Fact-Based Trading

[mp6140]

if Im remembered for anything in this world, it will probably be my hate of stop losses !

while a junior member here, I've been a forex trader for the past 6 years and its all i do to keep the wolf from the door, so it behooves me not to make many errors in trading !

Im gonna say that I PERSONALLY do not use stop losses ever !

before you jump on me allow me to put forth a few privisos to follow ALWAYS !

you MUST be trading in the direction of at least ONE of the 3 normal trends --- if you nail all 3 trends, then youre golden. trading in one is usually not a difficult thing though.

you should enter at the top (for shorts) or bottom ( for longs) of the LRC and/or zigzags for your selected timeframe. (all that means is dont enter a long position at the very top of its resistance, nor short a currency when its hit bottom --- duhhhhhh !)

you must use correct money management, just in case you get caught in the normal 10am EST reversal, the noonday reversal, or the late night reversal during the japanese session. You can avoid most of this by trading the european opening to the 10 am NY baby reversal, but definitely out by the NOON (which also happens at 11:30 am, est, depending on how the banks feel !)

If you get caught, you WILL suffer the drawdown BUT if youve chosen correct trend, usually overnite or latest tomorrow, your ship will come in !
if one follows the logic of forex, which always moves a currency from the bottom to the top of the LRC and then back down again over a number of different timeframes, one can understand missing a tp, have the currency then dive down as the shorts take profit after the runup, and while the longs wait for the new low to add to their positions or start new positions. Once we start up again, and the currency is in an uptrend, your profit WILL be reached and had you a stop loss, you would have lost your money on the drop !

Please understand that the history of stop losses comes out of equity trading and most equities DO NOT trade as smoothly, logically or predictavely as does Forex --- they were designed to prevent MASSIVE losses on long term holding stocks that had gone up tremendously, and would now fall, being shorted by the major institutions as individuals hung on, praying for them to go back up again.

with forex, if youre careful and dont overplay your margin and AS LONG AS YOURE MOVING WITH THE MAJOR TREND, you may wait a while and you may have some sleepless nights, but lo and behold YOU WILL MAKE YOUR PROFIT !

a trading partner and I have a simple mechanical system for grabbing 20 pips overnite on GU -- at 8pm, est, we hedge GU for a 10 pip profit each way. Normally, there is absolutely no problems, but as a test we hedged just before xmas which we knew was probably not the smartest of ideas --- the long was taken out as the currency moved up strongly on USD news but the short was left high and dry. Today, the short was taken out, along with last nights short, because that is the nature of forex repeatedly seeking its original trend. If a stop loss had been used, there simply would have been a LOSS, but in this case, there was profit !

Now Im not telling the newbs to run out and do this in ANY way, but if the intermediate and good traders demo this idea, they should easily see what I'm referring to,

Not looking for an argument, BUT IF YOU DEMO IT, YOU VERY WELL MAY SHED SOME OF THOSE OLD IDEAS ABOUT STOP LOSSES, a stupid concept, not ever designed for forex and one that has probably wiped out more newbs than anything else invented !

enjoy and trade well
mp

Originally Posted by mtardif

Hey, I understand where you're coming from. I'm beginning to think that setting stop loss points on every orders is a "come get my money" signal for "The House".
.

[mtardif]

Originally Posted by mp6140

Im gonna say that I PERSONALLY do not use stop losses ever !
...
you MUST be trading in the direction of at least ONE of the 3 normal trends --- if you nail all 3 trends, then youre golden.
...

you must use correct money management, just in case...

If you get caught, you WILL suffer the drawdown BUT if youve chosen correct trend, usually overnite or latest tomorrow, your ship will come in !
....
mp

Hey mp6140, I have been doing financial modelling and I'll have to say that I am coming to the same conclusion that you have, which is that using stop losses is going to cause you to lose in the long run. By "in the long run", I mean 5+ years. Any EA that I have conceived that does not use stop losses manages to produce an uptrending equity curve over 5+ years. An EA that uses stop losses, at best, see-saws back and forth over the original starting balance. Sure, over a period of a few months you might have an uptrend, but in the long run, the best I can come up with is a sideways equity channel. You win some, you lose some, you lose some, you lose some....

As for "you MUST be trading in the direction of at least ONE of the 3 normal trends", can you elaborate? I'm assuming by "normal trends" you mean taking long positions when the 4-hour, daily and weekly chart are all signalling uptrends, and then you buy a dip on the 4-hour chart, and vice-versa for short positions? That is what I am modelling at the moment.

And that "money management" means assume you'll get caught in an unfavourable move and so don't risk all your equity on the one trade. Defining a trade as "one or more positions", meaning that you need capital reserves to "scale into the trade" as you add long positions on subsequent dips to lower your break-even price? (Which is what "they" tell you not to do?)

I must congratulate you because it take a lot of guts to come in and "just say no to stop losses". Most people just take that "always set a stop-loss" as some kind of 11th commandment handed down to Moses on the mountain. Don't mess with it. I am willing to explore different strategies. I am willing to not listen to "conventional wisdom". I am exploring lots of "what if" scenarios. I am doing my research and my modelling and so far my results point me towards the "no stop-loss coupled with excellent money management" as the only strategy that produces an uptrending equity curve "in the long run".

[dan7974]

The only way to beat the market is to use a mechanical system, math-based facts.

[mp6140]

Originally Posted by mtardif

Hey mp6140, I have been doing financial modelling and I'll have to say that I am coming to the same conclusion that you have, which is that using stop losses is going to cause you to lose in the long run. By "in the long run", I mean 5+ years.
Im gonna go you one better -- depending on how you trade (scalp, flip or swing) a stop loss can do you horrible damage in just a few hours or less. If you are playing the 30 min chart LONG for instance and in PARTICULAR if youre using the Heiken Ashi technique, you can easily suffer a reversal that could cost you an awful lot -- If youre trading GU, to set a stop loss LESS than 75 pips would be total lunacy, but then you would LOSE those 75 pips FOREVER if it were hit !

Any EA that I have conceived that does not use stop losses manages to produce an uptrending equity curve over 5+ years. An EA that uses stop losses, at best, see-saws back and forth over the original starting balance. Sure, over a period of a few months you might have an uptrend, but in the long run, the best I can come up with is a sideways equity channel. You win some, you lose some, you lose some, you lose some....
Once again, I do not believe one needs to wait 5 years to see what happens, as I have helped people who have had half their account wiped out overnight by a stoploss being hit (either by broker fishing or just plain truth -- whichever still costs you money you have to work for to replace !) Secondly, unless youre working with an EA that will place LONG trades, sell and then place a SHORT trade and then cover, youre gonna suffer DRAWDOWNS and those DRAWDOWNS used with a classic stoploss are what destroys most accounts !

As for "you MUST be trading in the direction of at least ONE of the 3 normal trends", can you elaborate? I'm assuming by "normal trends" you mean taking long positions when the 4-hour, daily and weekly chart are all signalling uptrends, and then you buy a dip on the 4-hour chart, and vice-versa for short positions? That is what I am modelling at the moment.
Actually, youve asked a question that opens up a complete chapter in trading --- In this situation, I was referring to the H4, DAILY AND WEEKLY TRENDS as you caught, but it can also (once again, dependent on the timeframe youre trading) refer to the lower "normal" timeframes if they set up in the same positive order ! You are also correct in your "buying the dip"assumption, but that ALSO applies to ANY timeframe one is working with !


Theres a neat little indicator called "digistoch" which shows what direction ALL the timeframes are moving in on ONE chart -- HANDY for those who dont use multiple monitors and multiple charts !

Congrats --- youre one of the few who understand, at first blush, what Im trying to convey !

And that "money management" means assume you'll get caught in an unfavourable move and so don't risk all your equity on the one trade. Defining a trade as "one or more positions", meaning that you need capital reserves to "scale into the trade" as you add long positions on subsequent dips to lower your break-even price? (Which is what "they" tell you not to do?)

LOOK, why on earth did I bother to write this post if youve got all the correct answers ALREADY ??????? (LOL)
Yes, EXACTLY CORRECT ! While trading longer term is usually the least risky trade, compared to a short term trade (3 - 6 pips), one uses LESS equity or margin on the LONG TERM TRADE because of the GREATER RANGE (greater drawdowns) that long term trades move. Essentially, because of the shortened range in a short term trade, one can afford to risk larger amounts, which SHOULD NOT be done with a long term trade !)

NOW, Ive been caught badly at times holding 20 lots of XYZ LONG, and based on whatever stupid reason (usually MY stupidity) the pair DROPS like a rock as has UJ friday --- in that situation I patiently wait and wait and wait for the bottom (and that MAY NOT BE till the next day at the least) and then I BUY 40 or more lots) or I "SCALE" into the trade as you mention ! (without getting crazy about things, I'm awfully good at finding support and resistance, AND there are some swell indicators out there that can assist, so where I have "scaled", its usually because I was fooled in some way !)
BUT, ONE MUST NEVER NEVER NEVER EXCEED THEIR SAFE MONEY MANAGEMENT LEVEL -- I was stuck in a trade that sat for 4 days with a $7500 paper loss -- fridays activity closed the trade with a 2800 profit on that part of the trade, just because I waited and didnt give the money to a "stop loss" !!!

I must congratulate you because it take a lot of guts to come in and "just say no to stop losses". Most people just take that "always set a stop-loss" as some kind of 11th commandment handed down to Moses on the mountain. Don't mess with it. I am willing to explore different strategies. I am willing to not listen to "conventional wisdom". I am exploring lots of "what if" scenarios. I am doing my research and my modelling and so far my results point me towards the "no stop-loss coupled with excellent money management" as the only strategy that produces an uptrending equity curve "in the long run".

As I posted originally, "stop losses" were designed for the long term investor in equities to lock in "SOME" profit in case news came out announcing that the CEO of the company was found in a comprimising position in a closet with Michael Jackson(which "might" drop the price of the company stock a tad !) BUT forex moves SO differently, making trips UP to the top of the LRC, and then DROPPING back down to the LOWER LRC (we call them "chanelling stocks" in the equities world) that if one locks into the trend, obeys the simplest rules of money management, and avoids money robbing "stops", money can be more easily made.

I read of EA's and manual traders who LOSE to whatever is the method, and when you talk to them, THIS is the scenerio ---- THEY WERE STOPPED OUT ! (and then, later that day, the currency went back up !)

MANDATORY DISCLAIMER --- as so often stated, this is NOT a system for newbs --- it is designed for traders who KNOW the reversals in the currency directions intraday, who UNDERSTAND how to protect their capital and what systems provide the least risk, and IT IS ONLY PART of ANY trading system and ONLY for a trading system that proves to be decent, although for the manual trader its a whole lot easier !\

YES MY FRIEND, over 5 years (because currencies INFLATE in the long term) you will see your results --- you will also see them on the 15 min chart !

enjoy and trade well

mp

[mp6140]

allow me to disagree with the statement "the only way".

in my experience, mechanical systems work as long as net gain desires are kept low and within reason because the market does not work "mechanically" in any way ! I have a "mechanical" hedging system I apply to GU every nite --- set a hedge at 8pm est with a tp of 10 pips each way, and invariably i have a 20 pip profit along with my breakfast, but ONLY because I do not try to make a fortune on the hedge, which is basically designed to be just a little cream for my coffee !

Forex needs to be looked at in a "big picture" concept to determine "trend" which is also referred to as a "TOPS DOWN" process, and then the individual trader "drills down" to the timeframe they are most comfortable working with. You begin with its overall trend on a daily chart and going back a few years at the least, although many prefer using the weekly because of "less noise" --- LONG range trading works well with that approach, as long as one realizes there will be significant drawdowns along the way and prepares (money management) for them.

Once one "drills down" to the desired timeframe, using longer timeframe trends and then seeing what your timeframe is doing WITHIN that trend, you can then safely place a trade IN THE DIRECTION OF THE TREND. YOU CAN ALSO PLACE A COUNTER TREND TRADE, but you better know your "tp" point and watch it like a hawk because it does take some experience to go SHORT within a LONG trend direction !

In all the world of trading, the expression "the trend is your friend" is held to be an absolute truth and i think you will find the world's ideas to be true ---- if youre trading WITH the trend, you are being CARRIED by that trend and it dont get much easier than that, methinks !

There was an EA competition that just ended, and if one looks at the winner one easily sees that of whatever value was the EA, THE FIRST FACTOR involved was finding a TRENDING currency play -- after that, the rest was pretty simple !

of course, one needs to LEARN how the market works, not just throw money at it, but once one spends the time and learns, there aint no easier and better way of making a very decent living, working from home or anywhere in the world !

Unknown to most, the market works in very logical manners as long as one accepts that "logic" to be unbridled capitalism, greed and increased earnings for the major players --- its learnable and simply comes with experience and the first time you guess correctly and arrive at the same place as the banks at the same time will be one of the most thrilling moments in your life (ok, Its hard to beat that first "thrilling" experience you had when you were 16, but its danged close !


enjoy and trade well

mp

Originally Posted by dan7974

The only way to beat the market is to use a mechanical system, math-based facts.

[mp6140]

after i post a few i begin to realize what direction im heading in, and essentially what i always say is that FOREX IS ACTUALLY RATHER SIMPLE !!

now, its not simple for a newb who doesnt even know what they dont know, and its not very simple for those who DO NOT LEARN what the market is all about, BUT THERE IS A REALITY ABOUT THE FOREX MARKET that is repeated daily and can only be considered as an absolute !

Banks, and the professional traders they employ, make money thru a couple of well established methods, none of which are big secrets in this world and NONE THAT ARE PARTICULARLY DIFFICULT although in all fairness, they do tend to work with larger numbers than we poor peasants which gives them an outstanding advantage !

Unfortunately there is a fly in the ointment of profit that I must put forth as a mandatory disclaimer ---- Forex is NOT a "get rich quick" gambling situation and "one must make haste slowly !" Forex is a whole new world, with its own rules, regulations, land sharks and thieves and the first step is learning WHO these peoples are and avoiding them.

after that, there is a culture and a methodology that encompasses a tremendous range of opportunity as one learns and develops their own "niche" in the market.

and finally we get to "real considerations in trading", which include what to trade, when to trade it and why --- which sorta goes with "fact based trading" and is why i started this whole thing in the first place !

THE MARKET WORKS IN VERY RATIONAL WAYS AND DIRECTIONS AS LONG AS ONE THINKS LIKE A TRADER, because thats who's moving it to begin with !

YOU can easily learn, but you have to have a mindset to learn ! If you DONT learn, you can discuss the philosophy of trading till the cows come home, but if them cows dont know how to trade, they coming home with no money for you !
enjoy and trade well

mp

[dan7974]

If you trade with the trend...the trend will end....

...if you trade againts the trend....the trend will continue...

[mp6140]

DAN,

it may say "freshman" on my header, but 6 years of living on forex earnings AND 35 years of trading equites brings a tad more experience than what youre expecting of that title or what some "part timer" with a demo account is ready to accept ! Theres a bit more to my "bona fides", but I'll keep that one in my vest pocket !

I will ask only ONE question ---- HAVE YOU EVER SEEN A BANK WITH A STOP LOSS !

mp

[dan7974]

Where do u get all this info. about banks?
Are we allowed to see the bank's trades?
Have u ever seen a bank without a stop loss?
If so, how? Who told u? How do u have access to what trades the Banks are doing?

I've been trading for 2 years, minimum 5 hours/day. I wake up, turn on the computer, when i'm very very sleepy I turn off the computer. What kind of a life is that? I've lost my friends, family, what should I do?

[mp6140]

[quote=dan7974;13496]Where do u get all this info. about banks?
I have friends in low places !
Are we allowed to see the bank's trades?
Theyre low, but not willing to go to jail !
Have u ever seen a bank without a stop loss?
Constantly
If so, how? Who told u? How do u have access to what trades the Banks are doing?
There is a nice little hedge fund, located in the Hudson Valley of NY and while that area is more "Palisades" like, similar to the "Fjords" of Norway because of specialized glacial formation a billion years ago, there is a smallish shore line that can be built on, at least in some towns. In the parlance of the area, the mountains are the "highlands" and the shore is the "lowlands". The fund has built a "lighthouse" as their offices, and naturally the lighthouse is built on the shore line and even more naturally these are my "friends in low places" and flowing into this enclave are data feeds from around the world and from the major banks -- alas and alack, not a ONE carries a stop loss if for no other reason than the banks KNOW where the price is going !
I've been trading for 2 years, minimum 5 hours/day. I wake up, turn on the computer, when i'm very very sleepy I turn off the computer. What kind of a life is that? I've lost my friends, family, what should I do?

I havent a clue, as I wake up at 2am est, trade till noon est, at which time I place an opposite trend trade with whatever I've been trading, take a nap, go to walmart frozen food section with my camera seeking cheap thrills, come home, nap and then wake for the Japanese session after placing my GU hedges at 8pm est ! In between, I trade for some other people and teach my system in Europe !

btw -- I never turn off the computer !

Should you fail to notice, I am presently trading and awaiting the Japanese session, while counting my profit from trades that came home to roost over the holidays --- the McGiver sisters are here presently and they are extremely happy, looking forward to a wonderous day of shopping tomorrow ![/quote]

I, OBVIOUSLY, AM NOT THE ONE TO ADDRESS THAT QUESTION TO !

LOL

enjoy and trade well


mp