Optiontimer's Project

[optiontimer 10]

Whenever there is news out that is outside anything I have ever experienced, all orders other than resting stop losses get cancelled. I was not willing to enter anything on stop at last night's open. If I had felt compelled to have an order in the market, it would have been a stop limit, not a stop market.

 

 

 

-optiontimer

[Avarice 10]

If I had felt compelled to have an order in the market, it would have been a stop limit, not a stop market.

 

Excellent advice, thanks for sharing!

[russellhq 10]

Thanks for the advice guys.

 

I'm paper trading at the moment but approaching it exactly the same way as I would if it were real money (we'll as close as I can as fear and greed won't be at the same levels).

 

So in that respect, I've started with a $25k demo account and am following optiontimer's suggested levels of risk for swing or position trading.

 

The money loss for a short term swing trade application of this system with an approx. 55% win rate would dictate a max loss per trade of $1666, with a preferred level around $1133.

 

The difference in Max level to Preferred level is as follows: Max level is based on the consumption of the entire account on the road to ruin, while the preferred level assumes that if account equity falls below $8,000, then trading realistically would need to cease, and a new stake raised to sufficient levels before trading could resume.

 

The difficulty with the longer term application right now is that current volatility in those markets often dictates a stop much larger than the $961 max I would like to use, and far above the $653/trade risk I would prefer. This might make for too few trades.

 

This is something I can't get my head around through. Both terms have the same entry strategy as defined previously but as the exits are undefined I'm unsure how to know if I will take short term risk or long term risk. Therefore, the trades were OK short them but not long term. OT is it possible to describe a short term exit strategy?

 

Finally, on market news I might have been taking Kroll a bit too literal after reading his book. The theme I got from him was to ignore market news and just stick with the charts/system/strategy (which is what I've done).

[NeoTrader 10]

I would like to echo Russell's query/concern if I might. Not too much has been discussed in the arena of stops. Either protective or profit taking. I am hoping that can be further discussed by those participating.

 

As for me I use a multiple of the ATR combined with a local high/low. I usually avoid things that would require more than 1.5x ATR due to the fact price has to run quite a ways in my favor just to make it a 2 x 1 ratio.

 

Because your intial stop has an enourmous bearing on your profitability, its a constant source of anxiety and or tweaking for me.

 

 

As for profit taking, I can't seem to devise a method that I am comfortable with. I end up either getting out too early or too late (a cliche problem i know). Any suggestions on making it more systematic or mechanical and less discrectionary? Using the 65 EMA seems reasonable but in the forex markets, especially lately, price can spike price past the 65 EMA on news then happily resume the trend. Addtionally in the case of a newly formed trend the 65 EMA does not have much space at all from the 21. Yielding a stop area that is most likely far too close.

 

Perhaps this has to be chalked up to the "you can't win them all" aspect of trading?

 

I understand losses must happen, I just can't seem to find a method for stops that I can sleep with.

 

Any suggestions are welcome.

Edited August 8, 2011 by NeoTrader

[Avarice 10]

Update :

 

I'm still short Soybean Oil and Oats, they're both showing a healthy (paper) profit for now and I'm -- up to now, at least -- able to stay put and watch the trade play out. No new trades were signalled for me over the weekend (at least none I could afford ) so all I have to do now is sit on my hands and do nothing.

 

Concerning stops.

 

Fact: OT's system follows trends. Our entries are tied to the concept of an eventual pullback of prices and the ensuing continuation of that trend. It is by no means guaranteed that there will be another entry point after we've been stopped out prematurely by a protective stop that was placed too close.

 

Consequence: We must stay in the trade for as long as we can by carefully placing our stops in such a way that they do not impede the normal breathing process of prices. The question then becomes: what is the "normal breathing process" of a security and how can we measure it? In my humble opinion any stop placement method that takes recent volatility into account should do the trick IF (and only if) you manage to apply the correct multiplier to it. Exception: I think it was SIUYA who pointed out that you should always look for "obvious" levels where you could place your stops (i.e. clearly defined support or resistance zones) and that these should take precedence over automatically placed stops IF such zones are there.

 

Sure, placing wider stops will lower your R/R ratio, but remember that this is a trend following system and for it to work you absolutely NEED that big trend trade to come through. But it just won't if your stops are too close.

 

NeoTrader for what it's worth, that was indeed a kick to the pants. I can't see anything wrong with your stop placement, I guess you can file this one under "you cant win'em all"... But on a general note (this is strictly me speaking) I'm not sure 1.5 times the ATR is enough in the current environment, especially in Forex and debts. It's Armageddon out there, remember that standing on the sidelines when the going gets tough is a viable option for us retailers.

 

A

[PWP 10]

Position Update:

 

Still short Eur/Chf with stop still at BE (1.1680)

 

Many possible setups yesterday (Aud/Usd. Gbp/Usd, Nzd/Usd Longs & Eur/Nzd, Gbp/Nzd Shorts) I stayed away from Gbp/Usd as it had gapped through the open entry. I placed entries for Aud/Usd, Nzd/Usd & Gbp/Nzd - however none of them were opened.

 

No new setups for tonight - So just the open Eur/Chf short for me.

 

As far as stops are concerned. I agree that they are tough to pin down. That's why I like my technique of taking off 1/2 at 4:1 RiskReward vs. Initial Stop. Mentally it makes me feel like I've locked in the 2:1 ratio but I also have a free trade going that I can happily move the stop with the 65EMA. I'm sure I'm limiting gains but I've seen soooo many good trades go back to BE or even a loss that I have this need to lock in a profit at some point. I would love to hear OT's technique that he uses.

 

OT - When Kroll refers to 45-55% to reenter the trend is he speaking of a fib level of the current trend (or last leg?)? Also, How does daily volume figure into your trading decisions?

 

Thanks All (OT, NeoTrader, Avarice, Ingot54, Russellhq)

[optiontimer 10]

... Not too much has been discussed in the arena of stops. Either protective or profit taking... As for profit taking, I can't seem to devise a method that I am comfortable with...

 

I respectfully disagree (pay particular attention to the comments regarding stop placement vis a vis the 65 ema):

 

As for the stop/exit question, the correct answer here is a question - "What do you want to get out of the markets?"

 

The initial stop for this system should always be above the highest high immediately preceding the entry.

 

If you want small, quick profits, then a trailing stop above the previous day's high, a three day high, or simply an oversold reading on a closing basis could be the signal to get out.

 

If you want somewhat larger profits, albeit with a lower win %, then trail a stop above the 21 EMA. You will see more losses, and what might appear to be good profits will evaporate into small wins (hopefully) smaller losses.

 

If you want to play for Kroll-like profits, then use a stop above the 65 ema, perhaps exiting manually on a close above the 65 ema.

 

Any of these should be accompanied by a plan to re-enter should the trend resume.

 

But you have to decide what you want.

 

 

... Both terms have the same entry strategy as defined previously but as the exits are undefined I'm unsure how to know if I will take short term risk or long term risk. Therefore, the trades were OK short them but not long term. OT is it possible to describe a short term exit strategy?

 

 

As to a short term exit strategy, I suggested a few in the quoted text above.

 

Here is how you get your head around it: This approach will almost always result in trades wihich are initially profitable. After this initial move, many trades will retrace back into a level where the trade will be showing an open loss. Of those that do, some will then resume a favorable course, others will not and instead will move through the initial stop loss. A short term startegy will use a short term guide to capture smaller, quicker profits. This will result in a higher win/loss % than a strategy that seeks to hang on to the position through that intial retracement with th objective of rising a potential trend for much larger profits.

 

If you want to be in and out of the market, then you have to define your exit strategy accordingly. I gave a few suggestions above when this issue came up earleir in the thread.

 

If you wish to hang on for larger profits, then the exit is not going to be defined by short term considerations.

 

You have to decide for yourself what you want to get out of the markets, and then set you course to achieve it.

 

If you were to ask me (and since y'all kinda did ask me) I'd say there is too much fear of being in the market at all and not enough desire for money (i.e. greed) in this thread.

 

Fear & greed - you need to control and strike a balance between the two. Too much of either, and too little of either, and your results will be less positive than they could otherwise be.

 

I have a close, personal friend who is following along with us here, and he has taken the exact same four trades as I have - long notes, short coffee, cotton and bean oil. He is already flat. We entered within fractions of a tick of one another. He has a net loss of over -730, as he panicked himself out of coffee on its big intraday rally on Friday and closed the other three to cover his coffee losses. Of course he closed his Notes on an adverse pullback. Had he let his positions alone, and allowed his stop losses to do their work, his P/L would look like this instead:

 

 

I reiterate - the market could gap open tomorrow and stop me out of all four at a full loss. But it does not matter. I fully expect that I will net 100K on this little 25K account over the next 11 months. And if this volatility continues, then that net could be even higher.

 

But I know what I want to get out of the markets. Do you know what you want to get?

Edited August 8, 2011 by optiontimer

[SIUYA 11]

a couple of suggestions if I may....

 

Because your intial stop has an enourmous bearing on your profitability, its a constant source of anxiety and or tweaking for me.

 

for an initial stop it should not be..... You set it for how much you are willing to loose and then move on.

The bigger bearing on your profitability is in being able to get on, and stay on a trend in this strategy.

 

What the focus should be, and the anxiety appears to be here is - as this is what becomes frustrating, is --- what do you do when your stop is hit, and then the market moves in the direction you originally had?

For me, I have a re-entry trade, that way I know that I will still get on a trade. How you do it can easily be setup systematically or as part of the plan, but the key is keeping the losses small, and that way mentally its easier to keep going at something. Obviously it will involve more trades, but this then leads to the next point.....

 

As for profit taking, I can't seem to devise a method that I am comfortable with. I end up either getting out too early or too late (a cliche problem i know). Any suggestions on making it more systematic or mechanical and less discrectionary? Using the 65 EMA seems reasonable but in the forex markets, especially lately, price can spike price past the 65 EMA on news then happily resume the trend. Addtionally in the case of a newly formed trend the 65 EMA does not have much space at all from the 21. Yielding a stop area that is most likely far too close.

 

Perhaps this has to be chalked up to the "you can't win them all" aspect of trading?

 

I understand losses must happen, I just can't seem to find a method for stops that I can sleep with.

 

Any suggestions are welcome.

 

It appears that the frustration/anxiety here is in letting things run......its f..n hard, you constantly see your pl, you want to lock it in, you dont want to miss it "in case" it reverses....we all know the symptoms. But it seems the focus on where to take profits is distracting from the main aim - which is to let them run.

 

Unfortunately I dont know the answer here, but if you persist in trying to find the perfect trailing stop, then you had better find the perfect re-entry point as you will get stopped out all the time and you will miss the trend.....so whats the point.

 

you cant win them all, but you dont need to - you only need a few big wins, and you need to have the ability to make the most of those opportunities....

 

You have to understand that trends will generally go for longer than you think, and if you can build a few good trades on them, it is scary how quickly you can build your account - and once this mindset is achieved you forget about trying to make a few dollars a day.

Plus there are very few v tops and bottoms - most trends will give you enough time to show its having signs of exhaustion, consolidation etc;......

 

This is one of those aspects that really comes home to bite when you are undercaptialised - its harder to allocate money to a strategy for the longer term, and at the same time allocate money to something to satisfy those day trading cravings with a smaller account....

 

There are many many many discussions on how to trend follow, and the merits of taking profits - and this is from the big and small players as well. People model these, test them continually and apply many variations of portfolio management and position sizing algos to try and gain an edge, some have long or shorts but no cash positions (they are always in the market).......IMHO there is little middle ground - you will find it hard to be successful being in the middle - either take profits and really work on re-entry (but dont be annoyed when you miss the big moves) or become longer term.

 

Key is if you wish to follow a system such as this, you need to not worry about where to take profits, you need to worry about how best to build positions with small losses. With experience, you will often have to stop yourself from wanting to build a position that is too big at the end of the trend as you have made sooooo much money you think the trend will never end......now thats a problem worth having.

 

( I hope this does not cause more questions, but rather helps focus the questions you need to ask (yourself) to successfully apply a strategy such as this.)

 

(side note a friend of mine had been chopping around all year making it loosing it, constantly getting stoppped out for small amounts, and having 1-2 winners...result he was slightly down for the year......recent equity turmoil, he made it all back in one short trade, and then as he said took his risk off and was happy to have covered his losses and made some money......had he let it ride for these last few days, he would really have cleaned up....which would you rather - small losses, then small profits, or small losses then cleaning up )

[optiontimer 10]

Finally, on market news I might have been taking Kroll a bit too literal after reading his book. The theme I got from him was to ignore market news and just stick with the charts/system/strategy (which is what I've done).

 

I did nothing with my current positions. I would not allow news to shake me out of an open position. But, if something that has never happened before occurs, I would personally rather wait to see how the initial opening imbalances work themselves out before placing my order in the market.

[optiontimer 10]

Position Update:

 

Still short Eur/Chf with stop still at BE (1.1680)

 

Many possible setups yesterday (Aud/Usd. Gbp/Usd, Nzd/Usd Longs & Eur/Nzd, Gbp/Nzd Shorts) I stayed away from Gbp/Usd as it had gapped through the open entry. I placed entries for Aud/Usd, Nzd/Usd & Gbp/Nzd - however none of them were opened.

 

No new setups for tonight - So just the open Eur/Chf short for me...

 

How does it feel to start your trading day at 5PM EST/EDT and be finished by 5:05PM?

 

...As far as stops are concerned. I agree that they are tough to pin down.... I would love to hear OT's technique that he uses...

 

Once long, I stay long until the market goes short, then I get short. I am only flat a market once it stops me twice in the same direction without having made further progress in that direction.

 

Once short, I stay short until the market goes long, then I get long. I am only flat a market once it stops me twice in the same direction without having made further progress in that direction.

 

I may not have mentioned this, but I'm stupid, so I prefer to keep it simple.

[optiontimer 10]

...it seems the focus on where to take profits is distracting from the main aim - which is to let them run...

 

I hope you all buy my book, soon to be released on Amazon.com, entitled The Portable SIUYA.

 

In my opinion, every trader should have one ... Thanks SIUYA!

[russellhq 10]

Thats SIUYA and OT, I think I just needed to hear things reinforced like that to get comfortable with the strategy

 

Slightly changing the subject, I've read Kroll and I've read OT/others taking about building positions (I think Kroll calls it pyramiding). I wonder if it would be possible during the course of this thread if someone could demonstrate on a chart how they have built up a position using the system/strategy. I'm assuming it may be some time away but maybe it's something to keep in the back of your mind.

 

Thanks again guys!

[Avarice 10]

The money loss for a longer term trend following application of this system, given the size of this account and an approx. 33% win rate, would dictate a max loss per trade of $961, with a preferred level around $653.

 

The money loss for a short term swing trade application of this system with an approx. 55% win rate would dictate a max loss per trade of $1666, with a preferred level around $1133.

 

Sorry if this has been asked before, but could you explain how you came up with these numbers?

 

A

[Avarice 10]

Slightly changing the subject, I've read Kroll and I've read OT/others taking about building positions (I think Kroll calls it pyramiding). I wonder if it would be possible during the course of this thread if someone could demonstrate on a chart how they have built up a position using the system/strategy. I'm assuming it may be some time away but maybe it's something to keep in the back of your mind.

Thanks again guys!

 

I suppose this chart of the CHF is as good an example as any of how one can pyramid. You'd simply add to your position on each new entry signal in accordance to your trading plan. If the general trend remains strong (as it has in this example) you stay in for the ride, happily adding whenever the flag (or triangle ) shows up.

 

A

[NeoTrader 10]

To SIUYA, OT, and others,

 

Thank you for your insight. It greatly help me to organize my thoughts and really think about what I am trying to accomplish here. I was getting hung up on the wrong things. In essence I was trying to mix methodologies. Looking for trend following profit using a short term trade style risk. It just isn't going to happen that way. I need to let go of that, decide my hold time and set a congruent risk level.

 

You really are your own worst enemy in trading. It's not the market makers, professionals, or the commercial shops that get you. Its you that gets you.

[iwshares 10]

 

You really are your own worst enemy in trading. It's not the market makers, professionals, or the commercial shops that get you. Its you that gets you.

 

Sounds like you've hit the nail on the head!

[PWP 10]

How does it feel to start your trading day at 5PM EST/EDT and be finished by 5:05PM?QUOTE]

 

It feels Great!! I love it.

 

As far as pyramiding is concerned: Kroll mentions adding once a congestion area is broken. Should I have added to my Eur/Chf Short or Established a new Gbp/Chf short once the most recent support was broken - Like 1.07 for Eur/Chf & 1.24 for Gbp/Chf?

 

Also - when adding whether at a break of recent support/resistance or just a new setup with the hook, etc.... Do you add a larger/equal/smaller position than already on the original position. I'm thinking smaller (The initial position should be a full position).

 

Thanks - PWP

[PWP 10]

New trades (that I have orders In for):

Nzd/Usd long per rules

Eur/Nzd short per rules

 

Trade considered:

Gbp/Nzd short looked good-but too big for my account size

 

Existing trade:

Eur/Chf same BE stop

 

Good luck fellow Traders! -PWP

Edited August 9, 2011 by PWP

[SIUYA 11]

re pyramiding.....

again a large can of worms.

 

What I have found works for me, is I only pyramid, when I can move my prior stop to break even, so that theoretically I only have the same risk on each new trade (as previous trades are now at break even) and this of course ignores risk of draw down of profits, as that is what i am trying to ignore

 

I dont like to pyramid longs in equity markets (as they can and do gap down big time) but I will pyramid currencies, bonds, and short equity positions.....

 

The point of pyramiding is to have a big position on when you catch a trend - its as simple as that, no need to over complicate it

 

(think of it this way - if you day trade and only go one way and stick with the trend and keep taking your position off and putting it on, you are effectively pyramiding except you dont get the benefits of letting it ride, and you have all the hassles of constantly trying to be right.....whereas if you pyramid each time, keeping the risk small for each additional trade then if a trend continues its happy happy joy joy)

 

....get ingrained the strategy and the entry system first...keeping in mind the ultimate goal is to pyramid, and then use that as your next progression, as you are unlikely to be able to pyramid if you cannot ride the first trade entry.

[optiontimer 10]

I will catch up on the thread tomorrow afternoon ... My family and I are fresh in from celebrating ... my two daughters completed their first 5K race this evening in which they came in #1 and #2. Granted it was a field of only twenty, but I'm one proud daddy nonetheless!

 

-OT

[PWP 10]

Congratulations! 1st & 2nd Wow - must run in the family - great job Dad!

[russellhq 10]

Congratulations! 1st & 2nd Wow - must run in the family - great job Dad!

 

Nice pun :rofl: .

[NeoTrader 10]

CAD/NZD looks like a short signal very soon

 

GBP/USD long still chopping around taking some heat but still on plan. Seeing what price does at local support level around 1.6800 over the next day or so is key to me. May just close and look to better trending pairs. No sense jumping in the wood-chipper.

 

On a personal note, I find myself wishing that I had just discovered traderslaboratory instead of 4 years ago, and this is the first thread i happened to read. The old adage comes to mind that its difficult to add to a cup that is already full. I find I struggle with emptying my head of all the short term trading habits i had developed over time. :crap:

 

So tough to watch price dance on your entry making you sweat that it will break against you.

 

perhaps a plunger to the forehead would work.....

Edited August 10, 2011 by NeoTrader

[russellhq 10]

CAD/NZD looks like a short signal very soon.

 

Hi Neo, I've been trying to discipline myself to check the charts at the end of the day (5pm EST/EDT). What rules/strategy are you using for chart checking?

[Avarice 10]

Sorry if this has been asked before, but could you explain how you came up with these numbers?

 

Ha my parents were right, it's better to kick your own brains into gear than ask someone else to do your job for you :embarassed: It's called risk of ruin, found this article, read it, fiddled in Excel and learned something to boot.

 

So never mind the quoted question

 

A