Saturday, December 3, 2011


There are quirks to each persons trading which create undefinable edges. In my case I think there is a very subtle pattern in the signals created from meantrades setups. I define this as nesting.

No, not a birds nest. Although a tasty and very expensive Asian delicacy, it is not what I am referring to.

When I think of a meantrades setup, the idea of a coiled spring comes to mind. The idea of a rapidly expanded spring which snaps into action and has no control is a beautiful image once I am in a trade, as long as the spring is heading in its intended direction of course.

Specifically the nested signal is when price violates a keltner band and then returns for a reversal setup, however it has not yet closed below the median keltner line (which is actually just a 20 period sma). This type of setup has always appealed to me a very deep level but I never understood why.

After some consideration I realize now it creates a very subtle edge in my signals. It allows the signal to be created as close to the swing high level as possible.

Take two hypothetical signal examples from the meantrades setup, one with a nesting price point and one without.

As you can see from the first scenario, the ideal stop level is further away than preferred. By taking a trade without a nested price bar between the outer keltner band and median line, risk is increased. Over time this will eat away at profits and create doubt about the system, we want to avoid this at all costs. Even though you can easily scan through the charts and find quite a few huge winning trades which did not nest, it is the risk tolerance of each account which should be kept in mind first and foremost.

In the second photo we see an ideal nesting scenario, price retraces, tests the lows and then carries higher to successful target completion. Trades like this are why I am so confident in the potential for meantrades to remain robust and kind well into the future. All you need is momentum and retracements and the profits will come consistently week after week.

Wednesday, November 23, 2011

Meantrades Exit Strategies; taking huge swings with zero risk

In the past few years I have observed some of the debates which spring up regarding how to take a profit in intraday trading. There are 2 basic strategies.

  1. Take profits at a pre-determined level and go flat.
  2. Exit half a position at a predetermined level and move stop to break-even (or break-even plus enough to cover commissions).
There might be a slightly better way to achieve ideal profitability. It will require that you know the strengths and weaknesses of your system.

With regards to meantrades, there are two basic exit strategies when combined, are quite effective at maximizing profits.

The two basic techniques are as follows:

  1. When price reaches the opposite keltner band from entry, we can take our profits, go flat entirely.
  2. When price reaches the opposite keltner band from entry, we can move our stop to break even and begin using the supertrend stop as our trailing exit. 
The second option creates far more profits but it is not a smooth process. Perhaps 70% of all trades will be stopped out for zero gains. That's not an easy way to trade intra-day and can lead to overriding the rules of the system.

One solution to this is to work with a very rudimentary wave structure to determine which exit method to use.

One of the more effective structures is a double top or a double bottom. When taking the initial topping short trade take the keltner touch as the profit exit. However if price trades back up to the original top area and either stops you out for a loss and creates a fresh signal OR price simply tests the top, the second touch of keltner should be considered an opportunity to trail the trade and shoot for the moon.

Here is an example of the double top trade scenario:

As you can see the second short trade went much further and allowed us to benefit in several ways. By already having a nice profit for the day we could take our chances on a huge run with our stop at break even. This is what we should always strive for: take huge chances with zero risk.

A second technique, which I am toying with is to use a uniform exit strategy until the weekly target objective is met and then to switch over to the opposite one. In other words, if your goal is 100 pips a week and you started off the week using supertrend exits, once you reached the 100 pips you would then switch over to keltner exits for the remaining trades for that week. This allows you to trade with much less indecision and fear that you will miss potential profits. 

Something else in the back of my mind, although not yet tested, is to take some average of the MPE (Maximum Positive Excursion) and use that as the absolute exit for trades. I never really thought this was an ideal method to exit as it does not adjust according to volatility the same way that the Keltner bands do but I still remain curious as to the relative performance of applying keltner exits versus fixed exits. In order to create this exit strategy I would need to record the MPE as well as the MAE (Maximum Adverse Excursion) in my trade journal (which I don't do at the moment.)

Sunday, November 20, 2011

OHLC is just a line in the sand for Support and Resistance

In spite of my interest in OHLC, there are plenty of other ways to create very clear and potent daily levels of support and resistance within the meantrades method.

Let's compare several of them and see the results from last week.

Using 10 pip CRB's we can track the progress of each method of Support and Resistance. It's starting to become fairly obvious that no matter how to create your "line in the sand" on your chart, every day the results will vary. Thus, for posterity's sake, let's compare the results. Keep in mind when we look at historical trades, we are very mechanical in our entry, although in real-time you can be less so, taking into account the velocity of the markets (the rate of bar change) to help you decide if one of the primary rules of meantrade could be overlooked for the sake of a great risk to reward setup. For example, perhaps price has already violated the keltner midpoint and you still want to take the reversal from the S/R level. There are so many good trades which don't set up perfectly. This requires a traders vision and resourcefulness and is the reason most great mechanical systems cannot be hardcoded into a black box to ride off into the sunset and make us all millionaires in a month.

Traditional Pivot points (using the daily close at 5pm as the starting point for daily calculation):

11/14-11/19, Keltner touch exit: +30
11/14-11/19, Supertrend exit (note: when using the supertrend exit, we move stops to break even once we touch the opposite keltner band from entry, it creates a high percentage of break even stop outs, but allows for a few really big wins throughout the trading week): +31

Fibonacci Levels based on the first High Low close of the day:
(One of the true benefits of this method of creating intra-day S/R is that it does not have levels after the market breaks out, in a sense, it only looks for reversals within the expected daily range)
11/14-11/19, keltner touch exit: -28
11/14-11/19, supertrend exit: +102

With this method we also have the option of trading with the trend only after price has broken the last fib extension level. As you can see in the screenshot above, this creates some very high probability setups.

ORB Fib levels based on Asian session range:
11/14-11/19, keltner touch exit: +87
11/14-11/19, supertrend exit: +114

Finally, OHLC levels:

11/14-11/19, keltner touch exit: +51
11/14-11/19, supertrend exit: +114

Quite interesting that the OHLC S/R levels performed exactly the same as the ORB Fib levels. Fine with me, it proves Meantrades was ok the way it is originally. I like having that validation. Most people in back-testing circles refer to that mental condition as positive expectancy. With positive expectancy we can take every signal without trepidation.

One more method for creating S/R levels I learned from a guy on elite trader a long time ago who claimed, with about 5 years of trading futures under his belt by this time, that if you adjusted your fib ratios to 3.77, 5.12 and 7.80 instead of the standard, 1.618, 2.618 and 4.236, you would have more accurate targets for the daily range. I tested it a while back and it was true...sometimes!

If we take the opening range and use these ratios, as well as high low and 50% of the ORB and then applied these ratios for last weeks trading this is what happens:

11/14-11/19, keltner touch exit: +113
11/14-11/19, supertrend exit: +206

Looks like a winner.

Keep in mind that this is based on a single brokers data. Your results will certainly vary. In fact, I invite anyone to get in touch with me on yahoo at "mezarashii" and I would be happy to teach you how to set up your charts to get you going on meantrades..., well, I'm not sure what we should call the last method of creating S/R levels. I'm open for suggestions.

So what did I discover here in the end. Almost certainly pivots are a waste of time when trading horizontal support and resistance levels. But then, this I knew for years. I'm not sure why it does not work in forex but I'm assuming it has a lot to do from what time you plot them and the end of trading for one market is not the end for another. Perhaps re-plotting based on the opening price of each market would yield more active S/R lines but at this point I will leave that discovery to someone else. I prefer ratios and you can see why with the results from last week. Imagine getting a yield like that week in and week out. Most of these winning trades came on 2 or 3 days only. The beginning of the week was a real dud and sitting on a negative balance was quite challenging. But with positive expectancy, you can continue to pull the trigger with total confidence. That is what I took from this weekend analysis.

Wednesday, November 16, 2011

Meantrades OHLC a deeper understanding...

My objective with altering the Support and Resistance levels to OHLC with Meantrades is to refine an already useful concept. The less trade points we have an opportunity to trade, the more likely we are to execute according to plan. Of course the assumed premise is that the system has a positive expectancy.

Meantrades, regardless of how the support and resistance lines are formed, no matter what the time frame, has a positive expectancy. The only question in my mind has always been drawdowns. OHLC seems to create a more significant way to enter the market and reduce risk.

Yesterday there was 3 trades in 4 markets I follow. EURUSD went for a loss, Oil had a break even stop, as did YM index. With intervention both Oil went for 40 points as did the YM. The EURUSD loss was -37 pips. In the previous stop method of meantrades, the EURUSD trade would still be short and sitting on a drawdown of about 150 pips this morning. Nothing to panic about, but with volatility at an all time high, there will come a day in the not too distant future where the maximum negative excursion will be so large, no account size can handle it. I hate hard stops, but I hate margin calls even more.

OHLC will always be used with modified price bars. Originally I saw the value of constant range bars with their ability to remain in trends longer. These days, it is more about reducing risk. If you were to compare a stop loss on a time based price candle, there is no way to know truly how large it will get before its close. Fast markets create larger candles. With constant range bars, fast candles are always the same size. Compare these two losing trades to see what I mean:

I am using the 15 minute time frame in comparison. There is no exact way to compare the two charts. In my eyes 15 minutes seems to be the smallest time frame you can trade without seeing false signals all over the place. But then, some people see the market crystal clear on 5 minute charts. It doesn't really matter to me anymore, CRBs have eliminated any lack of clarity for me in the markets.

Here we can see with CRBs we reduced the stop loss not only in amount of pips but we were able to see that the market had violated its stop level much earlier than with the conventional time based chart.

To recap what Meantrades actually comprises:

  • Keltner bands: 

We must have a Keltner band touch of the outer band in the opposite direction of the trend. We don't want to be trading support and resistance without a healthy amount of momentum in either direction. If a market is simply climbing the wall of worry, there is no place to be looking for reversals. It is much better to be with the trend at that point as it will eventually climax and present a better reversal trade opportunity at some later point.

2 possible Keltner band setups:

  1. Market has a strong breakout outside the Keltner bands and then reverses.

2. Market trades outside the Keltner but has no thrust higher. This is a slightly lower percentage scenario than #1 but nonetheless still a statistically significant trade setup. Often this trade can turn into a creeping market where it never has any thrust higher but still takes out stops.

Sunday, November 13, 2011

Meantrades Redux V

Taking my lesson from the Perfection Trap, a bold look at what works and does not in Meantrades trading. After accepting that horizontal lines based on some secret Fibonacci on Gann type formula are at best random and accurate less than 40% of the time, I took a second look at what is important in support and resistance trading: where were there buyers and where were there sellers. There are 4 undeniable price points everyday, all else is anathema.





With that in mind we can take these price points and potential support and resistance lines for each day. Meantrades have always been about finding price points for entry where one would consider the market at a disequilibrium. If we are to trade at previous closing prices which printed on the chart, we can assume there is some intrinsic value at these price points.

From Friday's London session we saw two ideal setups.

These price points are not guaranteed levels of reversals but they are relevant almost every day. Markets push and pull, give and take, they never break out without retracement. We just need to catch a single wave each day to become rich.

Applying our traditional mean trade setup(with one small adjustment, we only take the reversal after price crosses the supertrend level*), testing of the preset levels for the day, there are very nice trades coming out with these OHLC levels.

How simple, how elegant.

One added bonus of shifting this method of creating support and resistance lines is that the first trade of the day happens MUCH earlier than all previous versions of meantrade. Most days there is a very powerful signal during the Asian session, which is quite convenient.

Here are the results on GBPUSD from last week:

Monday: -1
Tuesday:  +55
Wednesday: +11
Thursday: +20
Friday: +19

*the benefit of using the supertrend "crossover" (basically just the price reversing strong enough to crossover the supertrend stop line) as opposed to previous methods of stopping is the use of leverage more effectively. Taking small losses allows trading in multiple markets simultaneously without any additional account risks. Bad trades are exited efficiently. There is no overnight exposure. All the typical benefits of an intraday system are now employed, another positive effect of refining systems and the mental escape from The Perfection Trap.

Saturday, November 5, 2011

Filtering trades on XAU via time analysis

Yesterday was a really tough day on XAU. Until friday I was averaging more than 40 pips per trade on the XAU market. I decided to take a look at what was going wrong. The obvious was it was the first Friday of the month--this is usually an extremely low volume time to trade. It is often mistaken to be high volume but in fact the volatility skew on NFP days is due to a LACK of volume not a surplus of participants.

What I discovered over the past 30 days is that XAU has a very strong tendency to whipsaw at 3 intervals during the day. Note, all times are GMT +2.

The first, and perhaps most obvious was 12:00. This is when London is at lunch and NY is still in bed. Nobody should be trading signals at this time of the day. The second was the beginning of the afternoon session in London and NY is just waking up at 14:00. The consistency of the whipsaws was quite interesting. It's been common knowledge that market makers adjust prices rather violently when there is no news and their order books seem imbalanced. Best thing to do is to avoid signals which are created from this activity.

Avoiding these transitional periods in the XAU spot market added quite a return to the past performance for the last 30 days. Perhaps you too could benefit from observing what time of the day bad trades are coming in.

The other side of this coin is that the all time biggest winners will invariably come at the times most commonly creating bad trades. This is what the Black Swan theorists are always harping on about. Very low frequency returns will always outpace steady small profits. As a intraday trader, I cannot grab all of a move but I can take  what is obvious to me here and now. Once in a while I will nail those fat tail returns but it is best not to hunt for them like a hidden giant in the forest.

Thursday, November 3, 2011

The Perfection Trap

I'm reading an excellent book on improving trader mental states at the moment. Thus far the biggest impact on my state of mind is what the author Adrienne Toghraie calls "The Perfection Trap." This is what happens when you grow up in a highly critical environment where nothing you do is the best and no praise is bestowed on your actions as a child. No action goes un-analysed. You are critical others and they are critical of you. In the best case scenario, this creates highly creative and hard working young adults, in the worst case it creates neurotic children who resent their upbringing.

The first time I noticed this as a liability in my trading was when I began to have problems honoring my predetermined stops. It was as if the market moving against was a personal affront to my entire being. Just a single trade in a series of hundreds had become my defining moment as a trader, and consequently a human. How absurd when I look back on it, but it continues to haunt me when I introduce trading to a new person interested in the markets. The idea that I allow them to watch me trade and have that trade turn into a loss is somehow humiliating. I am a trader and yet I cannot make money with this person watching me? I become a fool watching them watching me.

VS Naipaul has a line in one of his old books which basically says something along the lines that a ruined North African trader was a fatally flawed businessman because he was so in love with selling his goods at a price which represented beauty in math. As his business began to sour it was obvious to those around him that he loved the precision of numbers more than earning a profit.

That in itself is an enormous lesson to take away and apply to the forex markets. No system works as a perfect  entity in the present or even the future. In the past, for sure, this is how we create systems to begin with. We look for patterns which repeat as often and as precise as possible. But the market doesn't care. And if we think about it for a moment, neither does mathematics. We are still discovering new possibilities in number theory. This is only possible because previous notions are in fact wrong.

A profitable trader is lucky though, if they can overcome the Perfection Trap, they can succeed where the mathematician will fail. Somehow I feel fortunate to have chosen this path as I can measure my success with the most linear of numbers: my profit.

Here are a few questions to consider from Trading on Target and decide if you should address this as a weakness in your mental trading arsenal.

How long have you been in the perfection trap?

What is the origin of the need to have perfection in your life?

How do you apply perfection to yourself and in your trading? Do you also apply the same standard of perfection to others in your life?

What are you trying to accomplish in your quest for perfection? What is the ultimate payoff? Is there a need for a sense of control? Of being more worthy of love and admiration? of reducing fear of loss and pain?

These are just some of the relevant questions I asked myself. Now that I am vigilant in my desire to create profits over personal emotional needs while I am in a trade, these deep emotional issues are no longer sabotaging my trading as they once did. This is not to say I have beaten my demons dead, far from it. But by being aware of this weakness within, I am a better trader.

Thursday, October 20, 2011

Triple Convergence with trends

The order of the day is to reduce reduce reduce. But never more than necessary. I find the most common theme running through effective systems are the use of Triple Convergence trends. Take the obvious element, direction. Which way are we going. Often times we seek out the largest time frame and hone in on it.

But this is missing the point. It is not where we have been, it is where we are going that matters. We also need to consider the stagnation of trend. One of the best ways to observe this is through divergence. 

  • Divergence comes mainly from oscillators. But of course they are merely reflecting the king of all indicators, price itself. Higher highs and lower lows are the foundation of a trend, and divergence will demonstrate immediately if the trend is in agreement with current price or if it has stalled. 

  • On a fractal level each and every completed bar, regardless of time frame. Surely by now it is obvious to anyone with any sense that markets are infinitely fractal and this fact shall never change. It is immutable as price trends itself. 
So here you have the symmetry, the undeniable theory that viable systems are based off of a triple convergence of 3 things, price, the tenor of trend and the fractal behavior of price intervals. With these three elements under control in your trading, the only thing preventing your system from making news highs is YOU! Good trading my friends.

Saturday, October 15, 2011

VPS Forex Solution

A lot of brokers these days offer VPS or Virtual Private Server solutions for their account holders. The idea is pretty simple. If your Metatrader 4 platform is on a stable internet connection and computer, your automated trade strategies will not suffer disconnects or fail to execute in market conditions which are faster than a mere human can execute in.

I think it's important to compare apple to apples in this case. Most brokers who offer VPS service offer you the smallest possible package. Your server space will be crowded to the gills and it is possible, although unlikely, that your signals will still reach their trade server slowly. Workstations can get overloaded just the same as your own pc. So it is prudent to take all risk factors into consideration. After all, what is the sense of simply transferring risk from your PC to a VPS? Your aim should be to reduce it as much as possible.

I prefer to use VPS providers completely off the map. Small and responsive to each and every customer.

Even if you are not trading an automated EA strategy, a VPS can provide you with an added backbone of security and execution efficiency. Reduce your risk.

I have set up my current Forex accounts with Hostwinds VPS. Downtime is non-existent and the customer service is extremely responsive. Mainly because the company is so tiny. I wonder if recommending a VPS provider for Forex accounts is really such a wise idea in this day and age of hyper-competition to stay ahead of the pack in execution and risk management. Nonetheless, I think there is quite a bit of healthy room for this boutique VPS  provider to grow into a formidable service provider. It is safe to say this recommendation won't affect my bottom line anytime soon.

Give them a try. If you sign up through me with the COUPON CODE: meantrade,  you can get 25% off your first payment. You can sign up for a month or a year and you will get the same percentage discount. In addition if you should find that their Forex VPS solution is not for you, they offer a 60 day no questions asked refund. So no reason not to give it a try today.

   Coupon Code: meantrade

Trend Trade

Ok so I went evangelical last week and made a fool of myself without posting any proof that I have been, yes, trend trading.

So here it is. The newest intraday trend method.

Pay close attention because this is a pretty powerful method.

First and foremost, you have to trade with constant range bars. Do not even think that this will work as well on a standard intraday chart. You will get chopped to bits and blast me as a system serialist. Which I probably am, but this is really not the case this time.

Second you need two ways to mark the intermediate trend. I have chosen Supertrend and a rather quirky rsi like indicator named after its creator the YangTraderMain.

The settings I use on the constant range bars are based on a 24 hour ADR rating (Average daily range). For example, EUR/GBP had a range of about 97 pips yesterday. if you divide 97 by 24 you get almost 5 pips an hour. So I would trade EUR/GBP with 5 pip constant range bar.

The settings on Supertrend are 10 period and the multiplier 1.5. This is very similar to an ATR rating but there is some updated voodoo. This is probably one of the most popular revisions on the moving average crossover because it integrates the crossover with a measure of volatility. Which is pretty much the foundation for robust trend trading methods.

The bars should be set on OHLC not candlestick. This is extremely important to determine entry and stops. The stop method employed here is a huge advantage over any other stop method I have attempted before.

Since it's so important, let's start with stops then.

Take the swing high prior to the signal and place a horizontal line 1 pip beyond this  level. If price trades at this level AND BEYOND. Do not exit. Not yet. Wait. Yes, wait. Wait for a OHLC bar to CLOSE outside this horizontal line. Occasionally a bar will OPEN outside this level but it will trade back into the range. This is the precisely why this stop method is so useful. It allows you to take a slightly larger loss by waiting to see if the market makers are simply blowing stops and mean reverting or if the market has really broken out. I should mention that this stop method is extremely risky using time based bars. A close of a time based bar gives you no measure of volatility. A 5 minute bar could be 1 pip or, as in the case of  EUR/CHF a few weeks ago HUNDREDS!

This is only a few trades. I still cannot get over how well AUD/JPY trends. The range is phenomenal. Yesterday it signaled for more than 175 pips and still going. Sweet Moses!

Entries are a much tamer affair and probably familiar to most trend traders. Price should close in the direction of the Supertrend indicator. The price bar should also close in the direction of the supertrend. In addition, the yang trader must be signalling with the trend as well.

I particularly like the staggered effect that Yang trader creates. There are quite a few signals which you should not even consider taking. Think of them more like a divergence indicator than a directional indicator. Once all 3 of these factors are in sync, a trade should be entered.

Now, normally we would use targets. But with trend trading, there are so many reasons why we shouldn't trade in this manner. There is just so much profit to be made in the trades you EXPECT to reverse at 20 pips and they drip drip drrrrrrrrrrrrrrip on for another 100 leaving you to do nothing but bank pips the whole session. This is the ONLY part of trading which gives you an edge. Predictive methods just cannot compare to this kind of trading. They will lose over the long term if left on their own. I should mention something that I have felt for quite a while. I honestly believe Fibonacci, Gann, MurreyMath, Astrology, etc. work well. BUT they do not work because of some secret order to the universe. They simply work for the same reason that trend trading fails for short periods of time. Markets revert to the mean. Randomly mark horizontal lines on a chart and trade your method based on them. I have discovered that for a short period of time, they will outperform almost any world famous support and resistance level. This includes daily pivot points. This is not a knock on support and resistance trading, it is just a fact and it still justifies trading in this method, but trend trading just makes more money over the long term.

So we trail our entries.

The trailing stop, at least for now, until I find something more ideal, will be the pip difference between the swing high and the entry.

That's it.

I would recommend you trade the less volatile pairs at the beginning. This system needs to be watched for the stops as we cannot enter a firm price in the market. But once you are in profit, just walk away and wait for the next Supertrend crossover.

This week profits have been good if not great. I made about 350 pips on 4 pairs. Maximum price excursion was running at about 45% of gains. That is, prices went against me about half as much as profits. This is primarily due to a few big trends on Monday. I would expect this to revert more towards a negative mean over time. Mainly because we are trailing exits. The frequency of small gains will outweigh the occasional meaty loss.

Good trading.


For a while now I have been eyeing this site with no more than a passing curiosity. The time has come though to mention this undeniably good deal they are offering. Sign up with your normal broker, the list of partners is quite long and most are very well established, and get rebates on your trades.

No artificially inflated spreads, no re-quotes, nothing but what you normally get with your broker.

I thought for sure it would be a way for a middle man to get their hands on my spread and just make it even more difficult to trade profitably.

Nothing could be further from the truth. Cashbackforex has become a broker of brokers. They create so much free press for their broker list that the brokers are happy to pass on the rebates.

I signed up with FinFx for personal reasons although they are probably not the best choice for most as they are not regulated in the EU. But their execution is flawless. I mean spot on to the micro-pip flawless. I have not had a single requote or suspect spread widening the entire time I have been with them. There have been a few who said that they did suffer some excessive spread widening which caused their EA's to go a bit haywire but FinFX promptly credited their accounts no questions asked.

Your mileage may vary and you might require someone more established in the broker biz, but this is the one for me at present.

They even allow you to sign up with previously existing accounts which you opened up direct with the broker.

What is there to lose?

Take a look at the comparison between the most popular brokers at Cashbackforex and see how much more money you can make if you sign up here.


Thursday, October 13, 2011


It might be a little late in the year for a book review on seasonal trading but I'm pretty excited to have discovered this.

Did you know there is an entire field of forex market research entirely devoted to finding historical dates where prices moved in binary patterns of either a bullish or bearish fashion? I was pretty startled to discover these patterns were often 100% historically accurate.

Talk about an edge.

The problem is this year in the forex markets it has failed MISERABLY. It has been so consistently wrong that I think there is an options strategy hidden within. Create a covered call to collect the interest paid by the +swap and walk away with a huge gain in the option you sold.

You can take a look at the historical accuracy of the system in the book faithfully published by Jeffrey Hirsch and family for god knows how many years. Historically speaking, the theory has considerable merit but this year would have been a blood bath.

This years edition could go down in history as one of the best arguments for black swan trading ever.

Wednesday, October 5, 2011

Trend Trading Intraday

I probably drank something to make me so batty about trend trading lately but I think I have finally found something worthwhile to pursue in real-time trading. An amalgamation of hours and hours of screen time. Employing every subtle filter for price action I have seen these variable elements only seem to add to the hit ratio increasing in my favor. Over the coming days I will begin to post some of these trades and eventually the evolving method. My mean reverting tendencies have finally begun to evolve into trending price action.

It's not the first time I have said this, but I believe it's the last:

I'm on to something.
96 pips of something

Friday, September 30, 2011

Money Management

"Money Management, also called risk management, position sizing and bet sizing is crucial. It is like sex: Everyone does it, one way or another, but most do not want to talk about it, and some do it better than others."

-Michael Covel

Thursday, September 22, 2011

Peter Campbell

Why isn't this guy on Bloomberg everyday?

If I had some serious money I would want it in a hedge fund like this guy runs. He uses all the same terminology as all the other talking heads but he actually comes up with a remarkbly useful conclusion. His returns, which are seen in videos 2 and 3 are incredible. 1 million to more than 5 million without compounding in only 5 years.

Sunday, September 18, 2011

Donchian Channels Intraday

Really delving into this trend trading genre I thought why not check the intraday range bar charts. With a slight view it seems that an automated system could be created with always in method.

Important considerations for entry and reversal (or exit):

Price bars should close in the direction of the signal, not flat or in the opposite direction. This is a subtle difference. It goes along with the realization that although prices often test levels and appear to be going that direction, on a closing basis they have left no footprint on the market and so momentum has not changed, it has only paused causing smaller traders to stop out in fear of trend reversals.

Results are filtered most effectively by taking an ORB and only trading the breakouts in the same direction. This greatly reduces the amount of trades but it seems to really get the big boys trading--which is where the big moves come in. We should never forget that.

Things are even more robust if you do not take the first breakout of the day but wait for the second pop outside the ORB.

Another minor note to be aware of. If the second breakout fails to realize any gains, it's probably best to start looking for trades dipping back into the ORB. This will probably result in a winner 2-3 times bigger than the two failures. See below:

Saturday, September 17, 2011

Ed Seykota

Has the answer I was searching for in my trading. For so many years I have been composing a landscape of the market in which I could pull out a few pips. But the truth is there are no landscapes to mold on the market, the trick is to actually flow with the market. Don't stand in it's way, don't hide in the sand when it steam rolls you, don't fight it and refuse to bend to it's metamorphosis. I have been doing that for a few years now, just trying to buy reversals because of some obsession with the direction always reverting to the mean. Mean reversion, sure it exists but why trap yourself in that thinking of only phase of the markets movements? Be like water, like waves in the ocean. I read this today in Covel's book, Trend Following. I always thought the trend following system meant you had to trade crossovers of a moving average or calculate atr ranges until your brain was swollen, but its really all about at the heart of the matter is the flow of the market. God I love it when I have a rare epiphany in the market!

Here is what I read today in all it'd delightful glory:

Ed Seykota once told me a story about being in Bermuda with a new trader who wanted to learn the secrets. "Just give me quick and dirty version of your magical trading secrets," the neophyte said. Seykota took the new trader out to the beach. They stood there watching the waves break against the shoreline. The neophyte asked, "What's your point?" Seykota said, "Go down to the shoreline where the waves break. Now begin to time them. Run out with the waves as they recede and run in as the waves come in. Can you see how you could get into the rhythm with the waves? You follow the waves out and you follow them in You just follow their lead."

I finally felt that today. I didn't just read it and remember the words, I experienced the concept in all it's expansive glory.

Daily Charts "Triple Threat"

Been reading a lot of Trend Following ideas from people like Michael Covel. He talks a lot about following the trend on Daily charts and longer. I decided to find a way to trade the daily charts which suited my temperament but also managed the volatility without giving up too much in terms of profit.

First I went through all the turtle style systems and decided that although they have extremely large winners once every few cycles, on a yearly basis they don't perform very well. The Alpha as they say is almost nonexistent. Enter a small adjustment. Instead of tracking Moving averages of price, try tracking the crossover of momentum with the RSI and CCI. I used a 10 period SMA and the results are mighty satisfying.

One way I found which manages to get better exits than using hard stops is to wait for the daily close outside of the swing high or low to exit with a loss. I have seen that almost half of the trades which ended in loss later turned into winners if this one simple rule was followed. Just on Gold alone the market has done this a handful of times. It changes the outcome of the system results from break even to extremely profitable.

Here are a few results from this year so far:

Gold:  +1500 pips
SP 500: +7150 pips
EURUSD:  +1123
USDCHF: +1328

If market closes outside of the swing high and positions are reversed the returns are doubled! (perhaps this is the main finding of this entire study which I did not even consider until I posted this blog entry) This is probably the most robust daily trade system I have ever data mined. I will definitely be forward testing this and probably making an EA out of it.

REcalculating by stop and reverse the pip totals are just sickening...

Gold: +1475 (loss of 25 pips; but this takes into account those several 180 pip price swings in the past month so definitely a fat tail to consider)
SP500: +8187
EURUSD: +1060 (loss of 63 pips but well worth the extra risk considering the huge bump in other mkts)
USDCHF: +2079

Even when the stop and reverse decreses the pip total if we look back on multiyear data it will be obvious how this can lead to greater gains. Based on my years of price observation, swing high reversals are very high imbalance points in price. What this means is that price either reverses or it doesn't. Price does not just hang around these points and consequently the intial trade will work out or it will reverse against the original signal and run like hell. The way I see it, taking on more trades in this method is actually a reduction of risk.

Friday, September 9, 2011

Maximum Price Excursion

Now that I am finally working with a programmer for automation, margin levels are as important as ever. A basic   standard to follow is whatever the highest price excursion from the backtesting results, the margin level should be some multiple of that. I have chosen two times that as the benchmark. On average, price excursion reaches 60-100 pips per week per standard lot. For every 10,000 usd risked, the account should have at least 1,300 in available margin. The maximum lot risk per trade is 4. If we take 100 pips as the MPE per lot and double it (for black swans...) we are at 1200 margin per 10,000. 1,300 seems the best number to work off of going forward.

Sunday, August 14, 2011

Meantrades with Pivot Farm levels

Did a full year backtest today and found some decent results. Have not done a head to head analysis with the meantrade orb setup yet but I am certain that with the pivotfarm levels I am trading almost twice as many times. That might be good if the market is volatile but when its trending that will surely create some deep drawdowns.

The results came in as follows for the EUR/USD:

August 2010 +482
October 2010 -38
November 2010 +1027!! (I checked it 3 times, couldn't believe it)
December 2010 +398
January 2011 -418
February 2011 +220
March 2011 -202
April 2011 +500
May 2011 +500
June 2011 +450
July 2011  +456

So the average pip total for EURUSD over the past 12 months is 306.8 pips. if anyone has a system trading a single currency with a higher monthly average, please let me know. I think this is the most robust trading incarnation of meantrades yet.

Sunday, August 7, 2011

Interesting Trade Setup using Daily CCI Signals

Just running through old ideas I used to trade on and found something interesting. It employs Daily timeframe signals and relatively fixed trade levels (which is quite useful as everyone knows price has a memory which needs to be respected).

The primary signal is when the CCI on the daily puts in a reversal outside the 100+/- level and the price has pierced the keltner bands. Draw a fibonacci based on that days high and low and trade these levels on the CRB chart (I usually use 20crb by default as it gives me a reasonable risk reward without having the babysit my charts). If price breaks the high or low of the day which created the signal we still trade the extensions from those fibonacci's but instead of looking for reversals we will be trading with the trend. This solves one of the worst problems in my Meantrade systems, fighting the trend. Here are two setups from this year.

We can see the CCI dipped below the 100 level creating a sell signal on 4/5. We then take the fibonacci levels created on that day to the next day of trading which is 4/6. We get a nice short for the clean winner. But the days following the market reverses back long and we don't see any short signals on the CRB chart. At this point we trade the extensions looking for longs. Until the next Daily CCI reversal signal at the end of trading on 4/13 where we are looking for shorts again.

Here is the most recent CCI signal on the close of 7/27. CCI has been short all last week.

The results were fairly good, a few homerun trades coupled with the expected volatility in the current market conditions. With tight stops 182. With mean reversion stops a really tasty 307 in 8 days. Definitely going to be following this for the foreseeable future. Very clean rule based trades which can be automated.

Saturday, July 23, 2011

Good week for EUR

New price levels and improved performance for meantrades. More trades at better entry prices than the fibs employed in the previous incarnation. 291 pips overall. Am still trying to automate this but the data server is on a remote feed which is not allowing access. Need to speak to the provider and see what he says.

Sunday, July 10, 2011

New pivot lines

I have always been a fan of confluence in pivots. There are so many varieties of calculating pivots and no one method has ever seem to consistently produce better results. Enter pivotfarm. They have done the leg work to testing this theory. And day after day they produce the confluence zones for all possible pivot methods. Daily, Weekly, Camarilla, Woodies, Floor and going beyond the norm, they also incoporate maket profile pivots (which are not called pivots but in effect they create a similar market--albeit more in depth-- report as the others).

I went back over the past 3 months with their confluence zones (as they call the overlapping zones) and found they performed even better than my own CRB fibonacci extensions. I think this is mainly for 2 reasons. 1, they are not symmetrical (fibonacci extensions are calculated in a linear fashion) and 2, they are effective immediately on the open of London. No need to wait for a range breakout before creating a setup.

With a simple back test I observed a huge uptick in performance over the past 3 months.
April topped out with More than 500 pips, May with 500 Pips and June with an impressive 450 pips. I still find reversion stops to be the most profitable way to take a loss as many of the short term stops often turn in to tiny profitable trades. The trick with this very anti-risk measure is to keep the standard deviation below 2.0. For these results I set it at 1.5 so the average length between upper and lower bands was only 60 pips. It allows you to get to breakeven as soon as possible so that the trailer (the meat and potatoes of the mean reversions success) to get to work at catching huge trends in a reasonably timely manner.

Saturday, May 21, 2011

Very profitable week on GBP and EUR

System has been firing along this month. Very big gains the past two weeks. GBP yielded a conservative 240 pips while EUR output a more sober 181. Trading like this seems more like robbing a bank then trading with one.

Saturday, May 14, 2011

Nice volatility with healthy ranges

Since BinLaden ate a bullet we have seen very nice ranges on all the currencies. This week was no exception. You might even say we had a boring week compared to last (although I wasn't in the market).

Booked profits on both the GBP (+182)  and the EUR (+97)

Saturday, April 9, 2011

Big week for the Euro

Huge breakout for the Euro this week and meantrades caught the trade a day early; not bragging just observing it is oftent he case that when the signals issue they cause a little pain before the fireworks. Am growing into this notion rather slowly--instant gratification being an achilles heel of mine.

There was almost nothing going on any other chart. GBPUSD missed long and short signals almost daily--even on contracted ORB settings.

Regardless, the EURO ended up +250 pips for the week and still long with profits already booked.

Sunday, March 20, 2011

Just for the crude sake of it

I charted crude oil last week to see how the system is tracking. Wow, it is impressive indeed. One really nasty uptrend trade and several really nice tops and bottoms nailed for a take away of 4 points. Might need to look into spread betting this one ...

back in the quick

I was thumbing through the charts recently and discovered not only is my method still as robust as ever, it even seems to out perform more popular methods out there. Market profile traders, VSA traders, they all have their days but Meantrades seems to consistently give more bigtrades than most other systems going. Here are the results from last weeks trading.

Huge two day uptrend on the Euro which we got nailed in the crosswinds. However the GBP was able to catch a ride upstream and looking very nice indeed prior to Fridays trade.

If anyone knows about programming EAs, I would like to collaborate by trying to automate this strategy. I think the auto pilot might have trouble if exiting on the first touch of the keltner. However if using a scale out approach I can see some huge gains possible. I have discussed this in years past and have seen very positive results. I however have not been able to hold on to live positions long enough to benefit. An auto trade bot would not have the same difficulties I imagine. Perhaps another program would be more accessible for constant range bar trading as it is my understanding Ea's do not operate consistently with offline mode charts and the constant range bars require offline in Metatrader.