Baruch's Forex System Journal

[Scientist]

Quote from DrBungle:

Scientist,

Great trades.

I wonder if you could tell more about HOW you pinpoint the reversals so accurately. I often find myself to be 100% right that a reversal is about to happen, but find myself executing too early and get stopped out (re-entry is a possibility) or sometimes too late and missing the move (a pullback entry is often an option in such case, but many times the price moves too fast with no decent second change).

Obviously waiting the price to hit exactly the trend line is not a viable solution, for example your recent trades show cases where the price has overshot the trendline to return and cases (as the last one) where the price turns some time before hitting the trendline.

I understand that we might be wondering into "propriatory" territory here but any hints as to which direction to go in my studies would be appreciated.

Bungle

DrBundle, thanks for the words.

HOW I pinpoint reversals so accurately? I think the last chart I posted in this thread explains most of it. I just faded the channel lines all day.

I couple this with tape analysis, to determine valid turning points, and I look very much at market correlation, particularly ES & NQ, and a bit also the other currencies, and the DAX, and some stocks. I trade all currencies and indices largely by correlations and tapes.

I currently have 20 tapes running on one monitor, which I constantly read throughout the day, that's following tapes:

ER2, YM, ES, NQ, EUR, JPY, GBP, CAD, CHF, AUD, INTC, MSFT, CSCO, JDSU, DELL, ORCL, NOK, PFE.

I find them to be extremely helpful to give me a true feeling as to where the markets are and possibly will go. I generally remember a pretty good amount of tape "history" as well, like the most recent days, so I remember how tape acted for example last time price hit that level.

I love the tape, because it's the only thing you'll ever use that tells the truth, the hard truth and nothing but the truth. People can't bluff on the tape like they can on the tape or price charts even. The tape is solid, because it's real sales. It's the people putting their $ where their mouth is. If you read that book "Reminiscences", you will figure that Jesse Livermore built his entire career on the tape alone.

Apart from tape and tape correlation, I also watch the charts of the most important index-and currency futures, mostly 15m charts. I look at price and volume, and correlation. The MA's on posted charts were just for trend reference and to illustrate things, I don't usually use TA at all. As said, theoretically you don't even need charts, you could off the tape alone, if you had a good enough memory (I don't lol but Livermore did).

I do have some pretty complex "proprietary" things I use, particularly for scalping, but not the "long-term" stuff I showed you here today. The stuff I showed you is really more "practice" than "proprietary".

You want to know my secret? The secret is picking points where you can use really tiny stops, so you have a high R:R. Most of the time, on EUR, I risk 5-20T maximum, but go for 50-100T gains.

If you maintain such R:R ratios, like 5:1, you don't need to be right on every single trade like me today, to make it. In fact, you don't even need to be right 30% of the time. And who on earth is wrong 70% of the time?

You need to think about it this way. Then your fear to execute will disappear, because you simply don't care. If you know that you can lose most of the time, and still do well, what have you got to lose? You have a huge edge. You can only win. That's the attitude you need.

Hope that helped.

 

[Scientist]

Quote from Trend Fader:

Do you think we can start a thread or some type of discussion over where key stops are located. I guess the best strategy would be to use a limit order to enter right near these stops... or maybe even enter a lil early in anticipation of a big move.

Scientist I am curious as to what news feeds u use if any? DO you have a bloomberg feed?

--MIKE

TF, I don't know if there's any point in discussing this. The only way you can figure stop levels is experience and observation IMO, similar to tape reading. But hey, if you start a thread and it works out well - all the power to you!

Limit order? Are you kidding? What else would you use? Only maniacs use market orders - particularly at stop (=runaway) levels! Sorry, but I always want to know what's the worst fill I could get. IMO you have 2 options:

1) Limit order (perhaps allow for a couple of ticks)
2) Stop-limit order (triggers an actual stop once breakout level hit, then executes a limit order to make sure you don't get filled on the moon)

However, I wouldn't recommend latter, since you'll be late in queue, after all the other (most likely much older) stops sitting there.

News? I still don't have any news feed. Why, is it any good? The chart already knows the news.

 

[Baruch]

Quote from Scientist:

Italy? Nice, Baruch! You certainly deserve a holiday after all this trading performance!

I love Italy! Where are you gonna go? Lake Garda? Verona? Rome? Sicily? Make sure you get some (musical) culture while you're there!

Hi Sci,

First I go to Rome. I love that city. And from there to Umibria. The best part of Italy.
Music? Yes, opera. Italian opera. The best in the world.

 

[Scientist]

Quote from tykoon2:

Hi Scientist,

What do you actually mean by tape reading? Especially with regard to EUR/USD futures and ES futures.

Thanks,

tykoon2

tykoon2, sorry I really can't answer that much indepth, but I can give you clues:

Get all the tapes on-screen, and observe them closely (together with charts) for 3 months. Just watch, really closely, what the tapes do, how they behave at different levels. Watch levels and prices where the noobz (1-2 contracts) get in & out versus where the pro's (10-1,000 contracts) get in & out. Watch color and speed of tape. At all times, add up tape cumulatives in your head, so you get an idea of the actual volume scrolling past. Watch (identical) trade times, so you can figure which trades are done by the same trader and which aren't, i.e. which are partial fills and which not. Watch the sizes of the partial strike fills, to determine the size of players bidding/asking at that level. Count cumulatives and remember them to figure where "particular" traders got in and out again. Think about why they did. Create a mental picture of who's doing what where when and why.

Tape reading cannot be taught, but it can be learnt, by observation.

 

[Trend Fader]

I think its a good idea to have a good news feed.. because assuming the markets break and its starts to rip.. because of some key fundemental development.. I would be happy to increase size and add to the move knowing that the higher it goes the more momo it will have as it takes out stops right and left....

When its just a technical break it usually doesnt have as much power behind it.

I am new to forex and I am still waiting for the day where I am in a trade on a key technical break and there is huge news supporting the break... I think those rare moments are when u have to step on the gas and keep on pyramiding as the market can move 150+ pips.



--MIKE

 

[jrs3]

I don't understand why so many traders trade with their nose pressed up against the glass, fighting for crumbs. The real money is made by stepping back and looking at the bigger picture. I guess it must have something to do with ones account size.

Weekly chart of EUR/USD.

 

[Trend Fader]

Quote from jrs3:

I don't understand why so many traders trade with their nose pressed up against the glass, fighting for crumbs. The real money is made by stepping back and looking at the bigger picture. I guess it must have something to do with ones account size.

Weekly chart of EUR/USD.

Good point and the reason is quite simple.

The shorter time frame u have the less likely u are to have a big open equity drawdown. You also have the ability to make much more pips because u are trading every move.. up and down. Although this sounds nice on paper in reality this is extremely difficult to achieve in reality. It requires amazing mental control of risk and the ability to be glued to the computer 24hours a day. 90%+ will never come close to making it.. but the few who do swear by it.

Longer term trading is much easier.. however there will be periods where open equity can get crazy and your account will see significant volatility that most people can not handle. There also will be weeks of where the markets just go no where and you will begin to question yourself and your methods. Look at the weekly chart of euro/usd from 8/2/02 till 10/25/02... u will see a market that went absolutely no where. It takes a lot of discipline and extreme boredom to sit through and wait for the market to finally start to move.

However, I definately I agree... I were managing billions of dollars I probably would be more likely to play the multi week moves.. however I am not... and I think of it in some ways as an advantage.


--MIKE

 

[Scientist]

Quote from jrs3:

I don't understand why so many traders trade with their nose pressed up against the glass, fighting for crumbs. The real money is made by stepping back and looking at the bigger picture. I guess it must have something to do with ones account size.

Weekly chart of EUR/USD.

OK, let's have a look at it. Let's assume you would have gone long at the break of that triangle in March '02, 24 months ago. Let's assume those 24 months represent 480 trading days.

In those 480 trading days, you would have made 3,000 ticks, right?

So that's 6.25 ticks per day - that is given you had actually taken the trade...

6.25T per day. You call that a performance? Let's have a look... I made 250T today (not really top-performance, but it's OK for demonstration), so I've made in a day what you on average take 40 days, or over month to make - and that with considerably lower risk and therefore larger size!

Let's assume I averaged just 100T per day (very doable on EUR). It would take me 30 days to reach your performance of 2 years, and that with considerably offset risk. Who is better off?

Obviously, I have considerably less risk, because the stops for my timeframe are much smaller - my average stop ranges between 5-20T. What are your stops? 500T?

Next, logically due to the reduced risk-per-trade, larger size can actually be used. So your point regarding account size is retroverted. I can not only make money faster and safer than you, but also on much more volume than you and with a lot more frequency (=consistency) and less drawdown than you.

But hey - I had a very long-term position in the AUD since early last year, which I closed a few weeks ago for a 30% gain. Nothing to sneeze at, but I only did it because I had to have my money in my trading accts in some currency, and why not have your money in the currency that performs best? So I did, and added a bit more. It wasn't a tough decision, position trading is a piece of cake.

As you can see, there are a boatload of advantages to day trading. Now, day trading is a lot more difficult and demands your trading skills to be refined exponentially, but you know that's just the way the world is. The more reward (and less risk) there is in something, the harder it is to do / get, and the very most rewarding things are the very hardest things to accomplish. It's been like this since the dawn of time. It's called Darwinism. Get used to it.

P.S: I actually have a long-term position on right now, and that's short AUD and long USD. It's not looking all that bad, currently it is well in the green. It's the cherry on the cake, but it really doesn't spank the monkey. The day trading surely does.

 

[Scientist]

Quote from Trend Fader:

Good point and the reason is quite simple.

The shorter time frame u have the less likely u are to have a big open equity drawdown. You also have the ability to make much more pips because u are trading every move.. up and down. Although this sounds nice on paper in reality this is extremely difficult to achieve in reality. It requires amazing mental control of risk and the ability to be glued to the computer 24hours a day. 90%+ will never come close to making it.. but the few who do swear by it.

Longer term trading is much easier.. however there will be periods where open equity can get crazy and your account will see significant volatility that most people can not handle. There also will be weeks of where the markets just go no where and you will begin to question yourself and your methods. Look at the weekly chart of euro/usd from 8/2/02 till 10/25/02... u will see a market that went absolutely no where. It takes a lot of discipline and extreme boredom to sit through and wait for the market to finally start to move.

However, I definately I agree... I were managing billions of dollars I probably would be more likely to play the multi week moves.. however I am not... and I think of it in some ways as an advantage.


--MIKE

Great words Trend Fader, I fully agree with that. I swear by it too, and admit it's not an easy job (particularly in the beginning). Trading is actually quite simple, but it's certainly not easy. For the most part, it's self-mastery. I keep getting emails today, with people wondering how I do it, although I've posted and explained all my trades live, with very simple illustrated charts. I would think everybody would understand, but obviously, it's a lot more of a mental thing than a practical one. People, even if they know it works, might not do it, for whatever psychological barriers. The book "Trading in the Zone" by Mark Douglas can be a great help, it certainly transformed the way I think about trading.

As a conclusion to all this, we can also say that the difficulty of trading styles grows proportionally, or let's better say exponentially to the rewards. The most rewarding style is without doubt scalping. The profit potential here is gigantic - given the proficiency and right infrastructure, but it's the most competitive game. As you move up in timeframes, things gradually become easier and easier, but also much riskier and less rewarding.

My day trading career - similarly to a very good prop trading friend of mine - started the wrong way 'round - I started with the most difficult - scalping Nasdaq stocks from Lv2 and tape. Later on, I went for scalping futures (ES), and did that for quite some time - It was awesome and very rewarding, yet extremely challenging.

Only towards recently have I started to discover the merits of long-term trading (= only a few trades per day). Less stress, lots of time to go outside and have fun or have sex or whatever. Today, I posted only 8 trades here. All really long-term swings, all with super R:R's and all winners. This is seriously relaxing low-frequency trading to me, I used to do 100-200 rounds per day on a regular basis. To me, this feels like position trading. So I guess it really is all relative. I even do some occassional whole-day or multi-day trades at times now. It's amazing just how little you can trade and still make relatively decent returns.

I agree with you, if you had billion-dollar accounts, you couldn't day trade at all. But you see, that's the day trader's edge. It's called money velocity. Yes, it really is an advantage. And I see no reason whatsoever not to use it - until I have several billion dollars!

Best,
S

 

[DougS]

Scientist--

Do you typically wait for the market to begin moving your direction before entering the trade or do you anticipate a reversal and exit if it continues moving against you? (or adding if you think you entered a bit early..)

Thanks,
Doug