Daily EUR/USD trades

[romik]

EUR/USD Trading Guide For Dummies

A lot of people that actually possess real trading experience know that trading can be pretty frustrating at times, especially when we hit that inevitable drawdown phase, some accept it and plug away understanding the cycles present in our lives (not just in trading) others spiral out of control by forgetting completely about proper money management. Most trying to break into the world of a trader fail to understand that the whole trading concept does not have to be complicated, not easy of course, but trade decisions do not need to be complex, to some it is rocket science, not saying they are mistaken, just saying that it CAN be as simple as the following 'recipe':

1. Use a weekly chart on EUR/USD
2. Apply PSAR and use it for entry/reversal/(exit)

Looking at the weekly chart since Jan 02, the following info validates this method, which of course can be a lot more profitable if one understands support/resistance, trend lines, RSI and perhaps MACD. But let's forget about all that and just look at results based on PSAR indicator telling us when to enter and reverse a trade.

Since Jan 02 using a weekly chart entering/reversing using PSAR weekly close price.

PnL Short trades - 783 pips
PnL Long trades + 3304 pips
Average weeks in Shorts 9
Average weeks in Longs 12
Average Drawdown in Shorts 227 pips
Average Drawdown in Longs 298 pips
Max Drawdown in Shorts -366
Max Drawdown in Longs -556
Max Profit in Shorts + 529 pips
Max Profit in Longs +1044

Net PnL based on taking all signals 2521 pips

At the moment PSAR is Long EUR/USD for the 3rd consecutive week and taking into consideration the average amount of weeks when PSAR is positive and that is 12 weeks one can easily go Long that pair right now. I am well aware that experienced traders will probably voice their opinions regarding drawdowns and that's a viable point. Well my answer to that one is to use as little margin as possible and there is a way how to achieve this to an average Joe. I use a spread bet firm in London where I trade S&P500 futures and now this pair. I bet a certain amount per pip/point. So $1 per pip would have put me $2521 in profit after 5 years and $10 per pip $25210, etc. As I am mainly a day/nightrader I am not too concerned about being in the red for too long. Using the above system large drawdowns are inevitable, but that's where we arrive at the 1st paragraph of my childish free thought expressions (I am no William Rennick ) concerning rational behaviour when trading or doing anything else for that matter.

This method is for Dummies and pros can and will make more money due to their dedication and applying a bit more knowledge.

 

[illiquid]

I don't know what the above is based upon, but here's my rant on forex systems in general:

It's easy to take any sort of recently recurring pattern or even a simple 2-year trend and masquerade it as a "system" -- for example, go long euro, short jpy, add on a few bells and whistles, and voila! Steady profits that go back as far as EUR/JPY has been trending higher.

For some reason fx traders are more easily duped into these types of pseudo-systems, where the bulk of apparent profits just come from a single directional bet obfuscated by some add-on spread or hedge. A recent analogy in the equity world would be a long Google/short homebuilders "system"; in commodities, a long copper/short anything else "system" etc.

There is a very good and simple reason why offered systems fail almost immediately once a trader begins to apply real capital, and it has little to do with a system's proliferation or popularity -- it stems directly from how these system-sellers find their wares to ply to the public. So be sure you actually understand how this system is making money, how it actually outperforms a simple buy and hold position in the given market, anticipate how performance will be affected given a change in trend, volatility, etc. There be no such thing as a system for dummies that works -- dummies won't be able to answer the questions needed to really figure out what the heck they are supposed to be making money off of. Just my .02 heads up.

 

[romik]

Quote from illiquid:

I don't know what the above is based upon, but here's my rant on forex systems in general:

It's easy to take any sort of recently recurring pattern or even a simple 2-year trend and masquerade it as a "system" -- for example, go long euro, short jpy, add on a few bells and whistles, and voila! Steady profits that go back as far as EUR/JPY has been trending higher.

For some reason fx traders are more easily duped into these types of pseudo-systems, where the bulk of apparent profits just come from a single directional bet obfuscated by some add-on spread or hedge. A recent analogy in the equity world would be a long Google/short homebuilders "system"; in commodities, a long copper/short anything else "system" etc.

There is a very good and simple reason why offered systems fail almost immediately once a trader begins to apply real capital, and it has little to do with a system's proliferation or popularity. So be sure you actually understand how this system is making money, how it actually outperforms a simple buy and hold position in the given market, anticipate how performance will be affected given a change in trend, volatility, etc. There be no such thing as a system for dummies that works -- dummies won't be able to answer the questions needed to really figure out what the heck they are supposed to be making money off of. Just my .02 heads up.

All I can reply to your post is that this system will fail, like most in a sideways market, it relies on singular directional movement/trend, but if you have been trading for a while and I think you have, you will know that a sideways market is a temporary event in most markets. Don't forget that I am referring to a weekly chart, not 1 minute one. This is just to prove that a simple method like the one above (not my creation) will make money. What would be more of interest is if somebody says - Hey, that's bullshit, it won't and proves it.

I am long EUR/USD @ 1.3097 based on that method Of course I can't ignore other TA based info, but essentially I will try and post what's happening if only weekly PSAR was to be used.

I will still trade using shorter time frames.

 

[illiquid]

On a weekly time frame, being long euro or short dollar via most any currency will have been profitable for the past 5 years -- you don't need a "system" to implement that. To say that even a "simple" system can make money doesn't really prove much, given that a single open position can achieve the same thing; you'd net 4000+ pips from 01 from just being long euro since then.

The point is not to say that system "X" doesn't work; it's to find out of if applying the particulars of said system is actually providing some sort of edge or not. That is, even if a so-called system is profitable, doesn't mean it isn't "bullshit".

 

[romik]

Quote from illiquid:

On a weekly time frame, being long euro or short dollar via most any currency will have been profitable for the past 5 years -- you don't need a "system" to implement that. To say that even a "simple" system can make money doesn't really prove much, given that a single open position can achieve the same thing; you'd net 4000+ pips from 01 from just being long euro since then.

The point is not to say that system "X" doesn't work; it's to find out of if applying the particulars of said system is actually providing some sort of edge or not. That is, even if a so-called system is profitable, doesn't mean it isn't "bullshit".

To make 4000+ pips from 2001 one would actually need to know why he is long and not short and that is pure hindsight on your part here. I am referring to a method that indicates when to be long and when to be short. Some shorts will be losers, some shorts will be winners, some longs will be winners and other longs will be losers. What prevails in the end is the offsetting ratio between the 4 possible outcomes. Will USD tank eternally, will EURO be the number 1 currency nobody can tell, predict yes, but let's not try and predict. That's for other threads. This is not a proprietary price tag based method, it's just to show that a person that has 0 knowledge of a financial instrument and does not understand anything to do with fundamentals CAN make at least a secondary income using a method like this one and not simply go long for eternity, but remain in control by letting the market tell him/her what is happening and PSAR making a trade decision. Very simple

 

[illiquid]

Quote from romik:

To make 4000+ pips from 2001 one would actually need to know why he is long and not short and that is pure hindsight on your part here. I am referring to a method that indicates when to be long and when to be short.

You wouldn't need to know why at all -- to show and sell a profitable system you just give it an "arbitrary" starting date and show the results from there. For a simple "long euro system", it would show excellent gains from '01 onwards. And you would never need to flip and go short either to achieve excellent results with such a "system". People don't go around trying to sell a "long euro system" because it's too easy to see through -- but throw in a few extras with trades and hedges going in opposite directions, and suddenly it's a sophisticated timing mechanism.

Of course I'm exagerrating, but the main point I'm trying to make is not whether or not systems can be profitable, but whether or not it's parameters are just "coincident" with what a market has done over a given time period. You must be intimately secure with how it works, because the most important issue forthcoming for you is how long will it take you to figure out that what you are using is actually still working? If you start to hit a drawdown with the system, how long will you need to wait before you give it up? Given a weekly system, wouldn't you need to keep at it for the better part of a year to actually know that it doesn't work anymore? Bottom line, can you anticipate when and why your system might fail, and adjust accordingly? How would a beginner or part-timer even begin to know this? Sorry to intrude on your thread with this, as you can probably tell I'm no fan of systems in general and should probably take this subject to another thread.

 

[romik]

Quote from illiquid:

You wouldn't need to know why at all -- to show and sell a profitable system you just give it an "arbitrary" starting date and show the results from there. For a simple "long euro system", it would show excellent gains from '01 onwards. And you would never need to flip and go short either to achieve excellent results with such a "system". People don't go around trying to sell a "long euro system" because it's too easy to see through -- but throw in a few extras with trades and hedges going in opposite directions, and suddenly it's a sophisticated timing mechanism.

Of course I'm exaggerating, but the main point I'm trying to make is not whether or not systems can be profitable, but whether or not it's parameters are just "coincident" with what a market has done over a given time period. You must be intimately secure with how it works, because the most important issue forthcoming for you is how long will it take you to figure out that what you are using is actually still working? If you start to hit a drawdown with the system, how long will you need to wait before you give it up? Given a weekly system, wouldn't you need to keep at it for the better part of a year to actually know that it doesn't work anymore? Bottom line, can you anticipate when and why your system might fail, and adjust accordingly? How would a beginner or part-timer even begin to know this? Sorry to intrude on your thread with this, as you can probably tell I'm no fan of systems in general and should probably take this subject to another thread.

It's cool, it's all good so far. It's a shame that I don't have data for the last 30 years, but tell me this, IF you had little TA/FA knowledge and 0 experience and you were GIVEN a 'system' (it's just a word) like this one based on it's positive expectancy which was based on last 30 years, why wouldn't one use it? I guess this is the main point I am trying to make here that trading can be as simple as this method and a complete beginner can use it successfully. Green - Long, Red - Short, etc. You mention just being long Euro from 2001, how does a person new to trading (how many ETers successfully managed so far to predict tops/bottoms consistently?) was supposed to know that exactly? And until what time will that person continue to hold that Long? Please do not forget that I am not making any arguments concerning experienced traders here. I am referring to a regular Joe who hasn't got a clue basically.

Perhaps if somebody has access to last 10-30 years data and is willing to sacrifice some time to gather stats can post the results here. As I have mentioned prior the ONLY obstacle is a sideways market and to be frank I haven't got a slightest idea how long these periods last in FX. Perhaps GBP/USD data anyone?

Mind you EURO is a relatively new currency and there is no data for the last 30 years (dumb de dumb on my part )

 

[illiquid]

Quote from romik:

but tell me this, IF you had little TA/FA knowledge and 0 experience and you were GIVEN a 'system' (it's just a word) like this one based on it's positive expectancy which was based on last 30 years, why wouldn't one use it?

If such a thing were even possible to find, even then, a very good reason not to use it is this: how long would you have to suffer a drawdown to realize it's stopped working? The irony is, the longer a system's trading history, the longer this period will need to be. If something has shown to be profitable over 30 years, would you keep trading it if it showed you loss after loss for 6 months? 12 months? Even worse than obvious losses would be results no better than random, dragging you on and on for years perhaps at a time . . . do you see the issue here?

I guess this is the main point I am trying to make here that trading can be as simple as this method and a complete beginner can use it successfully.

Why would you want to believe this, other than the fact that you are yourself just starting out with trading forex? Given the general failure rate of traders, what evidence is there that a "beginner" can successfully implement any system in a market that routinely takes the Soros' of the trading world to the cleaners every once in a while? Do you know of any beginners that have been profitable in this market right off the bat, using a system that has been given to them? I don't agree with your main point at all, simply for the fact that any "system" (whether mechanical, discretionary, etc) will eventually fail if the trader is not experienced enough to make necessary adjustments as the market changes.

The alternative is that you'll need to get comfortable with the fact that it may take years and who-knows-how-much capital before you hit upon something that works, year in, year out. And this has more to do with what goes on between the trader and his system, rather than between the system and the market. Again, just my .02.

 

[romik]

Quote from illiquid:

If such a thing were even possible to find, even then, a very good reason not to use it is this: how long would you have to suffer a drawdown to realize it's stopped working? The irony is, the longer a system's trading history, the longer this period will need to be. If something has shown to be profitable over 30 years, would you keep trading it if it showed you loss after loss for 6 months? 12 months? Even worse than obvious losses would be results no better than random, dragging you on and on for years perhaps at a time . . . do you see the issue here?

So far I have seen no evidence that would suggest that sustained drawdowns are indeed inevitable using this method and it's due to the lack of data. Maybe somebody can post at least a chart of GBP/USD for last 30 years so we can establish trend periods, average volatility cycles, sideways/trend ratios, etc


Why would you want to believe this, other than the fact that you are yourself just starting out with trading forex? Given the general failure rate of traders, what evidence is there that a "beginner" can successfully implement any system in a market that routinely takes the Soros' of the trading world to the cleaners every once in a while? Do you know of any beginners that have been profitable in this market right off the bat, using a system that has been given to them? I don't agree with your main point at all, simply for the fact that any "system" (whether mechanical, discretionary, etc) will eventually fail if the trader is not experienced enough to make necessary adjustments as the market changes.

The alternative is that you'll need to get comfortable with the fact that it may take years and who-knows-how-much capital before you hit upon something that works, year in, year out. And this has more to do with what goes on between the trader and his system, rather than between the system and the market. Again, just my .02.

 

[romik]

Here is a monthly chart of GBP/USD since 1982 (24 years). It is pretty obvious that no matter how bad drawdown periods could have been a Net end result is still very green. I've done a very basic calculation and the succession of drawdowns doesn't look too bad, yes there are very large losses of up to 1500+ pips involved, but gains offset any consecutive historical drawdowns/realised losses. But I know you will say that all that can change and when does one establish that fact? The answer is I don't know, but than again nobody does until PF starts declining to 1 or less, I guess that would be the time to realise that it does not work any more. When you run any other business you keep using same old formula year in year out, until the time profits start slipping away. But if one was to trust historical performance based on this monthly chart, then there is positive expectancy present, for sure. Ball in your court