How Dangerous Is This Strategy

Fundlord · May 1, 2015

The past few weeks have been very slow for me trading wise. Since I am swing trader I have to wait for the right moment to enter. If it goes heavily against me Im out and have to spend a few more days/weeks not making money just waiting and watching.

This frustration inspired to find a new strategy when markets are no longer in that trend environment.

Basically I watched the GBP/USD and waited for a rapid change in price and I bet that way, high leverage, really high leverage.

I traded the GBP, shorted it an caught the best part of a 30 pip move without it ever going more than 2 pips against me. Because the price was just taking off in one direction.

I didn't establish a hard stop but it would have been around 10pips.

I also avoid news announcements but I trade after them or an hour or so before them.

I made more off this one trade percentage wise (15%) than any other of my trades since the may 14' march 15' dollar run. I have about 4000 hours of watching currency prices behind me so I feel as if I have a gut feeling when I should enter a trade.

Anyone have any experience with this type of trading ?

Buy1Sell2 · May 1, 2015

volpunter · May 1, 2015

Insane leverage is almost a surefire way to bankruptcy

The strategy approach is not bad at all, but it requires 3 things : a) you have an edge to spot good entries, b) you can execute rapidly, get filled at very insignificant slippage and can trade at extremely tight spreads (I am talking about average spreads of around 0.4-0.5 pips in cable), and c) you MUST set a solid stop

Essentially several of my strategies take a very similar approach: I trade aligned with breakouts but my algorithms take me out right away when the breakout turns out short-lived and is very soon after retraced. One strategy aims to establish a longer-term position in the direction of the break out. The other strategy follows the same entry logic but only aims to capture several pips with the approach applied to many different currency pairs and 24/5. Both approaches added alpha to my overall book for years. My broker affords me very low cost of execution, extremely tight spreads regarding the size I put on, and good fills. Those are some of my higher leveraged strategies but leverage levels even in those lie comfortably below 15:1.

Fundlord said:
The past few weeks have been very slow for me trading wise. Since I am swing trader I have to wait for the right moment to enter. If it goes heavily against me Im out and have to spend a few more days/weeks not making money just waiting and watching.

This frustration inspired to find a new strategy when markets are no longer in that trend environment.

Basically I watched the GBP/USD and waited for a rapid change in price and I bet that way, high leverage, really high leverage.

I traded the GBP, shorted it an caught the best part of a 30 pip move without it ever going more than 2 pips against me. Because the price was just taking off in one direction.

I didn't establish a hard stop but it would have been around 10pips.

I also avoid news announcements but I trade after them or an hour or so before them.

I made more off this one trade percentage wise (15%) than any other of my trades since the may 14' march 15' dollar run. I have about 4000 hours of watching currency prices behind me so I feel as if I have a gut feeling when I should enter a trade.

Anyone have any experience with this type of trading ?

loyek590 · May 1, 2015

hey man, all us trend traders do that when the mkt isn't trending, but we do it in our paper account. At first it is fun, and very soon you learn why after all these years you don't do it anymore.

volpunter · May 1, 2015

what, the over leveraging?

loyek590 said:
hey man, all us trend traders do that when the mkt isn't trending, but we do it in our paper account. At first it is fun, and very soon you learn why after all these years you don't do it anymore.

Fundlord · May 1, 2015

Leverage is all relative though, 10 times leverage on a multi week trade is high risk. But 50x on a seconds to minutes trade isn't as high risk.

volpunter · May 1, 2015

hmm? Leverage is relative but only relative to your account size not the holding period of positions. How so? So a 500:1 leverage with holding period of few seconds or minutes is also not high risk? If yes I strongly disagree. If no then how do you exactly delineate? And why is a 10:1 leverage high risk on a long-term position?

There is an intricate relationship between leverage, account size, and stop loss levels. Holding period certainly does not factor into this relationship and various position sizing equations.

Fundlord said:
Leverage is all relative though, 10 times leverage on a multi week trade is high risk. But 50x on a seconds to minutes trade isn't as high risk.

loyek590 · May 1, 2015

volpunter said:
what, the over leveraging?

if you are a trend trader, you are already trading on pretty low leverage. If the market chops, like it does most of the time, it is easy to get bored or frustrated.

If you're bored or frustrated because your market isn't trending, there is one sure way to make it start trending, and that is to increase leverage.

volpunter · May 1, 2015

I do not let emotions come into play, especially not when sizing positions. And my breakout strategies are fully systematized, algorithmic strategies.

loyek590 said:
if you are a trend trader, you are already trading on pretty low leverage. If the market chops, like it does most of the time, it is easy to get bored or frustrated.

If you're bored or frustrated because your market isn't trending, there is one sure way to make it start trending, and that is to increase leverage.

Fundlord · May 1, 2015

volpunter said:
hmm? Leverage is relative but only relative to your account size not the holding period of positions. How so? So a 500:1 leverage with holding period of few seconds or minutes is also not high risk? If yes I strongly disagree. If no then how do you exactly delineate? And why is a 10:1 leverage high risk on a long-term position?

There is an intricate relationship between leverage, account size, and stop loss levels. Holding period certainly does not factor into this relationship and various position sizing equations.

I mean if you are trading a long time frame, you need your stops much wider, when I trade my usual 1-10 strategy i have stops as wide as 2% with 10x leverage.

But when I trade short term I use stops of 0.1% with 20-50x leverage.

The leverage is against my total account value.