My journal - Spread-betting 7 FX pairs

Is 10 pct a month realistic? After three years, you will have increased your money 30 times (1.1^36 - 1). What kind of drawdown are you prepared to accept for this type of return?

Please don't take this the wrong way, but an account of £5k is unlikely to prove anything other than a bit of fun.
 
awe, you can Spreadbet with Gekko markets as low as 10p/12p per point depending on the pairs. they also have some sort of cashback offer on just now. journal sounds interesting, I will be following with interest....I also think that £5k could be turned into a very sizeable amount with patience and discipline
 
Tuesday 13th April 2010

Hey gang,

Ok so my recent favourite pair of USDJPY threw up another prime shorting opportunity today as it bounces predictably off of its' resistance in it's near-term down trend. It's moved too far too fast in my opinion to enter a trade now and I feel that it's going to run into some support over the next day or two. No video necessary, as we can all talk for hours about the trades we 'would have done' or 'should have done'. Still, I'll be keeping an eye on this pair as it seems, in my opinion, to be offering some pretty well-behaved trades based on TA.

The AUDUSD finally looks like it might be doing something. The current lines I have drawn on my chart point to a long position over the next hour or two, however we're approaching the July 2008 highs so I don't think it's got a lot of room to run up but as long as it's enough for my RR then I'll consider it.

Stay tuned.
 
Is 10 pct a month realistic? After three years, you will have increased your money 30 times (1.1^36 - 1). What kind of drawdown are you prepared to accept for this type of return?

Please don't take this the wrong way, but an account of £5k is unlikely to prove anything other than a bit of fun.

Hi meanreversion,

Thanks for taking to the time to read my journal and post.

Is 10% per month realistic? I don't know really. I know that if I were a fund manager achieving that I'd be hotter than Soros/Buffet so in that respect no way is it realistic. I just plucked a figure out of the air because I'm not really sure myself yet. Only recently do I think I've really got a trading style and strategy that is worth keeping a journal for so I guess we'll have to wait and see. If I just return 1-3% per month I'll be happy. Consistent gains are more important to me at the moment.

I define drawdown as open trades in a negative position, with that in mind my answer would be 0.99999% as my stops are always set tp a loss equal to 1% of my balance. If you mean how much of my bank am I prepare to have lost in closed trades before I stop and re-evaluate my trading or quit, then I'd say about 20%.

You're right re my account size. The 5k starting pot is all I feel happy risking at the moment and although I'd say I'm fairly well disciplined, I won't kid myself into thinking I could trade a 50k bank of my own money without it affecting me emotionally.

I'm quite a risk averse person so I like to grow things organically however I'm cognisant of the restrictions of that. I'm telling myself that if I can get consistent % gains over a sustained period then moving a decimal place to the right with regards my bank roll won't change anything, other than those % gains in real terms will mean a whole lot more when it comes to spending it etc. Time will tell but for now 5k will have to do.

All the best.
 
awe, you can Spreadbet with Gekko markets as low as 10p/12p per point depending on the pairs. they also have some sort of cashback offer on just now. journal sounds interesting, I will be following with interest....I also think that £5k could be turned into a very sizeable amount with patience and discipline

Thanks for the post advfntrader and thanks for the tip, I'll go check them out now.

I'm hoping to grow the 5k over the coming months and see how it goes. I may decide to inject further funds but don't want to rush it.

All the best.
 
I think it's important to be realistic. Let's say you have a flat month, then the following month you will feel pressure to make 20 pct. Now, 20 pct in a month is some going. Or even worse, let's say you're down 10 pct, then you'll want to make 30 pct the following month.

I don't think you can target monthly returns in that way.. I think you're better off (if you're new to this) to aim to be flat after 3 months, and then up maybe 10 pct after six months.

Remember, 85 pct of retail traders lose money, so even if you're flat after SIX months, you're still ahead of most other people...
 
I think it's important to be realistic. Let's say you have a flat month, then the following month you will feel pressure to make 20 pct. Now, 20 pct in a month is some going. Or even worse, let's say you're down 10 pct, then you'll want to make 30 pct the following month.

I don't think you can target monthly returns in that way.. I think you're better off (if you're new to this) to aim to be flat after 3 months, and then up maybe 10 pct after six months.

Remember, 85 pct of retail traders lose money, so even if you're flat after SIX months, you're still ahead of most other people...

That would be true if I was actually aiming towards a target. I'm not yet. Not in monetary or % terms. My aim is to have 50% or more winning trades, a win is hopefully 2.5-3% of the account balance.

I based my first post on the 'Trading Plan' by timsk, you can download the pdf by visiting one of the sticky threads at the top of the Journals page. One of the questions was about targets so I answered it, although that Q&A is probably one that should be taken with a pinch of salt.

Thanks for the post!
 
Well certainly your system needs to have positive expectancy, so if your win/loss rate is 40/60 but your winners make 2 units vs a loss of 1 unit, then your expectancy = 0.4 x 2 - 0.6 x 1 = 0.2. Then it comes down to how many times you trade, which tells you your "expectunity" (this is a Van Tharp term).

Your win/loss ratio really isn't that important, it's the expectancy that counts, and the frequency with which you get your signals. "Trade your way to financial freedom" by Tharp is a great book, something for all levels of trader.
 
If you trade on a daily basis and are relatively frequent(note: means different things to differnt people ;) )
then there is no reason why you cant have a monthly target. If you only trade once a week the variation is likely to place havoc with your mind if you have a monthly target.

Focus on each trade, know how much you will risk and how long before you'll stop trading.. because that is all you can control. the rest will drop out the other side.

good luck and reach for the stars..its your money
 
Yes, that's true I suppose. However, most of the traders I know are a similar age to me (above 30, thus old) and can't hack high frequency (10+/day) trading. There's certainly scope to hone a scalping technique and then wear your fingers to the bone when young, to really kickstart the account.
 
There have been some major success stories from traders using mechanical trend following systems, but it requires fortitude and patience. Successful trades will typically last 2-3 months, that's the patience part. Equity swings will be large, that's the fortitude part. The advantages are 1) can trade a variety of markets 2) trade frequency is low, no need to constantly monitor rates and 3) statistical likelihood of positive expectation.

But of course it takes all sorts to make a market, and some people are very successful scalping as well.
 
Well certainly your system needs to have positive expectancy, so if your win/loss rate is 40/60 but your winners make 2 units vs a loss of 1 unit, then your expectancy = 0.4 x 2 - 0.6 x 1 = 0.2. Then it comes down to how many times you trade, which tells you your "expectunity" (this is a Van Tharp term).

Your win/loss ratio really isn't that important, it's the expectancy that counts, and the frequency with which you get your signals. "Trade your way to financial freedom" by Tharp is a great book, something for all levels of trader.

I appreciate your input, meanreversion. You're right in that you can have more losers than winners and still be profitable with the right expectancy, as the 100tosses spreadsheet I posted on here proves. However it's not as black and white as flipping a coin so I still think to aim for at least a 50/50 is important to me. If I can do even better, then great!

Thanks for the book recommendation, I'll be sure to give it a read soon.
 
Bug in Trade Calc!

I found a bug in my FITS (Trade Calc) spreadsheet! It only affects the short trade calculator part. What it does is It subtracts the max loss in pips from the stop loss rather than adding it to find the entry. In the attached version it's fixed, plus the whole thing looks a bit nicer!
 

Attachments

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awe. Expectancy is important as unless a system has a positive one it will lose money however you touch on an interesting point.
Potentially a system with 30% win rate can perform as well as a one with 80% hit rate as long as the first has much larger winners than losers and the latter can take smaller wins than loses.

Some peoples psychology prefer home runs and others prefer consistancy...

The following simulator will let you play with expectancy
http://www.hquotes.com/tradehard/simulator.html
 
awe. Expectancy is important as unless a system has a positive one it will lose money however you touch on an interesting point.
Potentially a system with 30% win rate can perform as well as a one with 80% hit rate as long as the first has much larger winners than losers and the latter can take smaller wins than loses.

Some peoples psychology prefer home runs and others prefer consistancy...

The following simulator will let you play with expectancy
http://www.hquotes.com/tradehard/simulator.html

Thanks for the link to the simulator, that'll be going straight in my favourites!
 
awe, i really like what youre doing here and will definitely be following your journal.

i work in the city in a back office (FX) but really want to trade.

i have a couple of spread bet accounts which i am intending to trade on with a pot of 1k... im currently looking at turn trade strategies using bollingers and an SMA indicator

as i am at work from 8am - 6pm i am finding it hard to put trades on as i am only able to catch the last few hours of the american market and then asia in which nothing really happens.. can you (or anyone esle reading this) tell me what kind of trading style i can use between these hours?? should i be looking at daily charts or longer term - ideally i want to day trade!!!

it also seems that trades get closed out once the spreadbet firm shuts for the day or you get penalised pip wise if rolling your position overnight - should i be looking at fx futures contracts maybe instead? can you recomend any spreadbetting companies?

hope i haven't bombared you with too many questions - any avice would be very much appreciated

good luck

Hurry
 
awe. Expectancy is important as unless a system has a positive one it will lose money however you touch on an interesting point.
Potentially a system with 30% win rate can perform as well as a one with 80% hit rate as long as the first has much larger winners than losers and the latter can take smaller wins than loses.

Some peoples psychology prefer home runs and others prefer consistancy...

The following simulator will let you play with expectancy
http://www.hquotes.com/tradehard/simulator.html

Whilst I don't disagree that expectancy is of overriding importance, I also don't think it pays to get too hung up about it. All that trading with positive expectancy means is that, over time, you're going to make money. How it happens - well, that's another story.

Another aspect you need to consider is profit to max. drawdown as a ratio. Let's say you're targeting 50 pct return in a year, what kind of drawdown are you going to tolerate to achieve that? 50 pct in a year is a bloody good return, and most mechanical systems will have a ratio of 1, i.e. you're going to get a drawdown of 50 pct if you target annual returns of 50 pct.

Stop and consider for a minute what a 50 pct drawdown will feel like. Most (if not all) people overestimate their tolerance for drawdown, and halfway into a 50 pct drawdown, will start to either change their strategy or simply abandon trading.

Discretionary trading suffers from this aspect in that it's impossible to backtest - who knows what you WOULD have done. But whether you're a discretionary or mechanical trader, drawdown is unpleasant and herein lies the value of BELIEVING your system has positive expectancy - you're going to stick with it, during the sh*t, which is what you should do.

If you're mechanical/systematic, you can backtest to know if you have +ve expectancy.

If you're discretionary, you will only know that you have +ve expectancy from trading for many years and knowing that you CAN make money.

Either way, you need to have the belief and discipline to stick with what you know SHOULD work, whilst at the same time recognising that markets occasionally go through "paradigm shifts" and the style needs to be altered.
 
awe, i really like what youre doing here and will definitely be following your journal.

i work in the city in a back office (FX) but really want to trade.

i have a couple of spread bet accounts which i am intending to trade on with a pot of 1k... im currently looking at turn trade strategies using bollingers and an SMA indicator

as i am at work from 8am - 6pm i am finding it hard to put trades on as i am only able to catch the last few hours of the american market and then asia in which nothing really happens.. can you (or anyone esle reading this) tell me what kind of trading style i can use between these hours?? should i be looking at daily charts or longer term - ideally i want to day trade!!!

it also seems that trades get closed out once the spreadbet firm shuts for the day or you get penalised pip wise if rolling your position overnight - should i be looking at fx futures contracts maybe instead? can you recomend any spreadbetting companies?

hope i haven't bombared you with too many questions - any avice would be very much appreciated

good luck

Hurry

Hey there, HURRY!

Welcome to the forum and thanks for posting!

I think because fo your time constraints that intra-day trading isn't going to be an option. In your position I would trade on an end-of-day (EOD) basis (this is contentious when talking about FX as it's 24hr but I'd use the London trading hours as the 'day') and trade on nothing shorter than a daily chart, taking all my set-ups, entry and exit points from that chart. Your trades are likely to last days so don't expect this to be nail-bitingly exciting. This can still be a very profitable way to trade although as the moves are bigger and slower (usually) and your starting bank is 1k you will probably need to be trading penny lot sizes to ensure your stops aren't too tight.

The penalisation you talk about is known as 'swap' and is a charge for rolling your position over to the next day. Again a 'day' varies form broker to broker but with IG it used to be 8PM-8PM UK time. This is pennies and shouldn't amount to a significant amount of your profit/loss on trades so ignore it. Stick to spread-betting for the tax-free'ness (as is the case currently in the UK) and for the leverage. My current recommendation for a spread-betting company is IG Index although someone did recommend a firm called Gekko in an earlier post on this thread which I'm yet to check-out.

Good luck, HURRY!
 
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