My journal - Spread-betting 7 FX pairs

[Sang Froid]

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. 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.

Really? I'm not sure if I'm doing something very very wrong then. I must be over-leveraging my account, or maybe risking far too much per trade. I thought 50% per year is a tiny return. The strategy that I'm taking live next week that I've been testing for a while now yeilds returns of around 24% per month. Maybe this is just a lucky streak then perhaps

 

[LiamH]

Really? I'm not sure if I'm doing something very very wrong then. I must be over-leveraging my account, or maybe risking far too much per trade. I thought 50% per year is a tiny return. The strategy that I'm taking live next week that I've been testing for a while now yeilds returns of around 24% per month. Maybe this is just a lucky streak then perhaps

I was thinking this as well. I mean I don't have any results to prove high returns are possible but surely a profitable strategy with a bit of leverage can easily cover 50% per year?

 

[awe]

I was thinking this as well. I mean I don't have any results to prove high returns are possible but surely a profitable strategy with a bit of leverage can easily cover 50% per year?

I think that's the lure for many. I disagree with it totally although at first it was that same lure that pulled me in years ago.

I would guess that if you are pulling in 25% returns in a month that you are highly leveraged and your account wouldn't suffer a losing streak very well. Just be careful. There are plenty of experienced people on here happy to give you their opinion if you post up your trading details etc.

 

[meanreversion]

Really? I'm not sure if I'm doing something very very wrong then. I must be over-leveraging my account, or maybe risking far too much per trade. I thought 50% per year is a tiny return. The strategy that I'm taking live next week that I've been testing for a while now yeilds returns of around 24% per month. Maybe this is just a lucky streak then perhaps

First of all, remember that 85 pct of retail traders lose money. Thus, if you simply breakeven, you are in the top 15th percentile.

Secondly, compare your returns to other types of investment, e.g. stockmarket, bonds, bank accounts, hedge funds, and you will see that anything north of 20 pct is considered good.

Third, just do a little arithmetic to see where 24 pct a month will get you. If you start with £10,000, after three years you will have £23mio (1.24^36 * 10,000). Does this sound realistic?

A better way to look at this, rather than just focusing on an expected monthly return, is your expected return divided by likely drawdown. So if you're trying to make 100 pct a year, what kind of drawdown do you think you'll encounter along the way? (With a mechanical system you can backtest to get the answer, but with a discretionary system you have no idea..)

For those kind of returns, you'll probably get a 50-60 pct drawdown at some stage.. people invariably overestimate their capacity for drawdown (above 20 pct it starts to get uncomfortable).

I think it helps to be realistic in a trading endeavour, much the same as it would for any start up business.

 

[LiamH]

I think that's the lure for many. I disagree with it totally although at first it was that same lure that pulled me in years ago.

I would guess that if you are pulling in 25% returns in a month that you are highly leveraged and your account wouldn't suffer a losing streak very well. Just be careful. There are plenty of experienced people on here happy to give you their opinion if you post up your trading details etc.

awe, I don't want to derail your journal because it's a nice read. There are some things I'd like to ask though - To you and meanreversion...

I'm well aware of variance both positive and negative when you are aiming for a certain mathematical expectancy and I understand the implications of a drawdown very well from my 20 table poker exploits - I was a profitable player at the lower limits but even with a massive edge 10-15 game downswings were common due to nothing more than mathematical variance.

Meanreversion mentions that a 20% per annum gain is highly respectable and I agree provided that the account is either unleveraged or only leveraged to a maximum of 2x.

In the real forex trading world I personally would be using at least 100x leverage because this fits with my 3% risk per trade with 20% of my account for margain. Of course, the leverage would differ slightly from trade to trade being governed by the size of my stop loss.

So, surely, if my strategy has an expectancy of 5% gains per year without leverage then with 100x leverage this would be 500% per year?

 

[LiamH]

To maybe put it another way as well...

Lets say a strategy gives 5 trades per week and over a 2 week period you break even over 9 trades and get a 4:1 R\R ratio on the other. You risk 3% per trade meaning over those 2 weeks you've just made 12% on your capital.

Compound that 12% over a year and surely that equates to a healthy percentage gain?

Or is this kind of strategy unrealistic?

 

[meanreversion]

Leverage is a double edged sword. If you use leverage of 100:1 on your account and the market moves 1 pct away from you, you've lost everything.

Read "When Genius Failed", excellent book about LTCM. I think at one point their leverage was up to 100:1 and sure enough they blew up.

I wouldn't recommend using more than 5:1. I think there is the danger here of focusing purely on unearned profits, and losing sight of the potential drawdown.

Remember, 85 pct of retail traders do NOT make money, so even if you break even, you're doing pretty well. Start off small and increase size when the equity grows through profits.

 

[meanreversion]

To maybe put it another way as well...

Lets say a strategy gives 5 trades per week and over a 2 week period you break even over 9 trades and get a 4:1 R\R ratio on the other. You risk 3% per trade meaning over those 2 weeks you've just made 12% on your capital.

Compound that 12% over a year and surely that equates to a healthy percentage gain?

Or is this kind of strategy unrealistic?

Hmmm, this is putting the cart before the horse.

Firstly, what is this strategy? You need to design it or work it out.

Second, there is nothing wrong with your arithmetic, BUT how often is this likely to occur?

Try approaching it from a different angle. Start with the premise that most people lose money at trading (which they do). Therefore making money from trading is not straightforward. Thus, what is your edge? When you put your money at risk in the markets, you are competing with thousands of other traders. What enables you to take money from them? For some people, edge is statistical, e.g. they have designed mechanical systems which make money over time. For others it's speed of reaction, or just a knack for it, which comes from experience. You need to work out your edge before putting money at risk.

 

[LiamH]

Thanks for your replies meanreversion, I'll not discuss my plans here but you have made me think of things a little differently.

awe, sorry for interrupting your journal.

 

[meanreversion]

Please get a copy of "Trade your way to Financial Freedom" by Van Tharp. I recommended it to awe as well, I hope he liked it!

 

[awe]

Some good points there, meanreversion.

I can recommend the book meanreversion mentions, even though I've not yet completed reading it, I can tell it's a book worth reading and recommending.

LiamH, I go for a 3:1 R/R on my trades and no leverage. I don't often get the full 3% but I do make more than I lose and my strike rate is around 50% at the moment. I think I'm being realistic about things. I only risk 1% per trade.

My system isn't entirely mechanical, I will intervene if I see things have developed a certain way which means there is a high probability of x happening. What is cast iron is my risk %. That stop never gets moved further out.

I plan to compound my earnings for now and if I show consistent profit over a sustained period i.e. 2 years, then I'll hopefully feel confident increasing my account balance ten-fold with my own funds. I'll just need to try and treat the account as I do now but with the decimal place moved one spot to the right.

 

[megamuel]

You still trading awe? How's it going?

Sam.

 

[awe]

Hey there Sam, thanks for remembering me and dropping by.

In reverse order; It's going good thanks and no, I'm not currently trading.

I think I alluded to having other priorities in previous posts and it's those priorities that have caused me to pause my trading, which although frustrating, is the right thing to do for now.

Whilst trading I had to be strict with my time as, although [fortunately] it was going well, it still only represented a meagre fraction of my total income so the time I was starting to devote to it was disproportionate and I can't afford for my other interests to suffer.

That coupled with the imminent (barring anything unforeseen) launch of another venture means my sebatical from trading is, as of now, of an undefined length.

I do plan to resurrect this thread in the future.

Thanks for dropping in and good luck with all that you're doing!

 

[megamuel]

No problem, it was looking to be a good thread so its a shame that other priorities got in the way but it will be good if you start it again one day. I remember you telling me about your other business interests, you certainly seem to have a lot on your plate! May I ask how you got into property? I would love to get into it but I have very little money so its a big no no at the moment!

Sam.

 

[awe]

Blimey. Nearly a year to the day that I last posted here.

 

[Doomberg]

Blimey. Nearly a year to the day that I last posted here.

How has the year gone? Anything exciting to report ha

 

[awe]

Well - I finally returned to trading in August 2018, so just a short break

I've been active in other parts of the forum again since about Spring last year and had forgotten about this journal until spotting some of my old trading videos on my old YouTube account which I've also resurrected (the account, not the videos).

I have solely been day trading US stocks (and CFD's of the stocks where available because no uptick rule as I like to go long and short).

I've not been doing very well since then. I've traded most trading days but am struggling with some common problems, namely: over-trading, revenge trading, FOMO and not cutting failed trades quickly enough.

I've started a free chat room with a couple of other traders from this forum that also trade US stocks and in a similar way to me, please feel free to join https://discord.gg/vWkYxdG

And I also post trading recap videos after I've finished trading for the day, as a way of forcing me to analyse trades and also provide a future reference/benchmark. If you would like to see them please visit https://www.youtube.com/user/almurray2000

I won't be resurrecting this journal however as this was for tracking my Forex trading which I don't currently do.

 

[FXX]

what happened to your FX adventure?

 

[awe]

what happened to your FX adventure?

It stopped mid-2010 when I stopped this journal and I hadn't traded anything until deciding to start again last year. It may well be something I go back to as it wasn't going bad but I never got to the stage of feeling confident enough to increase my lot size and let a trade play out over hours as it was swing trading.

When coming back sort of fresh last year I wanted to trade shorter time frames for the reasons above. I also thought having volume, level 1 and level 2 data would be useful so I decided to trade US equities as it leaves the bulk of my working day free, although the same may be true for UK/European markets if I traded the first hour or so from the open but I want to focus and hopefully achieve consistency before adding anything else back in.

 

[FXX]

It stopped mid-2010 when I stopped this journal and I hadn't traded anything until deciding to start again last year. It may well be something I go back to as it wasn't going bad but I never got to the stage of feeling confident enough to increase my lot size and let a trade play out over hours as it was swing trading.

When coming back sort of fresh last year I wanted to trade shorter time frames for the reasons above. I also thought having volume, level 1 and level 2 data would be useful so I decided to trade US equities as it leaves the bulk of my working day free, although the same may be true for UK/European markets if I traded the first hour or so from the open but I want to focus and hopefully achieve consistency before adding anything else back in.

I trade fx but don't swing trade and don't utilize technicals. I hold down a full-time job but manage to make aprox 10% monthly. I am able to achieve a good balance between work and trading because i know exactly when i will be trading instead of waiting and watching for a trade to come my way. I do that through the economic calendar and trade news flow and it works extremely well for someone that has limited time during the day. Just thought i would let you know that there are ways to profit in FX without needing the time commitment you originally spent.