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The Screening Room – Million Dollar Traders, Part 1

Available on YouTube here (link correct as of 7th January 2020): https://www.youtube.com/watch?v=oXno18pOHgo

HEEEEERE’S LEXXY! (please don’t sue me Lex, your show was great and I want to invest in your hedge fund)

Lex Van Dam strikes me as an interesting guy. In 2008, he took a reality TV idea to the BBC, proposing to put up a big chunk of money for a bunch of randoms to trade with. All the participants would come in from vastly different backgrounds with Van Dam’s intention being to replicate the Turtle Trader experiment from the 1980s (a fascinating social psychological test aimed at turning a bunch of randoms into million dollar investors and traders – https://www.investopedia.com/articles/trading/08/turtle-trading.asp). He would front the cost of training the individuals, funding their trading room and providing the investment neccessary.

“This is Lex Van Dam. A man who’s about to make the biggest gamble of his life. He’s bet 1 million dollars of his own money that he can turn 8 ordinary men and women into successful city traders.

From everything I’ve found, Lex’s reasoning for why he decided to run the experiment has been inconsistent. Given the show wound up filming as the height of the financial crisis hit, it’s certainly possible that the rationale changed to fit the marketing of the TV show. Either way, the three-part show providing a fascinating look at the world of hedge funds, small time trading and the total and terrifying lack of respect that the everyday person on the street has for money.

Once all the introductions are done (and for the most part, we learn that the contestants largely know absolutely nothing with a few exceptions, and that they’re really boring vapid people), we get the first real bit of meat – Lex and his trading floor manager Anton (more about him later) are not fucking around. Seriously not fucking around. Lex does not want to lose money. If he loses money “it’s a disaster” and the look in his eyes when he says it gives me the impression he’s going to get all Freddie Kruguer on his biggest losers. Meanwhile Anton doesn’t care if you’ve been in this game for a day or 25 years – He smashes the team for a laissez faire approach to their first day despite the fact they’ve never traded before.

On some level I see what he’s saying – where’s your research, where’s your plan, where’s your hedge etc etc, but at the same time they’ve thrown this lot straight into live trading. Not even demo. It’s as deep end as you can get, and I can’t imagine a real hedge fund or bank operating like this with a brand new trader (or to be fair, even pushing a new hire straight into trading without prior experience).

The team has the instruction to trade individually, on their own opinions, but that they won’t succeed as individuals. The success of the fund relies on everyone combined making a profit. Obviously, we know from that alone, straight off the bat, that they won’t succeed. The deeper we get into the individuals, we see this more and more. Ohi, a student, finds himself reading the paper instead of trading, panicking about “performance anxiety”. Emile, a fight promoter, has information overflow and can’t seem to discern between the good and the bad. Simon, a retired IT engineer, talks about statistical models, how he can apply them to his portfolio, and why they work and shows not a single inkling about why that approach is going to lose him money.

It’s no surprise when he goes balls in with a maximum position size on the first trade of the group and instantly loses money. Talk about buying at the top. This trade hits a stop loss within a few days, along with a few others he makes, but all he seems to care about when the market opens is eating breakfast. Inexplicably, he then gets funny with Anton for no reason.

As the first week continues and the team add more and more positions, emotions and standards start to creep in. Caroline, entrepreneur and single mum, has major misgivings about shorting. I get this as she’s owned a business and wouldn’t want to see anyone in any market place suffer, but there is a lack of steel for her investments. Sam, who is hilariously just listed as “Environmentalist” on the show’s Wikipedia (is that even a job?), doesn’t want to put the trigger on anything that isn’t ethical which keeps him on the sidelines of a great many markets, and revisiting Emile briefly – his strategy isn’t even a strategy. He just invests in brands he likes willy-nilly without any semblance of investing their underlying business.

I’ll be honest, if I was Lex watching this, I would be absolutely frozen in fear. Personally I’ve blown bank after bank trying many different and terrible ways of trading, and almost everyone here is exhibiting the same lines of fear, emotion and poor analysis that every newbie trader has felt.

Double top, Cleo. Double top.

A breaking news story about Iran launching a missile (how ironic given current real world events) gives everyone a potential in. Cleo, a vet, shorts British Airways thinking “AHHHH OIL” which is the first actually smart move of the show. My issue here is – did she see the potential double top and resistance zone or did she react purely on news? When she proceeds to celebrate being 1p in profit, I’d probably argue she didn’t see one of the most basic fundamentals.

Thankfully, the team largely start to pick it up in terms of their professionalism. Simon remains an issue, but the communication is good, they’re playing cautiously, and they’re getting their news analysis in.

Mike, a retired soldier, is picked up for not making trades. His explanation is waiting for the right time seems pretty solid to me, especially as a new trade, but Anton is considerably less forgiving. I’m not really clear on why – timing is something that comes with real trading experience, and yes, you do have to jump in and make your first mistake, but equally isn’t Mike safeguarding Lex’s money? I don’t know.

Then, naturally, the credit crunch hits. Wolf Blitzer appears on our screen to tell us about Freddie Mac and Fannie Mae and absolutely no one has a single fucking clue what to do as every trade turns red. Errr, short the market maybe guys? Anton more or less says this both to us and to the team and yet they just sit at their terminals and… do nothing. Sam buys shares on Alliance and Leicester after Santander agree to buy them. Unbelivable trade, but hey, it worked. Simon copies his trade idea by going in on Bradford and Bingley (on what basis?) and gets utterly fucked.

Cleo sells off everything in a panic and then has a paddy. Anton is very clearly getting pissed off in his office on the phone to Lex which is quite funny – they clearly think they’re the two smartest guys in the room, and actually they are. Again, why the hell are this lot not shorting everything on price action alone?

Anton pulls them up on their professionalism again and tells them not to have lunch (fair enough, that’s how the City works). Both Simon and Cleo both start to have meltdowns as a consequence, with Simon still arguing with Anton for no reason and Cleo having a total confidence freeze. You get the sense that it’s been a frustrating first week across the board for all of them. Mike is finally starting to trade though, although he’s going in with a crazy hedge based on a right share and underwriting between two separate banks. Nothing wrong with that kind of trade if you know what you’re doing, but again, Mike is a novice. Predictably enough, his hedge stays static whilst his main position crashes straight into a wall. Anton very slyly thanks him for his effort whilst telling him he’s an idiot. Although that might be because Lex tells Anton that Mike’s an idiot.

The BBC proceed to ham up the impact that the financial crisis has had by showing us footage of a homeless man with a huge bushy beard just one week into the crisis. I guess he really got hurt bad on the Monday! Back in the office, Cleo who has survived so well up until now without turning on the waterworks, finally cries and believe me, this will now become a regular feature. Anton tells her she needs to not be a perfectionist and just go for it.

She makes a pretty good point to camera before shitting all over herself. She feels like she’s being pressured to have positions just for the sake of having positions (absolutely true, that’s entirely what’s happening and it’s not right when you’re trying to keep someone else’s money safe), but then tells us she doesn’t want to trade when the market is so volatile. Volatility makes money and she doesn’t understand how important it is. Again, I can’t state this enough – SHORT. EVERYTHING.

Simon doesn’t know if he’s long or short, totally miscalculates his pip values, positions, probably his own bank account, probably don’t know if he’s actually married or not and from what the footage would suggest he basically opens a trade and instantly closes it for loss before reopening the trade. At this point you have to wonder if he’s there to deliberately sabotage Lex. Maybe he’s an agent of the Big Banks? Mistakes happen in trading, don’t get me wrong, but you can trade out of them, hedge them, try and turn them into a positive position. You don’t just crap out the other way straight away.

Anton knows where it’s at and the more I see of him, the more I like him. Lex chides him for being off the floor for an hour and a half to deal with Cleo’s shit and Anton tells him straight in return “A person who can cry for an hour and a half is a person who has never traded before.”

He’s absolutely right. He knows exactly what he’s talking about, and he’s getting increasingly frustrated with the whole experiment.

“Yes Lex. Yes, I know, they are all fucking stupid.”

Finally, FINALLY, the group decides to short when banking share news comes out. I mean, it’s a bit late, they don’t hedge anything, and if they’ve waited until clear share news to do it, you can guarantee everyone else is doing it and a bounce is inevitable as a result but hey, you can’t teach an onion to walk, or something. The smart money comes in when the news turns out to not be as bad as expected and takes the shares back up. All the traders have been eaten for breakfast, Lex is pissed off again, Anton fires a rocket up everyone’s ass and I’m left asking myself again, why didn’t they short a week ago?

That’s where episode 1 ends (the preview of episode 2 shows Simon and Anton arguing again over nothing). I was going to do the whole show in one post but to be honest the lessons you can learn from this show as well as the entertainment value is too much to be contained in one, so I’ll be back for more later. What I will say is this – the valuable lesson to take from this show is so simple. It doesn’t matter how much training you’ve had – you can’t go and trade live straight away and expect results. You’re not going to understand market conditions, nor are you going to have seen how quickly things move and bounce around. There’s no substitute for experience, and no way of simulating this without seeing it live. The best thing to do is go demo at least for a couple of weeks. Don’t use a demo account to confirm whether your algorithm is going to work, but do use it to get a grip on the why/what/where/when of how market works.

Oh, and also – if the economy is crashing and you’re in stocks, SHORT. EVERYTHING. IMMEDIATELY. I mean seriously, what’s wrong with these people? Why on Earth wouldn’t you do that?

(Chase and) Status of the Union

That joke was totally not worth it.

The blog’s been going for about 6 weeks (give or take, I can’t actually be arsed to check) and as I said quite early on, I wanted to stop shortly into its existence to take stock.

First and foremost, I definitely cannot keep up the content production schedule of 2 full articles a week as well as the Countdown and Roundups. As much as I’ve enjoyed crafting a lot of it, there’s little room to work, trade, be daddy and reluctant husband, see friends, relax and write.

You may have noticed this from the array of Countdown and Roundups posts that were literally just made up of ?s. I scheduled these posts to make the process of posting easier – all I’d need to do is drop in some content and they’d be ready to go. Unfortunately I haven’t even had time to do that. It’s only today that I’ve thought, shit, I need to delete that messy content.

Plus, and here’s a key point – the algo’s changed again. Obviously from my first results the current algorithim seemed to be a good one, but the problem from my perspective is that the winning trades hit the profit targets by such a small margin it could’ve so easily gone the other way. I would prefer to get into something in the middle of its move and then out whilst it’s still got legs. I believe the algo I’ve got now accomplishes that, but it’s still firmly in testing. So much more development and understanding to go.

There’s also been a bunch of articles I haven’t even remotely enjoyed writing either. I hated writing the Chart Art post in particular – when I read it back, it’s just a jumble of words. To be fair, that’s a big portion of my writing style, but it doesn’t lend itself well to some scribblings. I had planned to review the SSL indicator and Xard’s fantastic trend following system, but I’ve realised I’m not the best person to write these pieces.

So, Countdowns and Roundups good. Analysis of own trading algorithms (past, present and future) and future developments good. The odd occasional foray into trading psychology and approaches good. Everything else? Nope. Especially where it concerns looking at other people’s shit. This is my journey after all.

That said, I do want to add one thing to the schedule. Reviews of trading and business films and TV shows. I’ve found these fascinating long before I started trading, and even more so now. I think it’d be interesting to look at them both as entertainment, and trading tools as well. So you can expect that added to the schedule.

So with all that in mind, for the next few months, I think we’re looking at…

  • Sundays and Fridays weekly: Countdowns and Roundups
  • Fortnightly on Wednesdays: My trading algorithm analysis/trading psychology/future developments
  • Every now and then on Saturdays: Trading media reviews

Just don’t expect this to be consistent for a while! I will try and get there as quickly as I can.

Another Chase and Status in a few months then! Until then, carry on trading. Or don’t, I don’t really care what you do.

Diamond in the Rough – The Heiken Ashi Smoothed

Originally written: 7th January 2020

I mentioned in a previous post I hadn’t covered what goes on in my algorithm, so it was going to be hard for you to all follow what kind of trading decisions I’ve made and why I’ve made them. I certainly apologise too that it’s taken this long to find the right space and time on the blog to discuss it.

Of course, I also have to apologise for the lack of information I’m about to give you too. If I was to give away my methodology, strategy and system as a whole, it wouldn’t be very effective for very long. The Big Banks and their analysts are sharp. When they see growing pools of money in one area, they’ll manipulate price the other way and snatch the lot for themselves. That’s kinda just Finance 101 really.

Maybe when I’ve made my millions and can retire I’ll give the idea away for free, because I’m a kind giving soul really, but I can’t change the world the way I want to without the big sack of cash necessary to do it first.

Let me tell you what I can reveal instead. I’m going to give away the identity of the most crucial confirmation indicator I have in my lineup. Not my entry, but the indicator that holds the balance for my trades being on the right side or not.

That is the Heiken Ashi Smoothed.

Bit crap on its own to be honest. This isn’t a great screenshot.

I call my current algorithm PinPoint. The reasoning for that is how I see each confirmation indicator preparing the ground for my entry. If the Main Entry Indicator signal is my alarm to take a shot, then I need to know my confirmation indicators have lined up to make that shot accurate.

The indicators I use all come from different families as well. My main entry is a nice, simple, repainting trend indicator that works strongly in the moment but really cannot be used for any kind of backtesting. Confirming if that’s valid are:

  • A Price Action indicator: The Heiken Ashi Smoothed
  • A Cycle indicator
  • A Momentum indicator

They’re all important, but that Price Action indicator also acts as my key for trade management and exits too. Just so we’re clear too, the Heiken Ashi Smoothed I use doesn’t rely on default settings. Sorry to any contrarians who think they’re going to pick up my money reversing my strategy.

I’m going to assume everyone reading knows what Heiken Ashi is. If not, go and do some research here and then come back. Heiken Ashi Smoothed simply takes the logic behind Heiken Ashi candles and adds a set of moving average calculations. It provides a ranged area where a pair is either in pullback/ranging, or freely trending in the implied direction.

Heiken Ashi Smoothed is not best used on its own. After all, it’s literally only a method of smoothing real Heiken candles, and those don’t work as a single indicator system either. However it is exceptional as confirmation, and even better as a trade management system.

You’ve been hit, you’ve been struck by, a smooth Heiken Ashi.

When I have a signal, I set a firm emergency stop loss 3* higher than my preferred risk. The rationale for that comes from the philosophy that the Big Banks can see where the price points where most of the current trading volume was taken. Whilst my real world stop is probably somewhere around there, I don’t want to be caught in a stop hunt. Equally in case of a flash crash or unexpected gains, I don’t want to be caught up in a margin call that completely destroys my account.

This presents me with emotional management challenge #1 – when price closes above my actual risk, manually close the trade without question.

The real stop is set on the back end of the smoothed candle. Ultimately if price is travelling back into or across that range I know the trend is either dying or in pullback. If it’s in pullback, I want to give it just enough room to get back on track. Additionally, the HAS is so smooth that it will carry on gradually travelling every candle until it’s caught up with price. If it’s sitting in that range, I too can gently pull my stops closer and closer – invaluable if it turns out that price has turned into consolidation.

Ultimately, unless things have gone really wrong outside of anyone’s real control, by following HAS in this way I’ll be well clear of closing for loss as big as my risk or emergency stop.

Likewise, I can use HAS movements to stagger my profits too. When my trade goes into profit, I create zones between certain percentages of profit. As a HAS candle stick starts to enter that zone, I move my SL into profitable territory at the start of the zone. The trade has room to breathe and move on, but no longer needs active management either, unless I want to move it throughout zones (which I do, but at least I don’t have to worry about losing money and can step away from the screen for a second).

This is merely how I use Heiken Ashi Smoothed. It’s my diamond in the rough and probably the most important indicator I have. It’s not the strongest confirmation I have, but mixed with its trade management properties and you have something that gets you into profit without cutting too much of it off, and keeps your lossy runs short.

Trade management is the most important part of this game. I’d rather win 10% of my trades and have 90% break evens than an algorithm that gives me a 1% winning edge but all the losses are equal the other way. How stressful! You may as well just flip a coin for what good that is.

Use the indicators in your strategy to ensure you’re taking a winner whenever possible.

So, I know that was all kinda light on real information. Again I apologise, I had intended this to be a clearer breakdown until I realised just how much I would be giving away and potentially ruining my own money making abilities. However, there is a point there of varying your confirmation indicators too, and finding the one – whether it’s HAS, ATR or something else – that’s going to be that friend who says “Come on mate, you’ve had enough, let’s go home.”

Because you know what? That friend saved you money AND you from a 3 day hangover. Good friend to have, no?

Algorithmic Blues – Past and Present, Part 1

I’ve been through many, many systems and algorithms in my trading career so far. Some I’ve chopped too early, some I’ve made some profit on but not understood either the risk or plan itself and have resulted in some swings so intense that I’ve ditched them in a confused state, and some just straight haven’t worked.

Suffice to say, I’ve always felt on the edge of glory, but something has stopped me from crossing the line for whatever reason.

At this point, I’ve gone so far down the road that I’m not sure what failed where historically, but I did want to highlight some of my past algorithms which have come close but no cigar, and my interpretation of why they failed.

Let’s start with the rather unhelpfully named “Age of Destruction”. Yeah, I have naming convention issues. Live with it.

Indicators Used:

  • NihilistRSI (Specially developed indicator)
  • JB_Center_of_Gravity (a non-repaint version of the Center of Gravity indicator)
  • MTF ATR (1D over 10 periods, used for setting P/L targets)

This was created around about March-April 2019 time, for use on a 1H chart. I was still learning NNFX, but obviously hadn’t taken enough information on board at this time, hence my use of RSI (which I agree today, isn’t particularly helpful). Simple enough approach with minimal indicators.

NihilistRSI is a combination of two indicators – RSI (durr) and Nihilist Ultra Trend. Nihilist Ultra Trend is a propitiatory indicator and I have absolutely no information on how it works, but I saw a link between how RSI reversed in certain territory when Nihilist Ultra Trend changed from red to green and vice versa. It seems to give fairly keen reversal signals, and when accompanied with these signals appearing outside of the CoG bands, these elements together made up a reversion to the mean strategy that seemed to be pretty solid.

In trading, it didn’t work. At all. Why?

Well, here’s your super dumbass moment from yours truly – Nihilist Ultra Trend repaints, quite significantly far back too. The very nice looking arrows on this chart would never appear in live trading, and with the myriad of colours on the Nihilist Ultra Trend indicator it’s quite hard to spot this repainting.

I would’ve got away with it if it wasn’t for those meddling arrows

I went all in on backtesting this particular indicator and seeing the number of trade opportunities that would come out of it. It was only after I’d spent quite a bit of effort on crafting the combination that I went more into detail to investigate the problem.

From this, I learned the following:

  • Test, retest, triple test that the indicator you’re intending to use doesn’t repaint. If it does repaint but you still think it’s going to be useful, be sure this is factored into your system and additionally, be aware that backtesting your system is going to be largely impossible.
  • Have a concept of how your main entry indicator works even if it’s a remote one. This is just stupid. Even if you don’t know the ins and outs you need the know the loose concept.
  • Combining indicators is actually really powerful providing they are the right indicators. RSI on its own, as NNFX has been very clear, is not a great indicator for Forex. However, if you are using it to measure the strength of another signal, it can turn into a very powerful separate confirmation of a single indicator. Don’t be afraid to throw these things together as an experiment, and don’t think you always have to look at them as oversold/overbought indicators. It can be as simple as “my confirmation indicator is giving me a signal, and also RSI has reversed past a certain level on the same candle. Might be worth a look”
  • Center of Gravity is a great indicator for both trend following and mean reversion strategies, but it does not fit as any kind of primary confirmation tool. Use it as your last defining tool.

Another variant of this I have in my old template list is “BreadOfJustice”. Must’ve had toast that day. This was exactly the same as the above but with an added TEMA baseline with a 34 period in order to try and fight the repainting issue after I’d discovered it. It relied on a NihilistRSI signal popping outside of the CoG lines followed by a change in the TEMA direction. The two problems were, the repainting of NihilistRSI can stretch back quite a significant distance, and the change in the TEMA would always pop too late to be able to get onto any mean reversion move. It was quickly binned.

The last template I’ll look at today is a variant of Oma Ally’s BBMA strategy. If you haven’t come across BBMA before, it’s worth looking at as a study. Conceptually it’s a solid system that didn’t particularly work hand in hand with my own approach to trading.

BBMA stands for Bollinger Bands Moving Averages. At its core, the approach is to observe when moving averages pop out of a Bollinger Band, and other conditions apply (such as reversal candles) you get into the market. I made several modifications to the idea to see if I could get something together I found more tradable, but obviously the key issue here is trying to trade a reversal in Forex is just not a smart idea.

The closest I got was “BBMA-Xtreme-Confirm”. This would’ve been during Summer 2019.

Indicators used:

  • Bollinger Bands
  • X-Treme_MAYOR PAIR_v2.4.1_nrp
  • X-Treme (these two do combine to give a slightly clearer picture than using one of their own, but they are essentially modified Zig Zags)
  • Powered_Trend_Signal_Arrow_Alert – 2
  • Powered_Trend_Signal_Histo_Alert (these two have different HL settings. I’m not sure why)

The “Extreme” part of the system remained the same – you’d need the X-Treme indicator to show an initial signal outside of the Bollinger Bands. At that point, you’re playing reversal signals. The Trend histo and the Trend arrow then need to match up to take an entry. Very simple to apply, very simple to use.

That green line represents the perfect signal. Only problem is it wouldn’t have been backed up with confirmation for 10-20 bars after it appeared.

The one massive problem is Powered Trend Signal repaints. Badly, too. There’s a bit of lag on the X-Treme indicators too. That’s the nature of Zig Zag based indicators. That said, having looked at it again now for this post, there are big chunks I would like to incorporate into my current algorithm. I wonder if taking it into the MTF domain would improve its consistency and ability to pull out great trades. It’s certainly a concept I’d like to revisit, and it’s something going to add to my worklist!

That’ll wrap this post up. I think I’ll try doing this on a semi-regular basis. It’s been a great learning experience for me, and hopefully for anyone reading this struggling for ideas it’s given you some base to start from too.

Rage Against the Machine – Becoming a Renegade

Disclaimer: At no point is this article intended to downplay, attack or otherwise damage the excellent work of VP at NNFX. Without him and his videos my trading would not be at 1% of the level it is now. It is purely intended to provide an alternative angle to what he provides, and how to get the most out of these teachings.

Definition of Renegade
noun: a person who deserts and betrays an organization, country, or set of principles.
adjective: having treacherously changed allegiance.

Wow. The adjective definition of renegade seems very harsh. I don’t think I’ve “treacherously” changed allegiance, or, actually, changed allegiance at all. I’ve just adapted it. I still subscribe to the basic theory.

Either way, I’m a renegade. I don’t follow the rules. Here’s why.

Deutsche Bank, come out to plaaaayyyyy!

VP from NNFX has always stated that everyone trades in a different style, with a different approach. A system, theory or algorithim that works for one person certainly won’t work for everyone. In fact, it’s very likely it will only work for that person, or at least it won’t be as profitable for others. The person that invented and developed that strategy or system will know how each piece of their engine integrates together to create the desired result. Why do they take profit where they take it? Why do they set their stop loss that way? Why do the special rules they’ve applied work so well together? How have they taken their own trading style and applied it to the technical analysis they’ve put together?

There are so many different and complex variables.

When I started down the NNFX route, I immediately knew there was one element of the algorithmic process that I wouldn’t get on with – trading on a daily chart.

I am not someone who needs instant gratification, far from it, but I do need to see progression in my results. Trading on a daily chart naturally leads to bigger stops and longer waits to see how markets develop. It’s not something I can personally learn from. When you attempt to learn in a way that your brain doesn’t appreciate or respond to, you simply do not absorb and act on the information effectively.

I think back to my old school science lessons. In biology, I had a teacher who just lectured. Experiments were very minimal, and the lessons were all about disseminating information. It was not a particularly interesting or entertaining learning environment, and I am someone who has to learn by doing. Obviously, I can put a certain amount of blame on myself for not adapting my ability to learn, but as a qualified trainer myself today, I know that every good trainer MUST adapt their training method for their audience. You’re doing it for them, after all.

So to get back to my point – what is the point of me trading the daily timeframe? I am far more comfortable intraday trading where I can more immediately see mistakes and progress in action.

That leads me to my second consideration that I haven’t seen VP cover yet. Multi Timeframe Analysis.

I do not have the vocabulary to explain how important I think MTF Analysis is, across any timeframe, even the Daily where true students of NNFX trade. Not just in a single indicator either. In confirmation indicators, in volume indicators, in exit indicators, in price action – you can get a snapshot on your preferred timeframe, but you will never get the full picture.

Take the following set of screenshots as an example. We’re going to use a highly basic single 50-period MA with some very basic fundamentals to say if we should be going long or short. I know we don’t normally trade like this, but bear with me here.

The above is what our 15m trade looks like. Price has broken the 50-period MA to the long side after a period of consolidation. I think this is pretty tradable on paper.

The above is what happens after I’ve taken this trade north (the green line denotes where I’ve taken the trade). Naturally, it goes south. There’s little opportunity to take profit – I might be able to take break even I suppose, but it depends on what I’m using to say actually, no, this is a bum trade. If I don’t get out, within 48 hours, I’m down over 100 pips. Ouch.

I could have possibly averted this trade if I had checked the exact same indicators and fundamentals on a higher timeframe. Here’s the example on the 4H (screenshot below).

The green line represents the time when I would’ve taken the trade, but the previously closed bar is under the moving average, indicating a short rather than a long. Furthermore, there is such a low volume in the market – look at how comparatively minimal the movement is over the past few bars. There’s no indication of how the market is going to move in a fundamental sense – if anything, things are still consolidating. Sure enough, after a brief pullback above the 4H, the market travels down for another couple of weeks before finally reversing in our expected direction.

There are at least 3 signals – 2 fundamental and 1 technical – on the higher timeframe that should tell us that taking that trade on the 15M is complete insanity.

This was an incredibly basic analysis using a single indicator I don’t even personally use, but it shows that MTF is absolutely part of the game. I can’t tell which direction any market is travelling in without knowing what the timeframes above me are doing.

It would seem with such differences I’m not really a student of NNFX. That is not at all the case. NNFX taught me a couple of very important things, as follows:

  1. Confirmation indicators, and having at least 2 of them. Something that confirms your suspicions, and then reconfirms your suspicions of your suspicions.
  2. The importance of having all your ducks lining up before jumping into a trade
  3. The number of different things that you can use as a baseline, not just relying on moving averages that look good when you look left but never provide enough to the right
  4. Volume and Volatility. No one should trade when the smart money is out of the market, or when it’s being pulled out back into a consolidation.

Let’s look at VP’s algorithim shell. He believes there are 6 components to an algorithim.

  1. Baseline – You only trade in the direction your baseline tells you to
  2. Main Confirmation Indicator – The main source of entry signals
  3. 2nd Confirmation Indicator – Data that tells you your entry signals are valid or totally out of whack
  4. Exit Indicator – Your guide to telling you when to get the fuck out of dodge
  5. Volume Indicator – Shows you if there’s enough liquidity in the market to trade
  6. ATR – For trade management

Now, to break it down from my point of view, here’s what I’ve taken, and here’s what I’ve left on the shelf.

I don’t use a baseline, at least not in the traditional sense. On my chart, a baseline can’t possibly tell me which direction the market truly lies in. The only thing that can tell me that is Multi Timeframe Analysis, and if I am using entry and confirmation indicators anyway, they probably give me more accurate information of the market condition and direction.

I do use all of the confirmation indicators suggested and more. I have one which I classify as my entry indicator, as well as an higher timeframe version. I need the higher timeframe version to be pushing in the direction of the trade before I get the signal on the lower timeframe too. I have another which indicates price action across several timeframes too. Another which concentrates on the shorter term price cycles, and finally one which ONLY concentrates on the extreme higher timeframes.

In all, I count 4 confirmations, 3 of which run across higher timeframes. Do you see how important this element is? I think it’s probably true that the lower your timeframe is, too, the more confirmation you want that your entry signal is strong enough to trade.

My exit indicator is based on my price action indicator, and I also use that to set targets and stops – so I don’t need ATR, although I respect its value and importance. As for volume? Well, that’s the missing piece for me at the moment – I haven’t found one that works for me. Yet. My mind is constantly working and looking over the rest of my algorithim and seeing that MTF has worked for all other elements… well, maybe that’s something I should pursue next.

This isn’t a rocket launcher. It’s just my four confirmations.

Lots of words in that breakdown there, but I think it’s important to demonstrate just how extensively you can modify something for your own values if you’re struggling to use the original variant. NNFX taught me, above all, the value of strong confirmation, something I have really taken on with the lower timeframes in mind.

Being a renegade is no bad thing. Read the original source material and know that for many, it works. It might work for you. Know as well that if it doesn’t but it has such strong feedback, it might just be you and not the source material.

Open your mind, embrace the elements that work, and fashion them into something that replaces your own shortcomings and empowers your strengths further. If the original isn’t working, be a renegade.

About

So you’ve read my His(my)Story (all five parts. Why did you do that? Terrible idea), and you’ve taken a look around, and you’re a bit of a moron so you didn’t even click About and you want to know what this place is.

Well, I’m going to copy and paste the text from my About page and then elaborate a little bit. I’m a bit lazy like that (That’s okay, because you’ve been a bit lazy to not look at my About page!)

DoubleThree is the home of Syxx –husband, dad, digital trainer, writer, occasional tech wizard and wannabe day trader. He’s 30-something, supports Arsenal Football Club and is in the trading game partially to make life comfortable for his family, and partially to fund a charity project idea he’s working on. He hates typing in the third person, but creating an about page any other way seems wilfully unprofessional.

DoubleThree is intended to serve as an independent trader’s look into the ridiculous world of foreign exchange trading and finance – and that includes the random musings and thoughts the brain stretches to when there’s nothing to trade in a flat market. Expect sarcastic observations, completely incorrect technical analysis, unwanted commentary and the frustrations of balancing trading, work, family life and staying sane.

His favourite number is three – since three is the magic number – and what’s better than the number three? Two threes. Hence the website name. And of course, two threes make six, which would explain the online handle.

It’s unnecessarily complicated. Let’s just leave it at that.

Article wise, you can expect to see the following:

  • Weekly breakdowns of the market as I see it, and how my own personal trading went.
  • Observations of how I can improve my algorithim and approach to my trading
  • Reviews of indicators and systems I find for free on the web that I either take something from or I think might be beneficial for someone’s system somewhere
  • The odd personal mind dump that I can dump all over my social media for whatever reason (movie review, game review, rant about Arsenal)

That’s probably it, really. Doublethree is something personal and for me, but equally, if you get something from it, I’m happy for you. Just be aware, I’m not writing for anyone but me. You are welcome to comment on any post here, but unless it’s pleasant, insightful and could raise an interesting conversation I probably won’t approve it.

In the words of VP of NNFX – go get it!

Weekly Roundup – 6th to 10th January 2020

Oh my days! It’s time for the first weekly review! Fireworks! Pom poms! Hopefully not buckets of tears and self-loathing! I need to make a fancy graphic for this and the CountDowns really, don’t I?

Since this is the first one, I’ll highlight just this once how this’ll work week to week:

  • I’ll tell you when I was able to trade
  • I’ll tell you my results clipped from my trading journal (not the full thing, just the relevant bits to my trading)
  • I’ll go through my highlights and mistakes
  • I’ll try and break down losses I think were unavoidable (situations affected by news for instance)
  • I’ll explain what I think the next steps are in terms of system or strategy development (if relevant. I’m not changing a damn thing if I made 3000% profit and no losses in a single week)

I’m well aware I have not yet published an article on my strategy or current revision of the algorithm so I’m sure profit and exit points won’t make a lot of sense to you, but bear with, that’s coming shortly down the line.

Without further ado then…

Trading Times

  • Monday: Off on my prediction – I had a full day of trading in mind whilst dealing with all of my work admin bits and pieces but there were a handful of impromptu meetings and some rustiness getting back into the groove of trading. I was all off and missed quite a few entries (which might be a good thing), but still got stuck in. I took a whopping 5 trades across all of Monday.
  • Tuesday: Quite a bit more trading time than I thought thanks to a cancellation of a work meeting early in the day (at close of play, basic trade management was used to encourage trades to be closed either in profit or at break even where possible). Of course, I only had 1 trade so whatcha gonna do?
  • Wednesday: No new trades, maintain any pre-existing open trades
  • Thursday: Traded in the gaps (at close of play, basic trade management was used to encourage trades to be closed either in profit or at break even where possible)
  • Friday: No new trades, all positions to be closed before 1pm GMT

With these times in mind, my personal target would be 15% profit on the week (5% per day * 3 tradable days). I know this seems high but my algorithm shouldn’t be giving me any more than 3 to 4 viable signals a day, so I shouldn’t find myself over-leveraged at any time. Famous last words.

Here’s how things looked. Ooooo shiny tables.

DateTimeInstrumentDirectionResultProfit as % of daily starting bank
6-Jan9:00AUDCHFShortBreak Even+0.23%
6-Jan11:45AUDCADShortBreak Even+0.10%
6-Jan 13:15EURNZDLongBreak Even+0.50%
6-Jan 15:15NZDCHFShortBreak Even+0.19%
6-Jan 15:30USDCADShortWin+4.63%
7-Jan9:45CADCHFLongWin+4.55%

The week started off with a bumpy start but accelerated into two solid losses. It’s hard to complain with a +10% ROI straight off the bat. The raft of break even trades that started Monday caused me two problems – firstly, despite my pleas above I did find myself over leveraged at one point, and unable to take another signal (which would’ve turned a profit), and secondly gave me some major unexpected hassle in management when a good 3 hours of my day were taken up by work at short notice. This happens sometimes and is something I have to accept, but I need a better way of managing them.

Tuesday proved the point about a lack of signals too, as…

In terms of next steps, there isn’t anything I would change about the system right now. I smashed my 15% target and my money management has proven to be tight enough to get me in and out of trades at break even smartly.

There are two points I do need to consider, though.

  • Planning with the CountDown posts. It’s going to be difficult for me to write these out at the weekends. Indeed, this week’s CountDown was written on the 1st January. Yes, before the US killed the Iranian General. Problematic in terms of the impact it could have on the markets. That should’ve been factored into my trading approach which it was not. I’m not in the game of being dishonest with any of you either. Any article I write from this point will have a scheduled date on which it published, but if the article is relevant to trading or something within my system that is subject to change, I will be adding a note at top of the article to state when I originally scrawled it. If it turns out to be a CountDown or something in my system and a major event happens that would affect the market, I will try and find the time to update these things – but I can’t promise that, so ensuring there’s a confirmation of the original time of writing will help you make informed decisions from it.
  • I have three propitiatory indicators in my system at present. I know how they work which is good, but I only have ex4 versions of the files and not mq4 (and to my knowledge, the mq4 versions have not been released). This is bad for many reasons, the most principle of these is what happens when my broker discontinues support for MT4? I would be dead in the water. Either I have to find open source indicators that provide the same or similar results to the propitiatory ones I’m using, or I have to find entirely alternative ways to provide the kind of information I need to make informed trades. Believe me, even if this algorithm produces 5% a day, it’s no good to me if the tap is turned off by a technical rather than a fundamental issue.

I need to add a news indicator as well. That one is easy though.

Hope you all had good trading weeks. Enjoy your weekend!

His(my)Story, Part 5

Before I start wrapping up the total mind dump that is this autoshitography. let me advise you to head off to the NNFX website and YouTube channel and perform some light reading/watching/listening. When it comes to learning Dorex, it is the single most invaluable resource you could have to hand, and I wish it had been around back in 2015. Might have saved me a couple of grand.

The missing puzzle piece for my system building was not treating my systems for what they were – mathematical combinations of probability. I saw them as living, breathing analysis machines who were as good as the professional traders sitting up in their steel edifices, and that those edifices all used the same equations, the same calculations to power their trading.

A chance encounter with a video on YouTube changed all that.

This one.

What it explained to me about Big Banks and how they control, pressure and manipulate price was invaluable. No amount of indicators you place onto a chart are going to tell you what the banks have planned. They have liquidity available beyond your understanding, and when your system is prized to strike… they already know.

They’re going to take your money. They took mine, almost everytime.

My whole outlook on Forex changed, and I spent the spring and summer of 2019 studying the NNFX material, learning more about indicators, systems, processes and the so-called “Smart Money” than I ever had before. Even though I didn’t entirely agree with the algorithim layout and adapted it to suit my own trading approach, I came to the following conclusions:

  1. Everything – EVERYTHING – you do in Forex needs to have the goal of not losing money. Winning is a bonus. Not losing is the goal.
  2. Everything – EVERYTHING – you do in Forex needs to follow the movements of the Big Banks. Getting on their bandwagon is the only way to win consistently.
  3. If you have indicators in a single timeframe, those indicators need to be using a lot of information sources to be a fair reflection of what’s going on.
  4. Use MTF analysis. You cannot possibly know what’s going on in the larger context by looking at your preferred entry timeframe, especially if your preferred entry timeframe is a small one and therefore susceptible to market noise.
  5. Any confirmation indicators you have need to be tested and retested again and again and again. Independently and as part of a full system. They are the most important part of your entry process by far.
  6. Constantly develop and adapt your system. Find ways to further eliminate losses. Find ways to plug it into other markets.
  7. And finally – know your targets, know your stops, and stick to them. You can’t win if you let the market run off and not pay attention.

The more I built up a system to resemble a mathematical equation that gave me the best possible entries, the more I started to win. I wasn’t consistent and constant, but when my wins started to run, they really started to run.

Me, trying to figure out how moving averages work.

Unfortunately, whilst my trading life was starting to progress and excel, my home life wasn’t. My new wife was starting to show a bit more of her true colours now that we had moved in together and the way she spoke to me and the kids at times had become, in my view, nothing short of verbal abuse. She has told me multiple times about the verbal and physical abuse she suffered as a child, and how she would never do this to her own children, but equally telling your own kid that you’re going to smash his head against the toilet seat because he’s pissed on the floor by accident and not cleaned it up is… really the exact opposite of that. The day she said that is the day my love for her become hollow. Even if things do change, I’m not sure my feelings for her will come back.

I’m inbetween a rock and a hard place in that sense. I know if I leave these children will suffer financially and mentally, so if I am going to act on my feelings, I need to create a financial cushion through trading that I can provide to both my wife and those kids. At the same time, my patience to sit by and listen to the abuse is rapidly diminishing. I’m not in a position where I could offer much financial support, certainly not as much as I’d like.

I guess it’s a case of what will snap first. Right now, I’ve got a mask on.

And so going into 2020, that’s where we are. I have an algorithim which is running profitably, but one I can improve. By the same measure, I’m in a race to keep my sanity, protect my children, and leave a woman I’m growing to intensely dislike before it’s too late. My initial motivation was to provide for my family. Now it’s to escape whilst leaving enough for my family to survive on.

Life sure is fun, isn’t it?

Sorry for the warts and all story that wasn’t entirely about trading, but it’s important that we all understand our motivations in this game. I guess that’s an extra rule to my 7 above!

That’s the last part of my tale anyway. From here on out, it’s just trading stories, reviews, analysis and maybe the odd occasional anecdote. I set this blog up because really, it’s my only outlet for expressing my trading journey anonymously. Social media really ISN’T a good idea to recount your steps on – someone will always filter it. At least here, I’m in control.

And let me assure you – I will be in control of my trading. Never give up.

Special: Emergency Analysis!

Yes, yes, I know what I said. Stick to the plan. However, I’ve noticed something over the past 2 days of trading, especially today, that has concerned me about my algorithm and I need to do some emergency analysis so I can unwind and unpick my thoughts.

Those thoughts being “Fuck, I might have accidentally made a system that works in ranges instead of trends.”

The only signal I got that matched all criteria today was this one on CADCHF. The trade was taken long at the start of the first white line, and hit my TP concluding the action on the second white line (at the upper red horizontal line, which was very close to the extreme of that move). As you can see the market proceeded to course down. If my target had been a couple more pips stretched out, it would’ve been a losing trade.

Additional to this is how the signal was generated out of a period of consolidation. I have also investigated my 5 trades from yesterday (4 break evens, 1 win). All bar one were showing similar consolidation/deceleration patterns, and the one that didn’t wasn’t even the winning trade. Yesterday’s winning short trade on USDCAD runs for a little more making it a much more comfortable success, but then enters another consolidation before very firmly breaking out long today.

I have seen plenty of signals today that match the trend aspects but haven’t qualified on the basis of price action, or momentum, or both. These ones seem to already be running in a trend or mini-trend direction.

I will say, if I have a winning system I am not particularly concerned by the idea of my system only working in ranges. However when the winning margins are so slight it is deeply concerning. A few pips out on either trade and I could be talking to you today with a 10% loss, not a 10% gain for the week.

I do not expect to be able to trade tomorrow due to work, which might be a good thing. I’m going to check in on signals as best I can and try to assign lines to entries that would qualify if my price action rules were reversed tomorrow. None of the maths, just a simple horizontal line to say “yes, this is an entry”. Then hopefully with as much data as possible I can assess the situation tomorrow night. Even if I have time to trade tomorrow, actively pumping money into the game on the back of this analysis would be really, really stupid.

Obviously, a trend following system or algorithm in a range is going to struggle and vice versa. The importance is identifying that the market is in that position and not taking those signals there and then. However, if I am missing trends yet have a system that if followed correctly can identify consolidation periods, it stands to reason that the profits gained in the trends would outweigh the difficulties suffered in ranges. Theory’s a fine thing.

Trading never stops, does it?

CountDown – 6th to 10th January 2020

I think it’s time to start the trading year. This kinda goes against what I want to practice (in terms of needing smart money in the market to want to trade, which it won’t be for another week or so) but also, I have some new ideas to test on my algorithim.

So – what’s occuring?

Well, I’m trialling a new entry method. My current method is powerful but repaints, and is also a propitiatory indicator with no open source version. If I wanted to modify my entries in some way, I’d have significant trouble – and you never know when support for this kind of indicator is going to die off entirely. It makes sense to find something more understandable that gives entry signals. I’ll run both algorithms together to see what gets taken and what doesn’t.

I’ve added a stochastic from nanningbob’s 10.7 system over at Stevehopwoodforex, known as STO7. This stochastic has a very specific setting (7, 2, 2) but also carries a setting for higher timeframes of 2, 1, 1. It’s the higher timeframes I’ll be looking at – for now, the D1 and W1. When both are aligned (and all other elements of the algorithim line up), the trade is taken, and vice versa.

My decision to add this has been the result of a lot of work over the Christmas holidays where I devised 26 alternative strategies for my current rules to help me filter out bad trends. You know, instead of playing with the kids. I will clarify these and the process in a later post, but the abridged version for now from those I was able to backtest, the STO7 kept me out of a bad trade in the last full trading week of December but put me in two winning trades.

Highly scientific, I know, but deep backtesting is a largely pointless pursuit. My backtest to put the system into a forward test was entirely based on “will it keep me in these two good ones and out of this bad one”. It did. Therefore, it’s in for forwarding testing.

I’m also weighing up a future idea of just trading the overlap between the US open and the London close as this is by far the most liquid period, but I think for this week we’ll stick to a full calendar. Just might be something I pick up and consider as results from the two different sessions occur.

What about the markets themselves then?

As always we need a news analysis. Major market news looks as follows (GMT times):

6th Jan 3pm – ISM Non-Manufacturing PMI (USD)
8th Jan 12:30am – Buildiding Approvals m/m (AUD)
8th Jan 1:15pm – ADP Non-Farm Employment Change (USD)
9th Jan 12:30am – Trade Balance (AUD)
9th Jan 12:30pm – ECB Monetary Policy Meeting Accounts (EUR)
10th Jan 12:30am – Retail Sales m/m (AUD)

Although all of these are major news angles, it’s pretty light up to this point and I’m not expecting much in the way of direction changing reports. As usual, stay out of the times around the high impact news but don’t let a good signal go once the market has settled again.

The afternoon of 10th January, on the other hand, has quite a bit of high impact news releases planned for the afternoon with the North American currencies so I’m probably looking to avoid trading much past lunchtime GMT. Nice early end to the week in general.

As far as fundamentals go, there is a big, BIG one coming up on January 6th and that would be Trump’s Senate trial starting up. It’s not likely that Trump will be chucked out of office thanks to Republican control of the Senate, but watch events and affairs carefully and don’t be afraid to yank yourself out of USD positions if things start getting choppy.

Heh, yeah, and… if you hear a snip of Brexit news check on your EUR and GBP pairs. As ever it could go either way.

Finally, a question that any professional trader should not have to answer, but I do. When will I be trading?

The optimum answer would be whenever there’s liquidity in the market, but unfortunately I have one of those day job things so the life of a day trader filled with Ferraris and bagels isn’t quite mine yet. That said, my job can be quite cushy. As I’ve said elsewhere, I’m a digital trainer, so if I’m not delivering a course, workshop or one-to-one I’m usually developing course materials or admin on my own, and those are the times I can trade best.

The first week back after Christmas is always quite light, so Monday and at least some of Tuesday will be open for me to trade. However, Wednesday I’ve got one of those horrible all-day meeting’s about how 2020 will go (the same as 2019 went, what’s the point?). Thursday’s an in-and-out kind of day – some delivery, some admin, so I’ll take my pick as best I can. Finally, Friday I’ll be delivering all morning – and given the avalanche of high impact news at mid-day, I think I might be better off not taking a trade at all.

Must go. The missus has decided I am to blame for one of the kid’s touchpads on their laptops isn’t working. Of course. It’s got nothing to do with the kids accidentally pressing Fn+F7 together. Of course.

Fucking twat.

Good trading everybody!