky and the price moves against you, you can hedge any such moves against you right away, possibly with larger size, and scale into the hedge with decreasing size while it's moving, and then you can close all together when profit is available and look for another entry with trend. This should make money much faster. Of course, I suppose some thorough mathematical calculations and testing would be needed to determine the right position sizes and hedging tactics to make sure the system stays risk-free and you can still ride the entire range without taking a loss. My here, not trying to teach anything, but just trying to think in sound mathematical terms. One more thing I see is that your current success if largely helped by the fact that you are still actually trading WITH TREND (on the higher weekly and monthly timeframes). You are still actually buying only pullbacks followed by new uptrend extremes - the momentum is working for you. Are you sure this will work when the trend really reverses, e.g. like in 2008-2009, when all you get is one spike down after another - have you tried this system trading a REAL strong long-term downtrend on a weekly or monthly chart? You may not get any moves up to even make it to break even in such selloffs. That's why it helps to have at least some respect for trends and try trade with rather than against them, well at least the highest timeframe trends. br arvo

1a, first of all, thank you for taking the time to answer all of the questions here about your strategy. It's become a very interesting discussion, indeed. I was going to try to write another post about how adding to winners is mathematically proven to be much more profitable than adding to losers, but then I realized that this does not actually apply to your strategy -- because you have sufficient capital to never accept a loss. Therefore, I think before recommending this strategy to anyone (especially beginners), it is essential to fully ascertain all the aspects of it - especially the need for equity. I tried to sum your strategy up in a list and it would be interesting to get your feedback if you think these points are right or wrong (I like your idea that specific answers are the best proof): - The essence of this strategy is to scale into pullbacks in the current SPY uptrend (on the highest timeframes) with increasing size and then take profits when they become available; - no margin is used, only own funds; - positions are never exited while in loss and not a single loss is taken; - the scaling in is done at a predetermined step until the entire position turns profitable or at least breakeven; - the step for scaling in is a retracement of USD 10 in SPY price; - the size is increased each time from the previous partial position -- CAN YOU SPECIFY THE MULTIPLIER for increasing size? Is it the full Martingale "double up each time" or a smaller multiplier? - The prerequisite for not having to worry about risk of ruin from a single loss is sufficient capital to sustain a full and sudden SPY trend reversal - e.g. if SPY tumbled from its current price back to 70, just like it did in 2008-2009, and you had started scaling in under this strategy from one contract at around 150, you would require the following amounts of money (I'm quoting two cases - one where you scale full Martingale and the other where you just add one extra contract with each scale in, like 1, 2, 3, 4 etc): - Full Martingale (double up with each scale in): 511 contracts or around USD 5.621 million to get a good average price of 79.82 less than 10 dollars away from your last entry; - Increase by one contract only with each scale-in: 45 contracts or around USD 495,000 to get an average price of 96.67, still 26 dollars away from your last entry, and no guarantee of a quick move to breakeven. - even when such capital is present, there is a danger of having it all locked up for many months and possibly years and be unable to use it for trading without accepting a serious losses. If that is really the case, then I guess the first thing to mention when presenting this strategy is the need for this kind of institutional-level capital in order to trade it profitably (well, it cannot be traded otherwise :doh:). Anyone with smaller capital and/or trading on margin would still be exsposed to a risk of a sudden and total ruin, if one applied this strategy. Would you agree? BR arvo

The strategy description there does not seem to mention that you have to scale in with increasingly larger size each time (and the example with a chart in this thread does not, either) - that would be the Martingale strategy, which maximizes your potential loss with every countertrend scale-in even more... (I know this too well from my own experience in the past :doh:). I guess the unwillingness to take a loss while it's small comes from a distorted perception of risk. Mark Douglas wrote in Trading in the Zone that for some reason some traders become more risk averse as their profit grows, as they become overwhelmed by fear that the open profit will be gone soon and they will have lost an opportunity. This is perceived as a double blow: loss of a rarely available good win plus the hurt pride (being proven wrong in the end), even if you close at breakeven. Meanwhile, the opposite rationale is that when you're in an open negative position, you are still entitled to not consider that money in the red as a loss until its closed (which you hope will not happen, because the top/bottom is nigh), plus you get a kick out of knowing that you WILL HAVE picked the bottom or top and you get a kick out of actually riding that reversal in complete composure and see your rightness proven, and even if you exit at breakeven or with just a small profit (because the positive risk aversion kicks in), you feel very good. But when you put emotions aside and measure the results, risk, reward, expectancy etc, you realize that this approach is BS. Been there myself... BR arvo

It's very good that this thread got past the issue of "randomness" (it's a relief that the thread title did not mean to say what it said after all) and got into the essence of this position trading strategy. I still do not understand one thing and that's about the maths of this stragegy. The statement that "adding to winners" is counterproductive and "adding to a losing position" is somehow superior just doesn't add up to me. Consider this, just a theoretical mathematical model, no charts needed to illustrate the point: if you scale in same size at equal intervals, your average price will always be the middle of the range covered by the scaling-in exercise, only the odds (edge!) for the position are much worse if you scale into a losing position - I suppose that's where the common sense of "never adding to a loser" originates. E.g. you scale into your position in equal parts in five steps every 10 ticks. If you do this with a position going your way, then after the fifth scale-in your average price will be 20 ticks away from your first entry price and 20 ticks away from your last entry price, with the entire position 20 ticks IN PROFIT . If you do the same with a losing position, your average price will be 20 ticks from your first entry and last entry, with your entire position 20 ticks IN LOSS. that's a 40-tick actual difference between both positions. If the price had not reached the 40 tick mark by a tick and you had not entered the last part into your position just yet, the difference would be even bigger between the losing and winning position. Now, as far as reward is concerned (let's not deal with risk so far, as a position trader may rightly or wrongly assume that risk can be avoided and you can simply make money by spraying the entire price history range and then some extra with your entries and the price will eventually come back within that range and you will just net whatever profits you see at your leisure), in order to make a 20 tick profit on such a position, the winning position holder could just close it right there if it does not travel any further. The losing position holder would have to stay at the mercy of the market and wait for the price to reverse and travel back to the original entry price, i.e. make a 100 pct / 40 tick retracement. I just don‘t understand how adding to a losing position could be more profitable in position trading, given the uncertainty of such retracements? At the very least you lose time - and a lot of time in some cases. Also, this approach begs the question of what you do if your first entry is spot on and takes off in your favour? At what point will you kill it and start scaling in countertrend? That idea alone sounds a bit funny. If you keep this trade running and don't scale in as you do with the countertrend positions, then the unfortunate thing is that the trade where you happened to have a good entry advantage will be a heavily undersized one. So basically, by applying the scaling-in tactic with a preference exclusively to losing trades you are reducing your edge even more in position trading - even if you assume you have enough capital to ride the entire price history range risk-free, you are still minimizing your profit this way. I'm not saying this strategy cannot be profitable - it can be profitable with adequate capital to avoid the need of having to close negative positions. The interesting question is do you think this strategy can be profitable if you do not have the means to cover the entire range, but only a small part of it - i.e. if you put a stop loss order somewhere? If risk is assumed, then it would be interesting to hear about where you exit winners and losers? The question of the risk-reward ratio arises. When do you exit with a loss, and how many winners of what size do you need to make up for one loss? What hit rate do you need to stay profitable in the long run? How much price range and on which time frames do you think is a reasonably safe start for this position trading strategy? BR arvo

Your statement is a contradiction in terms. If markets were truly random, there would be nothing to ride, because there would be no directional probability to profit from, just messy haphazard moves. Meanwhile, you are saying the opposite - you are saying that trends have strong directional probability and can be profitable. How that correlates to randomness I can't see? I guess you wanted to say that if you make mistakes judging probability you can compensate for them through good trade and risk management to a certain point where the originally misjudged probabilities turn and at least manage your way out. And that's a smart thing, because you assume responsibility for your trading results and for your misjudgements of directional probabilities. Much better than to say that, oh well, markets are random, I'll just trade my edge, believe in it and make it one day. :missy: BR arvo

I would like to disagree. Consider this deifinition by Wikipedia: Randomness means different things in various fields. Commonly, it means lack of pattern or predictability in events. Or this by Free Dictionary: ran·dom (rndm) adj. 1. Having no specific pattern, purpose, or objective: random movements. See Synonyms at chance. Does any of this sound like pertaining to trading? Totally unpredictable? Why call it trading then - call it gambling . In real life, every move in the market does have a purpose by those who are behind it (the big liquidity providers taking a perpertual free ride more than anybody else), and if you look at the charts you'll see a number of patterns all over the place that is far from indefinite. All these patterns have a high have predictive value - the value of probabilities, and where a higher probability exists, we cannot say that it is ruled by complete randomness. I think randomness as a misconseption or a misnomer was wrongly introduced into the trading debate by Mark Douglas in his Trading in the Zone classic - as a convenient escape of dealing with psychological pain associated to losses as a result of mistakes made in trade selection and trade management. But if you leave your "luck" to just entry followed by presumed randomness and don't know how to manage trades based on market behaviour, this is a dangerous and costly approach, imho. BR, arvo

:thumbs up: couldn't agree more! The "trend your friend" is a bucket shop cliche for beginners. The range is a much better friend, or at least a good guide, because the range shows you the really important levels to get in or out, bounce or break out. After all, what is a trend but a range with dynamic short-term support/resistance lines that keep changing until it they something more solid, i.e. a true range level? Or put it another way - trends are directional movements within ranges, and even those very often consist of trending ranges, wedges, breakouts and failures of all sorts...

MyFxBook is a fantastic tool, it amazes me nobody had thought of it before. You just tag your trades with setup/strategy tags and then you can run detailed analytics to evaluate your performance on each setup/strategy, get the Sharpe ratio, growth and profit curves, profit factor, expectancy in pips and dollars, win/loss counts, etc etc. The only problem is it works only with the MT4 platform, which is a bucket shop platform and sometimes does not work as expected, whether by accident or design... (I suspect the latter a lot :frustrated:). I guess there should be some analytical software that could take in simple excel exports, which all platforms allow, but I'm not aware of it yet. I think TradingJournalSpreadsheet.com could be a good tool, but I doubt it allows imports. When you do a lot of trades intraday, manual logging would be very time-consuming. If anyone knows any such soft, please let us know. BR arvo

Hi, after trial and error in the course of a few months, I have arrived at this routine, tied to a complete "audit trail": - A folder with my life goals, trading goals, trading plan and trading rules, which takes 10-15 minutes to read (and occasionally ammend as new ideas emerge, by replacing the relevant pages with updated versions). - Then I open MyFxBook, where every trade is logged automatically from my trading platform. The first thing I check before trading is important news times and take note on a simple post-it note and stick to my screen. I don't care what the expectations or fundamentals are, just need to know the news times. - Then I trade, based purely on price action, on 5 min TF. After entering trades, I just tag them on MyFxBook with the setup tag (just two mouse clicks) for subsequent automatic analysis (trades are logged automatically by an EA plugin). - I also keep a working log of price action for the day, bar-by-bar, in a simple word document. It is just a working doc to help me verbalise my thoughts in writing, keep focused and take notes as market plays out, I don't need it afterwards, b/c these notes lose their value very quickly due to the short TF. Next day I just continue writing on the top of the same doc and practically never revisit the old notes. - After finishing trading, I have a routine I picked up from Pristine Trading as recommended on this site: print out all trades on paper, write each trade's setup on top, mark entry and exit points and evaluate it with hindsight vis-a-vis strategy and price action (mark actual entry/exit in green and ideal entry/exit in red). Write GOOD or BAD on each trade, note the reason for any BAD, and put it in the respective folders for whenever is your review/study time. Also, print an account statement and put it in the Accounts folder. Day closed. So basically, the tools are: - Four beautifully looking premium physical folders: goals/plan/rules as a constant daily reminder, good trades folder, bad trades folder, daily account statements folder (as day trader, my goal is to finish each day with a profit, so I put green dividers for profitable days and red for loss days to give me a visual clue on performance). They're alwas on a shelf at hand. - MyFxBook for news, logging and subsequent analysis of setup performance - as feedback on my trading goals/strategies. - The working Word doc for bar-by-bar notes, but it doesn't need to be revisited, it's just a tool to keep me focused as I trade, couldn't care less about it :missy:. I find this system very easy to maintain. The morning routine is 15 minutes and the paperwork at the end of the day is 10-15 mins. The logging is part of my trading activity, I wouldn't call it paperwork. BTW, does anyone know any other tool like FXBook that could take in exports from the platform (whether live or uploaded)? I'm thinking of changing my broker to a non MT4, but am dreading the prospect of having to log everything manually, trade by trade, into a simple excel spreadsheet... BR Arvo

Do you mean holding a trade or holding a growing account? I think most of us have trouble with the latter by becoming careless, not executing the strategy, feeling like we're now rich enough to experiment and risk more to get even richer, not following risk and money management rules etc., etc. But that's a matter of psychology and discipline, not of one strategy being better over the other. Meanwhile, as far as strategy goes, I'd like to share this article: To scalp or swing trade? That is the question . My takeway from this article, coupled with the realization about the laws that govern price movement in the markets, is that part-scalping/part-swinging is the best strategy: - first off, provided a strategy with an edge and disciplined execution is place, intraday trading will build the account much faster - that's because in the lower timeframes you'll get many nice and quite broad channels and ranges with high probability setups and even good trends whereas all you see on the higher TF is unreliable congestion, - the best strategy is mainly scalp and leave a smaller swing position on (set to break even) for a possible major breakout; if the breakout doesn't happen, you've gotten something out of the trade, no worries, take a rest, do new analysis and take it from there. - as emphasized in the article, this approach is very motivating psychologically, because you get a scalp out of most of your trades, and if the major breakout does happen, you're already positioned for a good swing (and enter with new scalps along the way).

I am a winning trader. I win consistantly. But waht good is making 50% a year which is better than Warren does if all of that and more goes for living expenses. Its a guarantee to go broke. Are we all blind when we start trading? Why do we not do the math and ask ourselves...How will we ever have the size trading account we need if we cant even make enough to pay all our bills? That's exactly the point and math behind this question - all in favour of scalping, if you want to grow your account, that is. Swing trading is for those with serious accounts, like 200,000 USD at the very least. Then you can trade longer timeframes at your leisure risking no more than 0.5 pct of account per trade and make a living. If you make 30 pct a year, that's 60K, not a fortune but good enough to start with as a swing trader. But if you start small, you've got to be scalping intraday, unless you can afford to spend a century to get rich. And for competent intraday scalpers a daily profit goal is easily 5 pct of account risking 1-2 pct of account per trade. Do the maths of compounding and you'll see the allure of scalping - there's virtually no limit to how fast you can build your account: start with 10K, make 2 pct of account per day on average risking 1 pct per trade and you'll have doubled your account in less than two months, and on and on. One more circumstance in favour of scalping is that, like it or not, the market is range-bound most of the time - exactly the ideal conditions for scalping.

It’s a great book on scalping. The author presents in detail his method for high probability 10-pip scalps on the -fast 70-tick EURUSD chart in a very clear and organized manner, and witty, too. The method includes seven setups, which are illustrated with charts and clearly explained bar by bar – all of them basically setups of what would be breakouts from tight range patterns on higher time-frames (from the price “squeeze” as the author puts it). The author also explains in thorough detail the prerequisites for trading this strategy successfully: the right technical setup, patience to wait for the most favourable market conditions (no clustered price action to the left on the chart), proper trade management and account management and, above all, thinking in probabilities and playing without emotion. For me, the book was an eye-opener on how to read breakouts.

On Forbes, we see billionaire investors who do not do technical trading (either swing or scalping) themselves – they don’t need to. But I bet the traders at their hedge funds do a lot of both, and the question remains open which strategy generates more cash for them . I doubt the investors we see on Forbes could be called “swing traders”. Does Warren Buffet really do trading himself? From the article quoted: "Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money. The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt. To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee. [...] Without FDIC’s debt guarantee program, even impregnable Goldman would have collapsed." I suppose that goes well beyond the scope of swing trading. That's big money feeding on monopoly money at the source of issue. No individual trader piggy-backing on the big money's moves, whether for a swing or scalp, will ever catch up with those guys on the Forbes list. Even scalpers like Paul Rotter, who allegedly makes USD 60million a year from scalping, are small fry compared to them.

It seems a clearer definition of scalping would be in order - why should it be called a hit or miss game and why isn't swing trading the same kind of game then? Imho, any kind of trading on any timeframe without a sound strategy, disciplined execution and evaluation is a hit or miss game. Price action is the same on all TFs. The choice of a trader's preferred time frame is a matter of personality and psychology - ability to tolerate risk over time, time needed to fully recover between periods of risk, intuitive ability, swiftness of decision making, etc. As for the definition, I suppose we would agree that scalping, technically, is a breakout or pullback reversal strategy going for a high probability one directional move without major pullbacks (a single leg) - as opposed to swing trading where the holding time is longer and the trade endures through pullbacks in exchange for the probability of one to three extra legs within a swing. If we define it as such, then, technically, scalping is possible on any TF - from 70 ticks to daily to weekly charts - the setups for scalping look the same on all TFs, it only takes a different period of time to play out and reach the target or stop on different charts. So, scalping, if we do not become attached to the superficial and erroeous notion that it is some reckless button pushing akin to playing the slot machine, is not limited to a particular timeframe - it is a type of strategy (or set of strategies), executed by the trader, vis a vis price behaviour. When people realize this, they are inevitably drawn to lower timeframes, because they understand that lower time frames give them the same kind of risk-reward play within minutes to hours compared to several days on higher TFs, so the potential for profit is considerably higher. Hence, it is not correct to berate intraday "scalping" as such or look upon it as gambling, just because some people manage to apply the same breakout/pullback reversal strategy on lower timeframes better than others (i.e. push bottons more frequently, though still deliberately and for exactly the same reasons). Imho, in the presence of a sound strategy, your time rhythm is the key to success - how long you can bear the pain of uncertainty/loss before losing your head, and how long it takes to fully recover from a loss or climb down from the highs of a win. And I'd say trade the lowest TF that you your personality permits (the necessary condition being total focus and composure before every trade). And if you can trade a one-directional move strategy consistently profitably on 15 or 5 min TF, you can proudly call yourself an intraday "scalper". But the pride should come not from being a "scalper" (no-pullbacks trader), but from being able to play the same game faster than the "scalpers" on the 1H or daily charts do. Comparing it to sports, you will have advanced to a higher league of ability (hit a faster moving ball with the same amount of control and precision).

A very good profit re liquidity - but that becomes any issue once you want to trade many lots at a time - but well, that's the point in time when you need to set up a HFT model - which in turn becomes position trading on a short timeframe. But before I'm there, I think scalping can be a very quick launchpad to big big profits from starting small and compounding when done right. BTW, I read a good article on FuturesMag last year (couldn't find it just now), but ir proved mathematically with formulas etc that the most profitable approach is part-scalp, part-swing, i.e. enter as a scalper with minimal stop loss, exist the scalp position (which may vary depending on immediate market conditions - range or trend) after the one directional move scalp target, set to break even and swing the rest. Imho this is the best approach to day trading.