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