Tuesday, May 22, 2007


Hi all,

Thought i'd give you an update on what im doing.

Grail is still trading as a basket and just trickling along, not winning but not losing either, kinda stagnant.

The markets as a whole have constricted into much smaller daily ranges which makes it difficult for an intraday trend trading strategy to make money - that's why grail is struggling still.

My own trading has now taken a suprising turn. I started trading a mean reversion strategy taking 2-10 pips out of the market per trade 3 or 4 times a day.

I had an amazing run of 67 winning trades on the trot - sounds good eh?

Not so, the trouble with mean reversion is that you add to losing trades in the misguided hope that price will revert back to the mean.

A single trade wiped out those 67 wins and more besides. so much for a great strategy eh!

So, i'm back doing what i do best - Trend following. I used to do nothing but trend following on the dow jones and did pretty well and now it's back as my main trading system albeit on a longer term view.

My belief has always been that you cant make serious money in this game unless you let your profitable trades run and run.

Those who used to frequent the moneytec chat room back in 2004 will know that i would hold onto a trade for grim death, trailing the stop unti the trend was truly exhausted. - my motto was 'never take a profit manually, always let the stop take you out'. It served me well being the only person on there to take over 230 pips from a single one minute trade!

So, I'm back onto this but with a twist. Im now trend following using a four hour and a daily chart. I dont look any lower than that and so far i'm starting to get the feeling back that i'm in control.

Now just because i say 'you cant make money taking small profits' doesnt mean it's true. After all i don't know what i don't know and I have known people that make lots of money from small scalp trades - BBMac being one such outstanding trader and just about the only person i know that can make money from scalping.

Personally though I cannot, no matter what i try i cannot make money from small market moves.

So, you may ask why have i gone to longer term trading - the answer is simple. When we were flying high with grail the daily range of cable was usually around 110 - 150 pips per day - an average of around 138.

The last time the ranges were like this was in the back end of 2006 and they are just compressing and compressing. Grail was an intraday strategy which exploited trends but you cant exploit a trend on a daily basis when the market is only moving 70 pips or so and your system is designed to exploit a 130 pip range market.

So, what's to do - easy - extend the time of the trade so that you arent restricted by the daily range. and that's exactly what ive done.

I have trades running today that i opened last wednesday and are still running. They are with trend and are doing well. I have had losers, but they are closed quickly for small losses like 30 or 40 pips and the winners just run and run. Cad is being very good to me at the moment coupled with the dollar and aud - in total im almost 200 pips up on each trade.

Im trading flat money on each trade but can take multiple trades. For example a $10,000 account would allow you to have up to 10 trades at $1 a pip or 5 trades at $2 a pip. I generally have quite large stops to begin with but because the amount traded is small relative to the account size then it is very comfortable.

So, that's what im doing - just following the trend. I don't predict, i dont pick tops or bottoms, i just wait for it moving and hop on board until it stops. I have no idea when it will stop but whilstever its moving there is no reason to get out.

That's my reccomendation to you if you are struggling at the mo. stop fighting the flow and just slip into it. I couldnt believe the amount of money that has been buying into USDCAD this week - whilst all the time it's dropping like a stone.

People who pick bottoms get stinky fingers as an old friend Brad used to say :)

1 comment:

Peter said...

From Peter....

Many thanks for all the advise you gave me a few months back, since then i haven't even thought about trading but have been busy designing and backtesting systems to check out their probabilty success.

To try and save some time I've tested out a few systems which have been highly recommended in the forums etc however when i manually run all data through excel the outcome is often very different. that doesn't bother me as i know its just another method to cross off while I, like you search for my own holy grail. While others shine in descretion trading - it is not for me. Automated trading is more suited for my character so that is why i believe that success for me is not chart watching but allowing the robot to do all the work for you.

You mentioned in your previous post to me that you spend 10 hours of the day researching and only 30 minutes trading the grail. Do you manually execute trades when grail signals are generated? if so why when there is so much automated technology available where we can just have a robot executing our trades for us? If you know everything there is to know about your system through extensive backtesting and anylises then why risk allowing human emotion and error to enter the equation and skew the figures?

Is there a hidden disadvantage to automated trading? am i missing something? or do you just choose not to trust a robot and feel much better if you are able to oversee everything?

Also how has the grail performed in consistency to your backtesting and analysis? Has there been a time when drawdown figures exceeded previous data? Do you still beleive backtesting is still an accurate form of measuring up a system or is forward testing a must before applying real money.