The HOLY grail involves..

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xtremeforex
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The HOLY grail involves..

Postby xtremeforex » Thu Dec 27, 2012 12:37 am

I've posted here a long time ago about my success in a thread under the title "IT HAS HIT ME LIKE A TON OF BRICKS."

I'm back to update everybody in my progress since I've been absent.

Since then, I've developed an automated system that is profitable and trading with Dukascopy JForex and Oanda API. My returns are significant and I'm trading in excess of $100,000 in live capital. Started with $10,000 when I first came here. I can comfortably say that my lifestyle has changed drastically for the good.

I hope to encourage others on here that your research will pay off and don't give up or fall into the belief that it is impossible. I've been there before. It IS possible. You may at times feel like your efforts might be insanity but they are not. Others around you may even think that you are crazy. But you're not. You have belief for a reason and trust me, it is a good reason that will pay off more than you will ever expect. That is your SACRIFICE. When you have figured it out, you will return to the world like roaring thunder. Rewards like this are NOT meant to come easy, that is why you can't give up. Remember, you are trying to essentially build a money-making machine, do you think that is meant to be easy? The winners (and they do exist) have all been through this process, consider it as part of your initiation, paying your dues to join the club and understanding how to respect the journey and yourself after you start winning, because your efforts will remind you always that it wasn't luck, but your hard-work and strategy.

In my observations, these are the following things you should consider when trading.

- You can not predict direction. Any strategy that relies on predictive techniques will fail. Time-frames mean nothing for prediction and there is no such thing as trend. The only true thing that exists in a time-frame is the range of oscillation that remains relatively constant over the long-run. The range and where price is located in range will only give you information on how to adjust take-profits, trailing stops accordingly and how to vary the frequency of your trading. Stop-losses should NEVER be used (keep reading..)

- Good systems can trade LONG when the market is bear. And trade SHORT when the market is BULL. (Of course here, I'm making the foolish assumption that a trend exists.) Good systems don't rely on direction. They rely on profit-taking and cutting losses (after profit has been taken).

- Try to look at your trading from a holistic point of view. Don't monitor individual trades - but instead - monitor your whole portfolio as a whole. Combine your losers with your winners and look at the NET result. Cut losses on a whole, take profits on a whole. Think Macro not Micro. Be a General not a Soldier.

- Money Management and Risk Management is EVERYTHING. Knowing how to take profit and taking loss is important. However, don't use stop-losses for this! There are OTHER ways. Stop-loss is a sure way to LOSE. Losing properly should never be a static/fixed loss, i.e. same size every time, but instead should be of a dynamic size. Profit or Loss on EACH trade should NEVER be of fixed size. However, profit/loss on the WHOLE account COULD be of fixed size.

- Trade frequently. Infrequent trading strategies will never give you a large enough sample to determine it's effectiveness over the long-term. Good strategies are not afraid of the market. Consistency in a frequent strategy holds more weight than consistency in an infrequent strategy.

- Stop-Loss is NOT required and should not be used. Instead you should use other forms of loss calculation to close out losing trades - this should be automated. Stop-Loss should only be used as a simulated margin-call for benchmarking/testing to develop strategies that reduce draw-down. Stop-loss is not your friend. The truth of the market is that it oscillates it doesn't trend. Over infinite time, it behaves like a Sine-Wave, not a positive or negative line. The market WILL go back up (or back down), the question is not IF but WHEN and whether you can LAST. It HAS to otherwise one country will go bankrupt (their currency going to ZERO). The problem for most traders is, their inappropriate trade size disables them from riding out the storm long enough because their account goes into massive draw-down. To combat draw-down, the easiest way is to control trade-size. True risk is in trade-size not trade-size with stop-loss.

I believe stop-losses were deliberately invented by market-makers as a way to make people think it helps reduce risk, when really it was a stealth "take-profit" mechanism for them. I also believe the winning traders also deceptively promote the stop-loss because they know that when a trade is lost, it is WON somewhere else (i.e. one of them).

Just try to imagine a market where NOBODY used a stop-loss or closed their trades. What would happen to its' behaviour? Which way would it move? Or would it even move at all? The market moves because of people losing (or allowing themselves to lose), therby creating winners. The losers create the winners. The winners don't create the losers, hence the market moves.

- When learning, your entire account is your stop-loss. Your only stop-loss should be a margin-call. What this means is, the amount you are willing to lose should be the entire account and trade according to that. Not any % risk per trade. So if you're only willing to risk 2% per trade on 10,000. Then your account should actually be $200 and trade smaller accordingly. When you've disciplined your trading to handle the smaller balance and trade sizes, then PRETEND your account is $200 (in a $10,000 account) and trade the same way as if it was $200, now with the benefit of larger margin. Learn to defend your account, not a single trade. People that lose often trade much larger than their account can handle. 2% per trade is HUGE and they do this because they want larger gains. What they don't realize is small gains add up. Small gains more frequently, versus large gains infrequently work differently on your psychology. Psychologically, small gains more frequently is better for your psyche, because the feeling of progress, accomplishment and consistency is achieved.

- Trading in today's world should be AUTOMATED. I don't believe that most manual traders will be successful over the long-term. We get tired and with that often make mistakes thereby destroying the consistency. Automation will relieve you from temptation. Only inflated egos think they can compete in a world against computers doing the same thing.

- I understand that people will disagree about the stop-loss concept. But they don't understand that if you learn how to control your overall draw-down first and develop strategies where trades have a long longevity, then a stop-loss means nothing and mean-reversion will work in your favour (oscillation).

In other words, try to be a long-term investor that scalps.
Last edited by xtremeforex on Fri Jan 04, 2013 4:24 am, edited 2 times in total.

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Postby es/pip » Thu Dec 27, 2012 2:16 am

I agree with some of that, but disagree with some as well.

I think it is reckless to tell new traders that they should not trade with a stop.

Instead of trading with a stop, wait and take the other stops as your entry, then if you are wrong then get out.

I disagree that most manual traders will not continue to be successful over time. I know i will be, regardless of what happens and i am a manual trader

The market may have changed ( to a degree) with all the algos, but the underlying concept of the market will never change, if it did then it would fail to exist in the future.

But no one can tell anyone that they are right or wrong, as there are many ways to trade successfully.

Congrats on your success, but i do not see they point of your post. Are you intending to post something in this thread that might help someone, or or you just stating that what you figured out works for you and for people to not give up and keep on keeping on?


edit--------


Just read some of your other posts, never mind.
Bend over and assume the position for another 4 years of hope and change.

xtremeforex
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Postby xtremeforex » Thu Dec 27, 2012 3:21 am

It would have been better to say, a new beginner should not fund an ACCOUNT more than they are willing to lose. Having understood this, then they will see how pointless a stop-loss is.

When trading, a person should be willing to lose it all. If they are not. Then their account size is too high. To make the account last, they should make their trade sizes just big enough so they can last massive draw-downs. Afterall, if they can't last the draw-down (margin-call), they have only lost the amount they were willing to risk! (i.e. 2% of their actual money available).

So if they have $10,000 available, and they only want to risk % per trade. They should really only fund their account with that risk %. Trade properly with it with no stop-loss. If they blow it up. Only that % lost. Get it? If they're smart, they will learn how to trade with the smaller balance which will further decrease their risk in the grand scope of the entire money available ($10,000).

Doing it this way, a better trading discipline develops, especially when dealing with draw-down, losing and increasing ROI.

I think the issue with the Stop-loss advocators is the difficulty seeing a floating-loss/draw-down. They want to make it disappear as fast as possible, because those negative red numbers scare them.

What they DON'T realize is, by realizing their draw-down (stopping it/closing it out by stoploss), that the scary negative red number hasn't actually disappeared at all! But instead, it has now moved to the Account Balance section and has made a PERMANENT mark there instead.

Of course they don't notice because the balance is written in normal colours so that same red number/loss seems to have less of a scary psychological affect, although the absolute value/effect of it is still the same. Because they stopped it, they are happy that loss is not dangling in the unrealized P/L section in red scary numbers - but that doesn't mean it disappeared!!

When a trader learns to profit while in draw-down, they are getting closer to the truth. Just like how real businesses can earn a profit while their offices are paying a mortgage/loans and are essentially "operating in the red."

As for Manual Trading. You say that with so much confidence. But how do you know over the long-run you will be profitable? What is your concept of "the long-run?"

Do you know how many "profitable systems/ideas" I have tested that are great the first couple of months and blow up after (including those with stops)?? With Automated trading, you have the ability to test the endurance, longevity and market conditions that have been changing over time, black swans etc. In Manual trading you don't and what seems to work the first couple of times may blow up on you in the end.

Manual traders always have an uncertain future. Automated traders have a bright future.
Last edited by xtremeforex on Fri Dec 28, 2012 10:37 pm, edited 1 time in total.

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Postby es/pip » Thu Dec 27, 2012 10:03 am

I am not positive, but i think the last part of your post is my answer.

A system trades off 1+1=2

A manual trader can trade off 1+1=2 or 1+1=3.

I have already been profitable over the long run, my definition of the next long run is either when i ever get to a point of not enjoying trading anymore, or i drink too much and become unable to continue to press the buy or sell button.

What i am saying is a manual trader can adapt on the fly and adjust to what happens. A system trades on what it is programmed to do off of historical things.

Maybe you have an adaptive smart system program, i have no idea.

I do not know anything about programming so i am not arguing that i am right and you are wrong.

But i disagree that manual trading is inferior to automated.

I dont trade a "profitable system/idea", i trade the other traders.

So as long as there are other traders trading i will be fine.
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Postby speed26 » Thu Dec 27, 2012 11:49 am

Hi xtreme, Ive read your old posts in BP and Kreslik - interesting perspectives and some of them i can agree with (others i dont comprehend yet).

"Monitor your whole portfolio as a whole. Combine your losers with your winners and look at the NET result."

Im working on a concept that essentially does use "strategic stops" but whenever one gets hit, i generate an overall net profit. Im still working on it because at a certain point it begins to accumulate open orders - need to figure out how to control this.

"When a trader learns to profit while in draw-down, they are getting closer to the truth. Just like how real businesses can earn a profit while their offices are paying a mortgage/loans and are essentially operating in the red."

I own a business and i can relate to this big time - im always exposed, always have a float of stock (money invested in the market) and generate a profit from this.

But what i have noticed in trading, is that when you have (for example) 5 open floating trades (stock), and you close one for a profit it instantly shows in the Balance, but your open equity doesnt necesarily increase. So how come you can earn a profit with other open orders still floating in the red? Yes, acc balance increases, but equity remains the same. This comment of yours confuses me.

Very keen on hearing more from you.

Regards and congrats on your success.

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Postby xtremeforex » Fri Dec 28, 2012 1:29 am

Speed:

It's exactly like real business. People lose in trading because of cash-flow problems. More money is going out than coming in. The stop-loss accelerates the problem of money going out - in a permanent way.

Your NAV did increase if one of your trades went from negative to positive (profit). After you closed that trade, your NAV wouldn't increase because your NAV automatically calculates with PL - but your balance would because it is now "officially" realized. The increase in NAV already happened before you closed it - it doesn't happen after that.

Think about it this way, which way would your NAV have gone if you didn't close the winning trade and it turned into a loser?

Seeing the increase, may be blurred in the NAV by having multiple trades open that may move in the other direction when you close the trade. However, remember that the increase did happen and that you DID win the trade and that it DID help. If it does get blurred that doesn't mean it didn't happen.

I want you to have your own "AHA!" moment. That's the best feeling.

I rather lead you to the cow instead of giving you a glass of milk

I want people to see that trading isn't about indicators or prediction. It's about common sense and cash-flow management.

TEST #1

What is better?

Scenario A
-------------------------------------------------
Account balance: $10,000
Equity: 9900
PL : -100

next "tick"

Account Balance: $10,000
Equity: 9950
PL: -50

Close Winning Trade (+50)

next "tick"

Account Balance: $10,050
Equity 9950
PL:-50
_____________________________________________

OR

Scenario B
_____________________________________________

Account Balance: 10,000
Equity: 9900
PL: -100

next "tick"

Account Balance: 10,000
Equity: 9950
PL: -50

next "tick"

Account Balance: 10,000
Equity: 9950
PL: -50


In the END both scenarios have the same EQUITY and PL. But what is the difference?

Which SITUATION is better to be in and WHY?

Which EQUITY and PL is more STABLE (less at risk)?

Think about what the FUTURE can do (not what it will do - you can't know that one).

What can happen in Scenario B that CAN'T happen in Scenario A?

Answer these questions and then I will add more questions and gradually increase the complexity if you (or anybody else) is interested...
Last edited by xtremeforex on Fri Jan 04, 2013 1:20 am, edited 3 times in total.

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Postby forexjake80 » Fri Dec 28, 2012 1:38 am

xtreme, please go ahead, lay it on us. It's been some time since i was asked proper questions, which forced me to start using my mind.
It's time to kick ass and chew bubble gum. And I'm all out of gum.

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Postby speed26 » Fri Dec 28, 2012 1:14 pm

Hey xtreme, thanks for your reply.

"In the END both scenarios have the same EQUITY and PL. But what is the difference?"

One has a higher balance than the other by taking profit as opposed to not taking it and leaving it floating.

"Which SITUATION is better to be in and WHY?"

When trade closed in profit we 'realized' the profit (balance) as opposed to have it floating in the open market, which could turn around back into a loss.

Taking profits is a better position to be in, providing theres a solid underlying reason as to WHY to take profit at such point.

"Which EQUITY and PL is more STABLE (less at risk)?"

The one we took profit on, for reasons above (could turn into a floating loss).

"What can happen in Scenario B that CAN'T happen in Scenario A?"

Profit of closed trade cannot be taken away - its been realized.

Definetly interested in hearing more from you if your willing to.

Regards.

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Postby PebbleTrader » Sat Dec 29, 2012 5:13 pm

It seems like you are doing something similar to what most of us are doing, but in a more complex way.

You don't use stop loss and are always taking money out of the account in profit or putting money back in to refill the lost account.

I would say that the account getting stopped out by the broker is a stop loss, even though you didn't stop it out yourself.

It just seems a whole lot easier to not be transferring money in and out of the account and use a stop loss instead with a larger account size. Most of the time if your stop loss gets hit, you can recover it within a day. You just hover at B/E until it works out.
Life is just a journey

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Postby Dillinger » Mon Dec 31, 2012 11:11 pm

I agree with pebbletrader about the similarities between what you are

doing and others here. I just pick an extreme I don't believe it is likely

price will make it back to(usually a weekly plus extreme) and risk a few

percent with my stop loss at that extreme. I will only exit in profit and add

that to my total risk to increase my lot size or I lose all my initial risk. I

continue trading and taking small profits until I hit my weekly goal then

take my money and start over. Since price usually oscillates between long

term extremes/pivots that is where I risk it all from. I know others here

are a lot more creative how they manage their space but that is all I really

do and it seems like what you are doing also just more advanced on how

you pick where to risk it all from and how you take profits etc... Xtreme

how are you calculating your wave amplitude or deciding where to risk it

all from? Looking forward to hearing more from you.

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