Optiontimer's Project

[russellhq 10]

Surely entry must have been the best possible moment

[optiontimer 10]

... How's that for timing the market...

 

It happens ... and then it happens again. But "it" won't bother you too much when you get your next 500 or 1000 or 2000 pip run. It happens too.

 

-OT

[TradeRunner 10]

Here are the first 100 trades (as defined by me based on the original rules from post #8) on the EURUSD.

 

In this back test I used the 65ema to take profits. I exited on the open of the day after a close below the 65ema.

 

Results:

+11500 ticks

37% win rate

-1533 ticks draw down

 

Here is the equity curve (in ticks):

 

 

Here is a scatter graph showing the result of each trade (in ticks):

 

 

The end result is good and the win rate is roughly what OT said it would be with that take profit strategy. However if I started trading it in 2004 I'm not sure I would have been able to continue for 2 years before seeing a profit.

optiontimerproject results.xlsx

[PWP 10]

TradeRunner: (I tried to quote you're info but I can't seem to get it right)

 

It looks like the max loss was approx 370 pips - I've had initial stops much greater - did you set a max Stop loss that you'd enter?

 

Thanks for the research! - PWP

Edited August 30, 2011 by PWP

[TradeRunner 10]

It looks like the max loss was approx 370 pips - I've had initial stops much greater - did you set a max Stop loss that you'd enter?

 

There was no filtering. All signals were taken regardless of risk size.

 

Maybe my interpretation of the stop rule is different? My stop is the top of the current pull back and ignores the degree of the swing. Easier to explain with a picture:

 

[optiontimer 10]

TradeRunner: (I tried to quote you're info but I can't seem to get it right)

 

It looks like the max loss was approx 370 pips - I've had initial stops much greater - did you set a max Stop loss that you'd enter?

 

Thanks for the research! - PWP

 

TradeRunner ran his data on the EURUSD only. The range on this pair has been much less volatile than for the /Jpy and /Chf crosses.

 

These have been volatile times for currencies, even the EURUSD. Go back and look at a ten week ATR up until 2007 and compare that to 2008-2011. Before 2007, currencies had an ATR between 150-300 pips/week. 2008 to present, that range has been 300-600+ pips/week basis the EURUSD.

 

-optiontimer

[SIUYA 11]

hi,

OT your post at #348 sums everything up perfectly and you are doing great as a thread starter,project manager and educator for ideas IMHO....and as we are in the psychology section its appropriate, i dont think i can add much more than this.....

 

to me, this strategy is more about the sitting on the hands, then taking the trades as the system (whatever rules you determine to enter) give you, and then managing them with regards the rules - for this strategy it is about sitting on the hands again....that should be your default.

 

if you want to take profits, trail stops, have profit targets etc, then that is a different strategy....and there is nothing wrong with that, but that needs to be recognised. you dont train to play golf by learning to kick a ball about.

Once you have the basics right then you will find that rather than wanting to worry about taking profits, you will be more focused on trying to increase those winners - not through taking profits, improving entries and the like, but more through pyramiding, avoiding certain areas (the context) and expanding the universe of instruments.

(when i have more time I would like to add to this - hopefully in the next day or two to help OT with the project and in IMHO push the project to its logical next step)

[Avarice 10]

Once you have the basics right then you will find that rather than wanting to worry about taking profits, you will be more focused on trying to increase those winners - not through taking profits, improving entries and the like, but more through pyramiding, avoiding certain areas (the context) and expanding the universe of instruments.

(when i have more time I would like to add to this - hopefully in the next day or two to help OT with the project and in IMHO push the project to its logical next step)

 

Hey SIUYA, good to hear from you You mention two concepts in your post which I feel need clarification.

 

1) Context. You repeatedly said that the "default mode" of a trader should be to follow his system's signals except when the current context indicates otherwise. Overriding my system in such a way presupposes that I know what context my system is supposed to work in - for OT's strategy that would be an ongoing long-term trend where this ongoing trend must have a realistic chance to continue. The last part of this definition tells us to override the system (i.e. not take an entry) if our trade would need to violate obvious support or resistance zones in order to be profitable. My question here is, what other considerations should we take into account in order to decide whether context is not right? What about flatlining EMA65s? What about low (or high?) volatility? What about crisscrossing EMAs that switch from long to short every other week? Not that I'd be fishing for a pre-fabricated recipe but I've got a feeling that this concept is quite important stuff. Do I need more experience in reading prices?

 

2) Pyramiding. The general concept of it seems easy... at first. But doing it right is a different pair of shoes: if I want to have a realistic chance of being able to add to a position I need to work with a pretty wide stop. I tend to trail my stops at approximately 2 to 4 ATRs, and upon closer inspection I can see that this is way too close - I will always be stopped out by the pullback towards the next (possible) add point. Conclusion: I need to widen my stop. But now greed kicks in - in the form of fear of losing too much paper profit. So I start asking myself when I should start to tighten my stop in order to get out? How do I see that I sucked the trend dry and that it's ripe for a reversal? I know I can't. But I still want to! Do I need more experience?

 

What are you guys' thoughts on all this?

 

A

[optiontimer 10]

1) Context.

2) Pyramiding.

 

1) Context:

 

a. Actual chart points, support and resistance, areas where previously dominant buyers were swamped by sellers and vice versa always take precedence for me.

 

b. 1) When the ema's go flat, price has gone into a range. It is best to wait for price to break out of that range. You then have to decide if you are going to trade on the the breakout, or are you going to trade on a pullback that tests the range and then continues in the direction of the breakout.

 

2) Next to support and resistance, volatility as measured or observed in terms of range - whether the range is contracting and is the range expanding, is the next most important considerations, imho. Flatlining and whipsawing MA's = range/volatility contraction and trending MA's with increasing separation = range expansion. The money is made during the latter and too often taken away during the former.

 

 

c. This system does not require the use of these particular indicators, or any indicators for that matter, as it is designed to work the way in which markets and market price actually works. If your indicators are telling you one thing, but price is telling an opposite story, then default to price. Otherwise, for those learning this strategy, default to your indicators.

 

2) Pyramiding: In my own trading, I try to group my positions by three's when risk allows. I like to enter a new position with three contracts, and then add an additional contract as price moves through each of three ATR's in my favor. I use a 10ATR, but a 14 or 20 or what have you will work just as well. As with everything in this thread, and in trading generally, whatever your method, the important thing is to be consistent and always respect the risk.

 

I then add another set of 3 on the next pullback. Sometimes, risk is too great to trade three on the initial entry, so I may do 1 then 1 then 1 at successive ATR's. Other times, the initial risk is such that I can do 6 or 9 or 12 contracts. I then size the add on's accordingly.

The key for me (and I want to stress the "for me" part of this here) is that I want a 2 unit position by the time price has moved 3 ATR's in my favor. This allows me to add one unit at each pullback without ever becoming "top heavy," i.e. trading an upside down pyramid.

 

Finally, if any of my contracts are red at a pullback, I do not add additional contracts. I only pyramid when all existing trading units are showing open trade equity.

 

I will now default to SIUYA.

 

-optiontimer

[optiontimer 10]

I'm taking a little end of the summer break that will make my attendance here spotty at best until at least the middle of next week, and possibly until the beginning of the week after next.

 

Good Trading to All!

 

-optiontimer

[PWP 10]

Thanks Option Timer for the info. I've added funds to my account so hopefully I won't have to choose trades. I'd like to be able to take every signal. Seems that the ones I pass on do well and the ones I take consolidate. Then to make room for a new trade I'll take off a trade that ends up being a great one ie. Eur/Nzd Short. So Hopefully this will help eliminate that issue.

 

Have a great break! - PWP

[mrcsidney 10]

Entry: /OJ @ 170.20 STOP 179.30

1 contract 8:53 PDT:missy:

 

Well all did not end as hoped. My stop at breakeven triggered on Thursday @ 170.30 and I was out of the trade when the big drop occurred.

My charts show that the highest price print was 169.60 but my stop was triggered anyway.

Lesson learned: wait until I have twice my risk before setting my stop at breakeven.

Cheers all

mrcsidney

[SIUYA 11]

2 weeks in Fiji - brilliant - getting ready to move countries - not so brilliant....so I will be away further, but I think as option timer has noted this is a long term strategy/project.

In answer to your questions, in addition to OTs answers...and these are all personal opinions that work for me....

 

1) Context. You repeatedly said that the "default mode" of a trader should be to follow his system's signals except when the current context indicates otherwise. Overriding my system in such a way presupposes that I know what context my system is supposed to work in - for OT's strategy that would be an ongoing long-term trend where this ongoing trend must have a realistic chance to continue. The last part of this definition tells us to override the system (i.e. not take an entry) if our trade would need to violate obvious support or resistance zones in order to be profitable. My question here is, what other considerations should we take into account in order to decide whether context is not right? What about flatlining EMA65s? What about low (or high?) volatility? What about crisscrossing EMAs that switch from long to short every other week? Not that I'd be fishing for a pre-fabricated recipe but I've got a feeling that this concept is quite important stuff. Do I need more experience in reading prices?

 

I use context as I am a discretionary trader - if you are fully systemised then context for you may be programmed in....so with that in mind adding to what OT says above...my definition of context comes purely and simply from a lot of experience, and they are heuristics (rules of thumb) that keep me out of trouble. Such as what do you do when someone puts a plane into a building, what happens if you get a reversing signal when the central bank was clearly trying to stem the tide of a major trend, what happens when you have a lot of correlated trades on (short USD, long EUR, long AUD, long GBP) and every one in the room is talking the same thing.

The default position should be to stick with the system - but after a while - once you know the system, there may be things to keep an eye on - this is my version of context. They usually cant be completely programmed so your idea of a flattening EMA can be programmed and back tested....however things like the third time major support is being tested, and fundamentally every one is bullish, and other correlated instruments are already running might give a little more context.

(I hope that helps - its entirely personal, and if you can program it then great - but you can still use this and still take the default trade, you just might add an extra little bit of caution saying something like "I am prepared to take more than a usual small amount of small losses on this as I am not 100% convinced." You will still get on the trade, and if you are wrong and the system is right you might only loose a small amount, but if the system is wrong and your caution is right, your small losses will give you comfort.)

one example that i know systems have used is - only take the second instance of a reversing trade (ie; a new trend) after a previously profitable trend, but at the same time have a fail safe to ensure you still get on the new trend if its say a V-bottom.

You can also program for volatility as well - but then how do you define whats high/low vol, compared to what..... is gold blowing off or just in the middle of a trend???

 

2) Pyramiding. The general concept of it seems easy... at first. But doing it right is a different pair of shoes: if I want to have a realistic chance of being able to add to a position I need to work with a pretty wide stop. I tend to trail my stops at approximately 2 to 4 ATRs, and upon closer inspection I can see that this is way too close - I will always be stopped out by the pullback towards the next (possible) add point. Conclusion: I need to widen my stop. But now greed kicks in - in the form of fear of losing too much paper profit. So I start asking myself when I should start to tighten my stop in order to get out? How do I see that I sucked the trend dry and that it's ripe for a reversal? I know I can't. But I still want to! Do I need more experience?

 

What are you guys' thoughts on all this?

 

A

 

Again - sorry but this is a personal thing - unless you can back test everything and make it a completely automated system and work out the best thing to do (and then stick to it )

You will also need sufficient capital to do this, and ideally sufficient capital to do this over a wide range of instruments - you then to to take into consideration correlation - do you need to pyramid when you already have a number of highly correlated trades on???

Also there are other alternatives - eg; a long OR short system (never in cash), a system that scales in, and scales out, a system that goes all in/out and scales in/out.....(the joys of many choices and variables )

 

The problem with trailing stops is exactly as you say - they stop you out, precisely when its probably a good time to pyramid. widening stops is not ideal, increasing the number of trades, but maintaining the small risk per trade (or a variation of this) would be better IMHO

A possible solution is to only put on a new trade when you can safely move your first stop to break even, and so your theoretical worst case scenario is still only a small risk, but you have double the upside potential.

From the psychology point of view your desire to capture everything can often see you with nothing and the never ending chase for perfection.

....and yes - you can try pick the end of a trend and suck it dry, but its likely the best you can do is capture a majority of it. Its the sitting on your hands thats the hard part (this is an often repeated phrase in trading, and too often ignored)

 

(its like a college party - if you leave early you might miss out on a killer night, if you hang around until the end it could last for days and be talked about for years, but odds are it will just be another long night with a hangover at the end, but every now and again you get lucky)

Edited September 6, 2011 by SIUYA

[mrcsidney 10]

Entered /6A ( Aussi Dollar ) at 1.06even Stop at 1.457 1 contract (papermoney).

7.11PDT

mrcsidney

[russellhq 10]

Soybean Meal looks good for tomorrow's open on my charts

[mrcsidney 10]

Aussi futures trade stopped out at 9:32EDT @ 1.0457 for a loss of approx. 1500 plus costs. The price action was a warning ( trading in a range ) so I'll be more selective next time. I haven't been putting stops in the market up until this trade. It worked for me as I was busy elsewhere.

mrcsidney

[peterbee77 10]

That chart from the other night was of the USDCHF from 2009 - June of 2010, and that trade ran for a max of 1600+ pips, which would translate to 800-1300 profit depending upon stop management and how well one reads long term S/R. I shorted the 6S Swiss Franc Futures at that time (the futures move inversely to the spot). The futures ran 1200 ticks, and I was stopped out with 1000 of them.

 

Here is the chart I posted the other night:

 

 

If you'll pardon my obtuseness, I'm puzzled as to why you would have gone long the USDCHF trade (spot) in mid-January 2010, per the chart?

 

When I look at the immediate chart only - without looking into the future off to the right - I see a medium strength countertrend rally in Dec.09 which caused the fast-MA to cross only slightly above the slow-MA before fading. The price turned back down in late-Dec and crossed back below the EMA65, with the EMA21 also turning down a few days later - which would have suggested to me that the previous downtrend was re-asserting itself. By the time the sRSI rose above 0 and gave a Long trigger signal on Jan.12, the fast MA had crossed down, which would have suggested to me to go short (or do nothing at all until the trend became clear) rather than going long at that point in time. That's how I'd interpret the basic direction-setting rule of the MAs in the instructions at the beginning of this thread.

 

It looks like a case of departing from the rules, based on other factors, and it would be instructive to hear the reasoning behind it.

 

Looking forward to your thoughts OT, with thanks,

Peter

[Marubozu 10]

"I haven't been putting stops in the market up until this trade"

 

That could be one of the worst mistakes you make in your entire life... :-)

[Avarice 10]

How is everyone doing here? It's been awfully quiet over the past weeks

 

Quick heads up from me, I trade OT's strategy mainly on the pool of instruments he posted on page 1 of this thread (agriculturals, currencies, debt, energy, indices and metals). I went live on August 1st and I'm happy to report that after almost 2 months of trading I'm up some 3% of base equity which I judge, considering recent market performance, to be pretty robust. Max drawdown is in the 3.5% region, also a figure I can live with without losing sleep. Since I'm still evaluating the strategy I only trade one contract per shot. That''ll change at the end of the year, once pyramiding is in place I'll be able to evaluate the strategy's true profit potential. For the moment I'm still working on how to do that, there's an awful lot of positive correlation out there at the moment.

 

Big kudos to OT for starting this thread, and a big thanks to SIUYA, Ingot, PWP, russel and all you guys that make this thread a mine of information for newbie traders. Keep them posts coming!

[SIUYA 11]

FYI - just moved countries....now in the UK, and I have had zero positions for the last 5-6 weeks.....which unfortunately means i have actually missed the EURUSD demise

 

I think Avarice, for this project, you show what you can achieve when following such a strategy and when you add the additional element of "sensible pyramiding" when it works it is easy money.....

not the 100% returns per month, but the good returns on a scalable chunk on money.

 

Once set up properly again, I aim to be following this style more regularly and moving away from day trading (not really for me at this stage), so I hope to be contributing again.

[optiontimer 10]

...It looks like a case of departing from the rules, based on other factors, and it would be instructive to hear the reasoning behind it.

 

Looking forward to your thoughts OT, with thanks,

Peter

 

Re-read that post and consider the context in which it was put together.

 

Also, I do not use this system myself as I presented it here. I myself use support/resistance, highs/lows, and volatility as measured by my eyeballs to make trade decisions. I do not think this trade represents a gross deviation from the rules o f the system outlined in this thread. However, any trade I take and share here which may look like a devistion from the rukles of the system will be the result of the limitiations inherent in using mathematically calculated indicators based an average of price measurements over a specified period of time: As SIUYA has sai, "what is the difference between a 20 ema or a 21 ema," and what is the difference between a 21 ema and a 34 ema for that matter, or a 50 SMA and a 65 EMA? I put the system together to help guide people toward considering and recognizing a long term trend, and to help them train themselves to wait for pullbacks against the trend, and to further recognize when those pullbacks may be coming to an end and the major trend is ready to continue.

 

I do not mean any of this to sound as though I am opposed to indicators. I do want to remind you, however, that there is no "secret sauce" to a particular indicator. The important thing is the general strategy, which is to trade in the direction of the major trend and against the minor trend, and to hold our positions for much larger profit multiples than the size of our losing trades.

 

-optiontimer

[bj139 10]

A quick trade update:

 

Gbp/Aud - Stopped out with +1 pip :doh:

Eur/Gbp - Stop still at .8700

 

So my Gbp/Usd was stopped out BE and probably for good reason, but my Gbp/Aud trade was also stopped out but quickly continued the trend. Maybe I should wait longer before moving to BE. Any suggestions? Ultimately I would have lost 200 pips on Gbp/Usd but may gain a lot more on Gbp/Aud. At this point I'm sticking to my plan but any ideas are greatly appreciated.

 

Regards,

 

-Peter

 

I gave up moving my stop to breakeven too quickly. I wait until the first pullback which should not make a new recent low. When it moves up near the recent high then I go to BE. I reasoned I was willing to lose the stop amount from the beginning so I wait until the traders with close stops are stopped out before moving it up.

 

Bill

[PWP 10]

Well I finally finished reading Reminiscences of a Stock Operator - Edwin Lefevre. Not as easy of a read as Kroll was.

 

My trading is measurably better than it once was. I absolutely am looking at different charts than I was four months ago. Amazing how they can change without changing at all.

It is interesting how my understanding of your initial phrasing has changed as well. It took me a while to realize that when the 21 is below the 65 you don't want to be long and you "may" want to be short - means that you can have many different options for going short. It could be the StochRSI(7) turning down from overbought OR it could be a break of a corrective channel... Pretty fun stuff. I'm sure there are many other possibilities as well.

 

I went short Aud/Usd at 106.05 but screwed up the order and inadvertantly had a 10 pip stop instead of a 170 pip stop. So In my frustration I realized that I can find another entry and I did and subsequently did very well. I also did very well with an Aud/Jpy short!

 

I'm looking forward to any future advice from OT. You've absolutely attained your goal with my trading and I thank you for that.

 

Regards - PWP

[optiontimer 10]

...My trading is measurably better than it once was. I absolutely am looking at different charts than I was four months ago. Amazing how they can change without changing at all... OT. You've absolutely attained your goal with my trading and I thank you for that.

 

Regards - PWP

 

We helped a few and we lost a few ... I wish we could have helped everyone, but one must be ready and willing both to accept help and to help him- or herself in order for any help to be effective. Not everyone is ready and willing.

 

I am happy to have been able to help you improve your trading, but don't forget to give yourself credit - after all, your contribution to your own improvements far surpass any I may have made.

 

-optiontimer

[MadMarketScientist 11]

HI,

 

How is everyone doing with this trading method? Has it held up during the last 2 weeks?

 

thx

MMS