Join Me in My Challenge

[renner1984 10]

Hello all! I've been in the Forex industry for 18 months and have learned a lot, though I am still at a dead end in settling on a system. However, I've concluded risk/reward ratio is everything. Considering that most professional traders are right at best 50% of the time, it is best to have a good risk/reward ratio.

 

For those of us who want to make Forex a way to put food on the table, I'd like to present a challenge to come up with a mechanical system (doesn't have to be automated, per se), which given a minimum "win accuracy" and a weekly goal (i.e. percentage of account), and a certain risk/reward, how many trades it would take to reach it and to find a reasonable system in which to implement it.

 

I've attached an Excel file which allows you to play around with the numbers. You can change the fixed stop loss & take profit, minimum win accuracy, return goal, lot size, and initial balance.

 

For me personally, I'm looking at a weekly 10% gain. For those interested, any ideas? Any input? Thank you all.

moneymanagement.xls

[Ingot54 13]

Hello all! I've been in the Forex industry for 18 months and have learned a lot, though I am still at a dead end in settling on a system. However, I've concluded risk/reward ratio is everything. Considering that most professional traders are right at best 50% of the time, it is best to have a good risk/reward ratio.

 

For those of us who want to make Forex a way to put food on the table, I'd like to present a challenge to come up with a mechanical system (doesn't have to be automated, per se), which given a minimum "win accuracy" and a weekly goal (i.e. percentage of account), and a certain risk/reward, how many trades it would take to reach it and to find a reasonable system in which to implement it.

 

I've attached an Excel file which allows you to play around with the numbers. You can change the fixed stop loss & take profit, minimum win accuracy, return goal, lot size, and initial balance.

 

For me personally, I'm looking at a weekly 10% gain. For those interested, any ideas? Any input? Thank you all.

 

Hi Renner

 

Yours is a different form of an extremely common question, repeated all over the world in hundreds of Financial Markets forums. Mostly the responses are callous, sarcastic, dissing and rude. Often the person asking for help is never seen on that forum again.

 

But Traders Laboratory is different ... in a way.

 

You will get your help ... but you will need to roll up YOUR sleeves!

 

I am expecting you to provide as good as you get - ie you need to define some guidelines such as:

 

What time frame are you expecting to trade?

Are you wanting to scalp, swing trade or position trade?

How much capital are you expecting to use to get a return of 10% per week ... that is 46.4% compounded per month - extraordinary figures for someone who has been trading for 18 months.

Will that 10% return be enough to cover your family's living expenses?

What do you consider a "good risk:reward ratio"?

What have you been trading up to this point? (Pairs, position size, risk:reward etc)

What systems have you tried? How long did you persevere with them?

Did you master any single system, and if so, what was its short-coming, and what do you consider could be done to improve it?

Have you been studying Bar Charts,Candlesticks, Moving Averages, specific Indicators, Price Action, Proprietary Systems?

Have you tried trading any of the hundreds of systems available on a few of the popular forums?

 

Most of the information is available on the Internet - it is found on forum archives, or through Google "search". You have come to the right place - but I am surprised that you are issuing a challenge, where you seem to be the main beneficiary.

 

It might have been better to ask if someone was interested in working with you to build a mechanical system ... same thing ... better approach.

 

Regardless ... If you wish to engage the people on the forum - and I will happily help where I can - then you need to tell a lot more of a background story.

 

So far ... so good ... and we wait for the next instalment ... and the challenge is back to you now - nothing comes on a golden plate - especially when you have had only 18 months of searching.

 

Most of us have done that in spades - I have had 7 years at this game - and I am not about to hand anyone the keys to the executive washroom, who has done only a fraction of the struggling, and felt little of the pain.

 

I want to see some effort and sweat from you. Answers to all the above would be a great start.

 

And yes, I would love to help.

[Arthur 10]

I viewed the calculator but what's the rate of accuracy in its output. Is minimum win percentage calclation 100% accurate and correct in most of the situations ?

[renner1984 10]

Ingot54, I appreciate your candor but thoughtful response. Of course I do not expect anyone to hand me or anyone else "the key to the city". I'm always looking for new ideas; I think any system that works has to be fitted to one's personality.

 

In answer to your questions:

 

What time frame are you expecting to trade?

 

It would depend on the fixed stop loss and take profit I'm most comfortable with. The higher timeframes are more reliable, such as the daily, 4 hour, and 1 hour. The less trades taken, the less exposure.

 

Are you wanting to scalp, swing trade or position trade?

 

I would probably consider myself a swing trader, though I have looked into scalping. The trouble with scalping is lots of exposure and the spread is one's worst enemy.

 

How much capital are you expecting to use to get a return of 10% per week ... that is 46.4% compounded per month - extraordinary figures for someone who has been trading for 18 months.

 

I cannot speak for anyone else, though for me, I'd use $1/pip per $1,000. I answer this question like this because I intend to compound and would keep the lot size proportional to this ratio. Yes, my personal goal is quite high; I know that no one else will do it for me. I welcome new perspectives from those who have "been around the block".

 

Will that 10% return be enough to cover your family's living expenses?

 

After years of consistency, absolutely!

 

What do you consider a "good risk:reward ratio"?

 

I'd say at least 1:2, though I'd prefer 1:3. It's said professionals have at best a 50% accuracy in trades; to compensate, one must have such ratios to remain profitable. Anything less, especially those like 2:1 or worse will blow accounts.

 

What have you been trading up to this point? (Pairs, position size, risk:reward etc)

 

I've traded the major pairs, primarily EURUSD, GBPUSD, AUDUSD, EURJPY, GBPJPY, though I've touched on the exotic pairs.

 

What systems have you tried? How long did you persevere with them?

 

Honestly, I've touched on many in forums, though I've not stuck with them long. I'm the type of person who wants to know exactly why a system works, why it's profitable, where it may go wrong. This can give one an idea if it will work long-term. I know sticking with a system is crucial, but it must be a system one is comfortable with.

 

Did you master any single system, and if so, what was its short-coming, and what do you consider could be done to improve it?

 

There is one I've been using with a trading group. It works well in trending markets and for most of the year, though in the summer it can be disastrous due to ranging, erratic movement. Much of it depends on subjective judgment, I've looked at how I can make it a bit more objective and fixed.

 

Have you been studying Bar Charts,Candlesticks, Moving Averages, specific Indicators, Price Action, Proprietary Systems?

 

Actually, most of my trading journey has been "study". I have traded live and on demo, but learning "how everything works" is important to me. I've even started a website of my own on technical analysis. I prefer candlestick charts, maybe moving averages and/or Bollinger Bands. I believe simplicity will work best. After all, indicators merely reflect price action.

 

Have you tried trading any of the hundreds of systems available on a few of the popular forums?

 

Absolutely. In all fairness though, you said it yourself, it's easy to get lost in a sea of "systems". Perhaps I've created a pond a mile wide an inch deep.

 

I hope those answers will suffice. While this challenge is my own, I'm sure I'm not alone in it. I'd like others to benefit from this post, should bear great fruit from all the input it receives. Finding my system has been my burning obsession, something I think about everyday, always looking at the charts or seeing if I can find my edge. I have many other traders who are encouraging towards me who know what I want to do. I hope one day to be able to reach out to newbies like I am now and return the favor.

 

I look forward to hearing your response, whether it is for or against my answers. Thank you.

 

P.S. In answer to Arthur, the output is how many trades you'd need to take to reach your goal, given the minimum win accuracy. Suppose you have a fixed SL of 20 and TP of 55, you'd have to take 10 trades (4 wins, 6 losses) if you had at least a 40% win accuracy, with a goal of 10% ROI.

[Ingot54 13]

I hope those answers will suffice. While this challenge is my own, I'm sure I'm not alone in it. I'd like others to benefit from this post, should bear great fruit from all the input it receives. I hope one day to be able to reach out to newbies like I am now and return the favor.

 

P.S. In answer to Arthur, the output is how many trades you'd need to take to reach your goal, given the minimum win accuracy. Suppose you have a fixed SL of 20 and TP of 55, you'd have to take 10 trades (4 wins, 6 losses) if you had at least a 40% win accuracy, with a goal of 10% ROI.

 

Thanks for those definitive replies Renner - in my view you have been quite diligent during your 18 months, and if you keep working at that rate you will not fail to achieve your goal.

 

I am going to retire for the night (getting past 2.15am now) but I like your idea of aiming for the higher TF - 4H is about as low as a beginner trader should go, in my view - but 1H should be ok for someone who has been slugging it out over 18 months.

 

Some people are joining the price Action bandwagon, and throwing their indicators out the window. I am not one of them, though I am a member of Nial Fuller's Price Action group, and I strongly believe in PA signals on the higher TF - I have 8H candles on my MT4 charts - let me know if you want the Period Converter .mq4 file and I'll put it in the Indicators section.for you and anyone else to use.

 

I might put this on the table as food for thought before I go: Consider trading NON-Correlated pairs, and no more than 4 pairs - preferably TWO. The reason is that you can easily MASTER two pairs, and once you do, you will never need to trade any more than two .... ever.

 

The EURUSD is positively correlated to the GBPUSD. You didn't mention the USDCHF - but it would have been off the list anyway because it is more than 90% NEGATIVELY correlated to the EURUSD ... counter productive to be trading both.

 

The AUDUSD is a Commodity currency, and a good one to include - usually trending and fairly steady.

 

AUDJPY gets us away from the Euro and the USD, so we will be looking at a pair that is less under the influence of those two. The JPY is known as the "twin" to the USD - ie the GBPUSD will be in positive correlation with the GBPJPY. It will remain fairly true for other pairs you substitute for the GBP in those pairs.

 

To simplify the list - I would probably cut out the "Beast" (GBPJPY) unless you are comfortable with its volatility, and I would add the AUDJPY in it's place. It's really academic at this point, as we will probably be wanting to trade only one ... max 2 pairs at a time. And the further we get away from the Majors, the wider the spread is going to be.

 

I forgot to ask which platform you are using, Renner. If you are already familiar with the MT4 platforms, then this could be an excellent one for the purposes of this exercise.

 

I suggest before we go adding specific indicators, we discuss our requirements - ie what we want to see price do and confirm, before we commit our money to a trade?

 

Time to snooze - but please continue in my absence - I am certain there are better traders amply able to contribute further from this point.

[Ingot54 13]

What I am picking up is as follows:

 

1) The system has to "suit the personality of the trader" and you mentioned you are not keen on scalping. You prefer the higher TF because of their being "more reliable" - something I heartily agree with, and because this is a system for a beginner, it is also something I recommend too. Most systems can be applied across the board, but I believe they probably should not be - some are constructed specifically for scalping, and others for the higher TF. We can get into that later if you wish ... when discussing indicators.

 

2) You are comfortable to trade $1 per pip per $1000 in account. That will give you at 2% a/c risk, only a 20-pip SL margin. That might be a bit too tight for trading the higher TF, where stops can be set around 60 to 100 pips at times, but not necessarily, if we get this system "right." The last thing we want to be doing is risking money right up to our limit, when we begin to trade. The reason for that is that "scared money never wins" we are told, and sometimes when the margin is at risk, we can talk ourselves out of the trade. That too is another item that we can discuss a bit further along. It will come up when assessing the reward:risk ratio no doubt, so no need to stress about it here.

 

3) Your choices of currency are: EURUSD, GBPUSD, AUDUSD, EURJPY, GBPJPY. As mentioned I would like to review the inclusion of "Beast" in the list. It doesn't get its name for nothing. GBPJPY is a widow-maker when in the mood. It is a specialty pair, imv, and is best left to the experienced traders. having said that, I have looked at the ATR (Average True Range) for Beast, and in fact it does behave in a more docile manner in the higher TF. ATR is currently 137 pips, which compares to the GBPUSD with 119 pips, AUDUSD at 87 pips, EURJPY 121 pips and the EURUSD at 128 pips.

 

So the tamest of them all in this group is the AUDUSD.

 

4) You are open to use any indicators, and prefer candlesticks - good - we are on common ground. I like to incorporate both Price Action and Indicators in my own trading, though there is nothing magical in either - just a preference. And the thing is not what you use, but how well you use it.

 

You mentioned that you have your own website on TA. You may already have chosen some favourite indicators based on your studies of TA. Again - it's not which ones, but how they are utilised.

 

I use a couple of MA's, Stochastic, RSI and MACD, and sometimes CCI, but sometimes I will stick to MACD and the MA's alone. That will depend on whether the market has been consolidating, or trending.

 

Now this is the point where I am hoping others will chime in with a few indicators of their own. We need to be suggesting a few to look at, and to be saying why we want them in the system.

 

If there is just me and you and Arthur, then the system will be a representation of a narrow range of input. Hopefully a few other traders will kick in here and make suggestions - this is not a one-man-band. A recent poll showed that 70% of TL members who responded were FX traders, so there should be a few available with ideas.

 

Renner - your answers show that you have worked hard in your 18 months and are under no illusions. let's hope we can pull up something that will work for you. Believe me, it need not be complicated, and it won't be.

 

We don't want something looking like this "Pizza Chart":

[renner1984 10]

We don't want something looking like this "Pizza Chart"

 

Mmmmm! Who would use a chart like that? That's just ridiculous!

 

1) The system has to "suit the personality of the trader" and you mentioned you are not keen on scalping. You prefer the higher TF because of their being "more reliable" - something I heartily agree with, and because this is a system for a beginner, it is also something I recommend too. Most systems can be applied across the board, but I believe they probably should not be - some are constructed specifically for scalping, and others for the higher TF. We can get into that later if you wish ... when discussing indicators.

 

Yes, it does have to be suited to the personality of the trader. Honestly, I'm caught between the daily chart and the 1 hour. The daily is great since it's smoother and I work full-time, but I'd have to really "milk the market" to reach my goal. The hour is great since it'd be easier to reach in less pips, but is a lot more erratic in movement.

 

2) You are comfortable to trade $1 per pip per $1000 in account. That will give you at 2% a/c risk, only a 20-pip SL margin. That might be a bit too tight for trading the higher TF, where stops can be set around 60 to 100 pips at times, but not necessarily, if we get this system "right." The last thing we want to be doing is risking money right up to our limit, when we begin to trade. The reason for that is that "scared money never wins" we are told, and sometimes when the margin is at risk, we can talk ourselves out of the trade. That too is another item that we can discuss a bit further along. It will come up when assessing the reward:risk ratio no doubt, so no need to stress about it here.

 

$1/pip per $1000 is what I'm comfortable with by default, assuming I only try to net 100 pips a week. The daily chart would make this impossible; so, I've thought about compensating by making it $0.20, but going for 500. Either way, it's a stretch but doable. I wholeheartedly agree about the "scared money" which is why I'm a big believer in a more mechanical approach. We are our own worst enemy.

 

3) Your choices of currency are: EURUSD, GBPUSD, AUDUSD, EURJPY, GBPJPY. As mentioned I would like to review the inclusion of "Beast" in the list. It doesn't get its name for nothing. GBPJPY is a widow-maker when in the mood. It is a specialty pair, imv, and is best left to the experienced traders. having said that, I have looked at the ATR (Average True Range) for Beast, and in fact it does behave in a more docile manner in the higher TF. ATR is currently 137 pips, which compares to the GBPUSD with 119 pips, AUDUSD at 87 pips, EURJPY 121 pips and the EURUSD at 128 pips.

 

So the tamest of them all in this group is the AUDUSD.

 

Exactly, though I've no problem looking at the "odd" pairs, though precedence given to those above.

 

4) You are open to use any indicators, and prefer candlesticks - good - we are on common ground. I like to incorporate both Price Action and Indicators in my own trading, though there is nothing magical in either - just a preference. And the thing is not what you use, but how well you use it.

 

I am open to any indicators, have studied many and feel I've a pretty good idea of why they work, though less is more (contrast the "pizza chart"). I'm open to program something to enter and exit based on a system derived, though I don't have to. It could always be semi-automated. I even offered Fuller personally an indicator I wrote to alert us to pin bars and inside bars on every pair simultaneously; he rejected it as he is against such things.

 

You mentioned that you have your own website on TA. You may already have chosen some favourite indicators based on your studies of TA. Again - it's not which ones, but how they are utilised.

 

Yes, it's more or less a compilation of everything I've learned, it is nowhere finished, taking my time to build it.

 

I use a couple of MA's, Stochastic, RSI and MACD, and sometimes CCI, but sometimes I will stick to MACD and the MA's alone. That will depend on whether the market has been consolidating, or trending.

 

Moving averages especially interest me. Forget crossovers, but bounces and in conjunction with other indicators works wonders. I also like Bollinger Bands since it tells you multiple things about the market.

 

Now this is the point where I am hoping others will chime in with a few indicators of their own. We need to be suggesting a few to look at, and to be saying why we want them in the system.

 

If there is just me and you and Arthur, then the system will be a representation of a narrow range of input. Hopefully a few other traders will kick in here and make suggestions - this is not a one-man-band. A recent poll showed that 70% of TL members who responded were FX traders, so there should be a few available with ideas.

 

Absolutely!

 

Right now, off the top of my head, an ideal system would be this. It may be realistic, maybe not. Take any pair, just a set time of the day (i.e. London Open, U.S. Open), set a fixed SL/TP, and enter according to the trend. The questions needed are:

 

1) How to define a trend (or lack of)?

2) How to judge if market could hit TP, or NOT hit SL?

3) What time of day to enter?

 

Of course, that's pretty mechanical, set-and-forget, but it could be done, or it might be a pipe-dream. It is something I'm playing around with.

 

Let's keep this going! Ingot54, I'd love to hear more how you incorporate your indicators!