A year has gone by - some things to ponder. :)

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xtremeforex
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A year has gone by - some things to ponder. :)

Postby xtremeforex » Sat Jul 12, 2014 1:48 am

Hello everybody,

It has been just over a year since I last posted here. I have been busy trading and recently made a move to another country.

I have been profitable since, although there is room for some improvement.

Over this last year of thinking, experimenting and trading, there are a few things I want to confirm and other thoughts.

Still Confirmed:

- Risk management is very crucial. Proper capitalization and trade-size selection is very important. Most people in the 95% camp are using trade sizes far too large for their balance. Their expectations/greed are too high. To make a full time living off of Forex, assuming you have a good strategy, you need a balance much higher than you expect (i.e. upwards of $100,000), to use the proper trade sizes, to make a return - safely - that would meet expectations of a salary at a job/cover living expenses.

This may sound discouraging, but don't let this stop you, this is a reality check of expectations. Too many people expect to quit their jobs with a $5,000 trading balance.

You must use the right trade-sizes for the amount of capitalization you have. You can -not- exceed or short-cut this and expect to win. If you have a smaller account balance, you must learn to become content with smaller absolute returns, reinvest it, and work your way up.

It might be hard to stay motivated to earn $10/day, or a couple of pennies on a trade but THIS IS WHAT IS REQUIRED if you have a small starting balance.

In the end, what is more important is your % return - not your absolute returns. If somebody has a $10,000 balance (where I started), a 100% return is another 10,000. This may not be anywhere close to what is required for you to sustain living expenses. However a 100% return is an excellent return, don't let greed & impatience cloud your vision. There is virtually no physical business in the world that makes a return like this. Re-invest that and continue, if you maintain 100% return next year, you will now make 20,000 and now you're at 40,000. With patience (time) you will get to this point. Trying to short-cut this very important -time- step is what is going to kill you. 95% of the losers are most likely to have in common - impatience.

It -is- possible to get a much larger return than 100% but at greater risk to your capital. There are people trying to make 100% return per day - 95% of losers are most likely to have in common - being dangerously over-leveraged and most importantly being -unaware- that they are.

The harder you try to milk this cow, the more likely it will kick you.

If you expect to use Forex as a way to make a pleasant stress free living, with consistent returns, then you must be realistic with your levels of risk and trade sizes.

Greed will cause you to pick a trade size too large for your account because you are trying to find a short-cut to reduce time for your account grow to where you want it to be.

Most people in the 95% can not control their psychology because they are using funds they can't risk to lose. Therefore you are prone to make errors when you are scared, deviate from your strategy, etc. This psychological factor is easily mitigated when the funds you risk is money you can be willing to lose. Whilst it is always hard to lose any kind of money, there is an exceptional difference between your last $10,000 and $10,000 that can come from another generating source.

You require a "capital reproduction mechanism" in place in the event capital is lost. Whatever that may be. I.e. Investments, Business, Job etc.

A job is the most accessible method. For those that may be unemployed (I have been there), consider getting a job (any job) to develop this source of replaceable trading capital to mitigate risk. When you get where you want to be in trading, you will quit. You are in a much better position to trade with an existing stream of revenue/income, than without - psychologically.


Other:

Robots are not smarter than humans. I am an expert-level robotics engineer, but there is a level of discretion required that makes it incredibly difficult to code into a robot or for a robot to see.

A fully-automated approach in my experience is incredibly difficult to implement if not impossible. Discretion plays a massive part of intelligent trading and changing the rules IS required. Those that say stick to the plan and never change should just look at a bot that is programmed with explicit rules. It always fails in the end. Changing the rules is incredibly vital and in fact an entire area of Optimization is all about changing the parameters of the rules - which in effect is changing the rules. If your robot can not change its' own parameters - it will fail in the end. This is why the majority of robots only work for a certain period and fail in the end, they are not self-adapting.

But even if you have or design a robot that is self-adapting there are still areas in trading in which a robot still can not handle - where your discretion and intervention is still required for success in the end. This too, also is difficult to back-test. So be careful on how much you depend on back-testing.

My system is semi-automatic, with a robot assisting me where I may intervene with discretion. There are many situations where human intervention is required for unpredictable events, such as news, black swans and market regime change. These are incredibly difficult for a robot to optimize as they behave like large random variables.

I have developed back-windows that continuously optimize the parameters for my system on a continuous basis based on a specific moving window of past history - but what I found is nobody is better than optimizing the parameters than myself. Major outliers such as news, black-swans and market regime changes in a small-test window could formidably skew the self-adapting optimized parameters. Discretion here becomes required, even in an artificially intelligent optimization process.

My system still requires my monitoring, even if only on a smartphone, or a another trained human monitor, who may intervene for very simple/basic tasks - but nonetheless monitoring is required in case of intervention.

The main-task of the robot is to take profit, minimize risk and implement risk management strategies without directly placing pending orders, stop-loss or take profit orders. The risk/profit management system is intricate/dynamic that can not be easily implemented by the use of pending orders. The robot does the necessary calculations and executes market orders.

More on this and other stuff later. I have to run.

Glad to be back. :)

xtremeforex

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Postby JogieFX » Tue Jul 15, 2014 1:44 pm

Hi X

nice to see you back posting again..

what would you say is a obtainable %return on capital per year that someone can achieve with a normal risk to his capital?

xtremeforex
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Postby xtremeforex » Tue Jul 15, 2014 5:27 pm

In my experience, the following criteria should be met:

Trade sizes should be selected such that if:

1. You can sleep at night, let trades run overnight, without a stop-loss even if they are against you.

This trade-size will usually be a lot smaller than people expect, when given this condition. Many beginners can't handle a trade going 10 pips in the other direction, some are wiped out in 50 pips without SL.

If you can manage this, you have completed a critical step.

If you're in constant worry or panic, the trade size is too large your balance.

When they say professional traders are in control of their emotions, that is because they risk amounts that makes control easy. If they were to risk disproportionate amounts, they will have control problems.

Put a demo or live trade on and leave it alone/go to sleep. If it's position worries you, it is too high.

As for returns:

If you manage risk properly, you may still achieve a return of 100% per year, (without compounding).

A 100% return/year is an excellent return, don't be fooled.

$5000 turning into $10000 after one year may not be motivating and some people may think this is a fail and waste of time.

However,

$100,000 becomes $200,000 - may be motivating and not such a waste of time.

So don't confuse what motivates you with what is actually a good return.

You can earn more than 100% definitely and I have, but in my opinion, once you exceed this threshold, you start running into risk territory that may not be worth it.

In a live-setting, I have found that in all cases, the level of risk was more than I thought I could tolerate. In accurate back-testing, the chances of blowing up and large draw-downs increased significantly. In a live setting, large draw-downs would wreak very real psychological havoc. In demo-trading, people are easily content with draw-downs as large as 30%. In a live-setting, a draw-down of even 3% can create panic.

You must trade with the knowledge that the market will go anyway it wants and does NOT have to obey any rules or your expectations.

Once you really understand this, you will begin to see why intelligent risk management is more superior to entries/exits and even selecting a direction.

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Postby dojirock » Tue Jul 15, 2014 5:46 pm

Hi Extreme,

Just my take on your view. I have an account under 10k. I started with less than $200 about 18 months ago. Im a scalper swing trader. You dont need a big acocunt to make a living off forex. Its about money management, The PSYCHOLOGICAL side is the move important and the hardest to overcome. I didnt trade well until I had accountability. I used to post my annual return early last year as my avatar. I stopped when I reached 5000 percent. My goal is 20-30 pips per session, minimum of one session per 24 hour period. Sometimes I trade all three sessions, other times I dont. I trade from $1 to $12 per lot depending on my mood. The key is to have a goal and DONT OVERTRADE. Hit your goal and walk a way....it reduces frustration, builds confidence,reduces stress, improves your ability to just relax and wait for setups. At 20 pips a day $5 bucks a pip is $100. Thats 2k a month. While I havent left my job yet, I will be within the year. Having a job, 50 hours a week prohibits my trading to be the best it can be, that is it...nothing else effects my trading ability except for lack of sleep. I used to think I had to wait till my account was 100k to quit. Not true. If its going to be your profession as it is in my case, 10k to 20 k is plenty. I guess my point is its much more weighted about discipline, and the psychological side off it in my opinion.
As far as bots go, I have not found the grail bot yet. They all fail over time. I do still spend time on them with some new ideas that are working out well, but only after im up 5 percent in a week. If im not up 5 percent in a given week, the bots sit there. They are a distraciton. Other methods are a distraction, skyping while trading is a distraction. Trading requires, concentration and demands full attention, to really excel.

Just my take, for me, once the confidence level is there, the lot size doesnt matter nearly as much to me anymore. I still post charts as to keep my mind sharp and to help others. Again having some accountability helps me.

Good to see you and adseb back....

doji
"A small loss is just as satisfying as a large gain" -MO
"Sometimes we need to stop learning and start thinking...."
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xtremeforex
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Postby xtremeforex » Wed Jul 16, 2014 8:34 pm

Hi Doji,

Good to hear from you.

I am not suggesting it is absolutely mandatory to have 100K, but instead emphasizing the importance of adequate account capitalization and how risk tolerance in real-trading will decrease with size of the account. $200 to $10,000 is fantastic, but I am sure the way you were trading from my perspective would have been risky, although I'm sure from your perspective is fine.

I think the difference is, when you get to 100K, you may start reevaluating the strategy when you have a lot more to lose. Losing $200 or $5000 or $10,000 from a strategy is different than losing $100,000 or $1,000,000. At a certain level of capitalization, the freedom to take risks will become limited. On a $200 account, it would be easy to handle a draw-down of 30%. However on a $100,000 account or $1,000,000 account, a draw-down of that size is equivalent value of car or a house respectively.

I think as you continue to succeed as you are and your account grows bigger, you will find yourself holding back executing the same strategies that you would have on a smaller account.

This part of my update since I returned, if you read older posts of mine, I was also in the camp of people who would go for well beyond 100%, however when my account grew I found those same strategies difficult to maintain, although successful in their own right, but not ideal for the size of the portfolio as it became bigger. In terms of strategy, I did not modify it, but instead reduced the amount I would risk by a factor.

The epiphany occurred to me when I got to around the 50,000 mark from 10,000 and I realized, a 100% return with an incredibly lower risk will put me safely at 100,000 and it did - last year. Now I am up from that, and I am not complaining. 100% return is more than enough after a certain point. Going beyond that you are also likely going to face more problems than just risk, but also liquidity. Look at it this way, if you have $100,000 and made a 5,000% return - how much that would be in 18 -months, is that realistically possible? Bill Gates would be better off, taking his army of programmers/engineers etc and building a trading bot than working on selling Microsoft software.

In hindsight, when I look at the journey from 10,000 to 50,000 and ask myself what would I have changed. I would say that, I would go back, using the same strategy but risk less and let use more time to get to the 50,000, and I would have had much better sleep then. The journey from 10,000 to 50,000 was a difficult one. 50,000 to 100,000 was trivial.

With my crazy risk, I achieved 10,000 to 50,000 in one year.

If I stuck with 100% return annually from 10,000 to 50,000. It would have only taken 2.32 years to reach to that point, but with much less pain. A difference of 1.32 years. I actually believe in hindsight, 1.32 years extra would have been worth it - but I'm not complaining.

I commend people that are having success with strategies that are yielding well above 100%, I know I have been there. But I hope you will see that, you might want to bring this down a notch later after you have achieved adequate capitalization where a lower ROI is still significant in terms of absolute returns.

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xtremeforex
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Postby xtremeforex » Wed Jul 16, 2014 9:52 pm

(Not directed to Doji, but in general)

Set-ups don't matter - as much as you think.

Price does not have to obey any preconceived rule or expectation.

A set-up implies -speculation-/confidence of a direction the trade will go.

Don't speculate (guess). Assume that you can NEVER KNOW, it is better for you.

Instead, focus on what you will do when it does go in your favour and when it doesn't. That's it.

Then, consider "logical" entries. You lose nothing by entering logically. That is the ONLY reason why you should enter logically. Not because you will gain from it, but because you shouldn't lose from it either.

(It is a very abstract concept, if you don't understand this, look for the thread where I discuss about flipping coins/mean reversion, where if you had a series of H H H H H H H why it would be better to guess TAILS even though, the chance is still 50/50.)

Eventually, you will see why exit is more important. Whether it be an exit with profit or exit with loss.

Don't make strategies centered around ENTRIES. So many people, forums etc are preoccupied with entries!

Very few people focus on how to exit, or how to take a (calculated) loss.

You don't see many people posting charts, comparing notes or congratulating each other or bragging about how they took a loss.

Only profit.

If more people focused on where they got screwed and how they recovered from the problem, or how they accepted the problem, they will gain more from this, than learning about entries.

(People don't, because people don't like to show/admit failure or mistakes, common amongst the 95% herd.)

Mastering the EXIT is more important than mastering the ENTRY.

Being in the 5% means, doing opposite of what the 95% are doing.

Think about it.

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Postby aliassmith » Thu Jul 17, 2014 3:01 pm

there are too many variables to say one way is better than another.
as long as the method is profitable its hard to compare because
everyone has different goals.

can u make a living on a 10k account, sure can. but then u need
50% or more per month.

its just easier and less time consuming to do it with 100k to make
the same $5k or more per month and thats not really much cash
after taxes anyway.

to many people are more concerned about finding the best method
when they need to find the best method for their own needs and be
realistic.
Trade Your Way as Long as It Makes Money!

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dojirock
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Postby dojirock » Thu Jul 17, 2014 4:43 pm

Nice post guys. :smt041
"A small loss is just as satisfying as a large gain" -MO

"Sometimes we need to stop learning and start thinking...."

"Once you stack, you'll never go back!"

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Postby dchappy » Mon Aug 11, 2014 8:06 am

aliassmith wrote:there are too many variables to say one way is better than another.
as long as the method is profitable its hard to compare because
everyone has different goals.

can u make a living on a 10k account, sure can. but then u need
50% or more per month.

its just easier and less time consuming to do it with 100k to make
the same $5k or more per month and thats not really much cash
after taxes anyway.

to many people are more concerned about finding the best method
when they need to find the best method for their own needs and be
realistic.


:smt023 How True

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Postby webcom » Sat Oct 04, 2014 5:34 pm

Hello xtremeforex,

Nice your`re back from time to time.What happened to your BMW after moving abroad?

Your success story is impressive but obviously not so easy to achieve as it seemed in the "tone of bricks" thread.

Personally I think that Forex trading is only done by institutional traders at 1:1 rate meaning no such thing as "leverage".Nobody could undoubtedly convince me that retail Forex for the masses even exists beyond all elaborated facades.

In my opinion ALL "brokers" are running fake virtual trading.No retail "trader" is, was or will be in the position to win. No order goes to the market.NDD is a fairy tale .The 95-97% losers and only 3-5% winners legend is the best ever marketing trick absolving the sharks of their malevolent deeds.

Now,I tend to be convinced by your succés and thus I tend to belive that you made the impossible possible: you found a honest and "play by the rules" Forex Broker.My question is wich broker(s) you can recommend?

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