Hoggums
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There's been a number of threads recently about people giving up/struggling so I though I would post all of my dumb ideas I had in the early days on how to make money - purely for entertainment purposes, but if someone can learn from them all the better.
One thing that is common to every strategy was that the losses were unlimited.
Dumb idea 1 - statistical analysis.
I figured that the market behaved in predictable ways, and if event A happens in Japan and event A happens again in UK then event A would happen in the US. So I built this huge spreadsheet looking at whether a market had moved up/down morning/afternoon, stayed in a range etc and went over historical data and worked out the probabilities of the next event. E.g. Dow falls in the pm, Nikkei down overnight - therefore high probability that FTSE will fall.
I'd put the info in the spreadsheet and if the probability of the event was > 60% I'd put a trade on. NO STOP, with the plan to close the trade at the end of the trading session.
Predictably a disaster after an OK start.
Dumb idea 2 - Trading using indicators
This was my worst foray into trading, I built a computer program which would go through a range of indicators and tweak all the parameters until they gave the best results possible over the past 2 years EOD data. I would then take the best indicators and weight them according to their success to give an overall buy/sell indicator which I would trade. And to keep up with changing market conditions I would re-run this optimisation every month.
Of course backtesting made me a multi-millionaire because I was so over optimised. So I traded the signals - no stops because they were continuous signals either buy or sell.
I couldn't have started this at a worse time either - late October 2005 when a bull run until May took the markets. By Xmas I had tripled my account (effectively with one trade) and thought this was the business so I piled more money in and traded a few more instruments. By April I'd made thousands. Then the crash happened and my lagging indicators kept saying BUY and I lost the lot in a week.
I closed the system down when I'd reduced my original capital by 30%. I was lucky!
Battered and bruised I then decided to look at why it had failed - and ran a backtest on unseen data - and it was a disaster. Every time it lost the whole account and it didn't matter how I tweaked the optimisation or whether I optimised or not.
Dumb idea 3 - Ladders
Having tried to "guess" the market direction with discretionary trades I decided to stop trading and try a new strat where it didn't matter too much whether the market went up/down. I traded this on demo only (thank god!).
I was to trade the FTSE and knowing that the FTSE always goes up over time I would place a BUY order on every 100 point mark up/down with a 100 point take profits order - and NO STOP. Every time a take profits was triggered the order would be put back on. The idea is that as long as the market moves I'd be making profit never realising a loss.
I figured all I needed was enough capital to withstand a 2000 point fall in the FTSE and I'd be fine - which worked out at 22K for £1 per point bets.
Fortunately after being heavily negative for a few weeks on demo I came to my senses and abandoned it.
It would have surely gone bust this year.
Dumb idea 4 - selling naked options
This was a strategy I had to trade live as no demo system did options. Fortunately I didn't commit a lot of capital to it.
It was as simple as can be - sell deep out of the money options in the hope that they never go in the money. I would do this regularly at set intervals.
Fell apart when there was a big currency and index move and my options went into the money and I had to sell for huge losses.
Dumb idea 5 - trading both ways and averaging out losses
At this stage I still hadn't accepted the idea that I needed to have any skill at predicting the market direction instead I could make money provided the market moved and came up with my dumbest system of all.
I would trade both ways and when one side went a certain amount into profit I would take the profit and re-enter the position and I would enter a second position on the other side. I would then cancel out the two trades on the losing side if one of them came into profit (realising a small profit at that time) and enter a single position there. Repeat on both sides ad-infinitum. It worked because as the market trended lower your overall position became more long and as it rose it became more short.
The system worked well until I ran out of margin after another big market move. I managed to treble my realised profits - unfortunately my unrealised losses were always heavy and I was actually only in (real) profit for about 3 weeks.
Had I had enough capital and margin I could have kept this system going indefinitely to a profitable conclusion. But the notion of realised profits in this system was a complete myth - there was no exit point to the system.
If I think of any other dumb ideas I'll let you know.
One thing that is common to every strategy was that the losses were unlimited.
Dumb idea 1 - statistical analysis.
I figured that the market behaved in predictable ways, and if event A happens in Japan and event A happens again in UK then event A would happen in the US. So I built this huge spreadsheet looking at whether a market had moved up/down morning/afternoon, stayed in a range etc and went over historical data and worked out the probabilities of the next event. E.g. Dow falls in the pm, Nikkei down overnight - therefore high probability that FTSE will fall.
I'd put the info in the spreadsheet and if the probability of the event was > 60% I'd put a trade on. NO STOP, with the plan to close the trade at the end of the trading session.
Predictably a disaster after an OK start.
Dumb idea 2 - Trading using indicators
This was my worst foray into trading, I built a computer program which would go through a range of indicators and tweak all the parameters until they gave the best results possible over the past 2 years EOD data. I would then take the best indicators and weight them according to their success to give an overall buy/sell indicator which I would trade. And to keep up with changing market conditions I would re-run this optimisation every month.
Of course backtesting made me a multi-millionaire because I was so over optimised. So I traded the signals - no stops because they were continuous signals either buy or sell.
I couldn't have started this at a worse time either - late October 2005 when a bull run until May took the markets. By Xmas I had tripled my account (effectively with one trade) and thought this was the business so I piled more money in and traded a few more instruments. By April I'd made thousands. Then the crash happened and my lagging indicators kept saying BUY and I lost the lot in a week.
I closed the system down when I'd reduced my original capital by 30%. I was lucky!
Battered and bruised I then decided to look at why it had failed - and ran a backtest on unseen data - and it was a disaster. Every time it lost the whole account and it didn't matter how I tweaked the optimisation or whether I optimised or not.
Dumb idea 3 - Ladders
Having tried to "guess" the market direction with discretionary trades I decided to stop trading and try a new strat where it didn't matter too much whether the market went up/down. I traded this on demo only (thank god!).
I was to trade the FTSE and knowing that the FTSE always goes up over time I would place a BUY order on every 100 point mark up/down with a 100 point take profits order - and NO STOP. Every time a take profits was triggered the order would be put back on. The idea is that as long as the market moves I'd be making profit never realising a loss.
I figured all I needed was enough capital to withstand a 2000 point fall in the FTSE and I'd be fine - which worked out at 22K for £1 per point bets.
Fortunately after being heavily negative for a few weeks on demo I came to my senses and abandoned it.
It would have surely gone bust this year.
Dumb idea 4 - selling naked options
This was a strategy I had to trade live as no demo system did options. Fortunately I didn't commit a lot of capital to it.
It was as simple as can be - sell deep out of the money options in the hope that they never go in the money. I would do this regularly at set intervals.
Fell apart when there was a big currency and index move and my options went into the money and I had to sell for huge losses.
Dumb idea 5 - trading both ways and averaging out losses
At this stage I still hadn't accepted the idea that I needed to have any skill at predicting the market direction instead I could make money provided the market moved and came up with my dumbest system of all.
I would trade both ways and when one side went a certain amount into profit I would take the profit and re-enter the position and I would enter a second position on the other side. I would then cancel out the two trades on the losing side if one of them came into profit (realising a small profit at that time) and enter a single position there. Repeat on both sides ad-infinitum. It worked because as the market trended lower your overall position became more long and as it rose it became more short.
The system worked well until I ran out of margin after another big market move. I managed to treble my realised profits - unfortunately my unrealised losses were always heavy and I was actually only in (real) profit for about 3 weeks.
Had I had enough capital and margin I could have kept this system going indefinitely to a profitable conclusion. But the notion of realised profits in this system was a complete myth - there was no exit point to the system.
If I think of any other dumb ideas I'll let you know.
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