It was a Monday evening, I was re-reading particular sections of the LFX course to do with volume and order flow. I watched a video where Sam explained a simple strategy which involved following the flow of the ‘banks’ using, Psych & OBV. I could see on his screen that the data on volume he was getting was through Reuters and therefore providing a more accurate picture of the flow of orders in the market than say a volume from a broker’s books.
Sam mentioned that a good data feed is key for this type of strategy. So having looked at this set up on my charts I decided to drop him an email to get his view on which are the best data feeds for NinjaTrader, my preferred platform.
To my surprise he responded quickly, even though it was late in the evening. After a few emails back and forth, Sam suggested he show me a simple breakout strategy that hedge funds use.
By the end of the week, I had signed an NDA and had received a video tutorial from Sam on how to trade this strategy. It turned out to be ridiculously simple and the only required me to be in front of the screen for about 15 minutes a day. Placing the orders early morning and taking un-triggered orders off in the evening, rinse and repeat until the end of the week.
Cut to 3-4 weeks later I was running this strategy fairly well (I think!), in terms of getting into the routine of placing & removing orders.
However I did have a few hiccups at the start. I was running this strategy through the NinjaTrader platform, and I had to leave the laptop open and running all day as any loss of connection would close NT and entries & stops would be missed.
So after a week of this, I opened up a small live account with FXCM to use their own Trading Station platform, the good thing of which, I could now close the laptop/platform down and my orders would be running in the background.
Plus this had the advantage of being able to access my account through my phone so I could cancel any un-triggered orders at 5pm instead of the 7/7:30pm like I was having to do with NT when I got home from work in the evening. It also meant if I was out in the evenings I could easily manage the strategy without worrying about getting back.
At the time, I was at a point in my trading journey where I didn’t have a clear direction in my trading strategy, I had said I would focus on just one strategy and look to improve it instead of switching between strategies (rookie mistake).
I had chosen the order flow strategy through the LFX course, and had been back testing etc. when Sam offered to show me this other simple strategy. As I had been working on the order flow strategy and had some questions I wanted to put to Sam after he had shown me this breakout strategy, I dropped him an email.
All he came back with is ‘you’ve got to stop switching strategies’ and that was it! This kind of hit home, I had said I wanted to focus solely on one strategy and there I was still looking at an additional strategy when I had been running another.
So although I had been interested in diving deeper into order flow, I put it to one side to concentrate on a single strategy. Sam mentioned that both strategies work well, but I need to be disciplined and follow one, there is no point switching every time if you have not mastered one first.
He also said something which I’ve come across before, “the problem most people have is they chase ideas around (strategies) without ever getting anything from one of them. It becomes a nasty cycle and they never actually hit any of the strategies in the good times, essentially they switch at the bad times without ever seeing the good.”
The below graph illustrates this quite nicely. Every time you are switching to another strategy you are essentially starting from the beginning again.
It wasn’t long before I came across this concept again. I was reading ‘Think and Grow Rich’ by Napoleon Hill and he was talking about temporary defeat, he said the following which I thought was put pretty well. “One of the most common causes of failure is the habit of quitting when one is overtaken by temporary defeat”.
As you can see this is pretty much what Sam was saying and what the graphic is showing, people see something isn’t working so give up easily instead of persisting and managing to get to the breakthrough moment that is inevitably coming if you persist and stick at it.
So I stuck to the one strategy!
I traded this strategy properly (after switching to FXCM platform) for the whole month of November. There were a few interesting points throughout that I wanted to highlight.
- Trading Through Volatility: The day of the US Elections saw the market shoot up and down with huge movement. It was great seeing how, as each state winner was being called out, the markets reacted, and sometimes was pre-empted. Anyway, even though there was this anticipated volatility I stuck with the strategy. Fortunately because I close any un-triggered orders at 5pm, I missed all the fun and games that occurred in the evening and early hours of the morning (UK time). I only had a few trades open at the time, which subsequently got taken out (for a loss) when the markets moved, but it wasn’t anything drastic.
- Reiterating The Strategy’s Edge: I was working from home on a Wednesday. I leave the trades to do their thing during the day and don’t check up on them, but on this occasion I opened up the FXCM platform to see how they were doing. I had made a note in the morning that the week had been a slow one so far with price being range bound, primarily the Yen pairs I look at. But in the afternoon there had been some news in the market and prices shot out of these ranges. It reiterated that this is exactly what the strategy aims to do; having taken small losses throughout the week on slow moving markets, capturing the large explosive movements was great to see.
- No Time For Emotions: I’ve found that I’ve had very little emotions whilst trading this strategy, i.e. I haven’t looked at an open trade and thought ‘It’s in profit, I better take it off the table now as it may retrace and stop me out for a loss’. Similarly I haven’t felt like I’ve missed out on a move that I should have been on or even worried about taking a loss. Because this strategy is very black and white, every aspect is dealt with within the rules, I essentially place the trades in the mornings, forget about them, orders come off in the evening and running trades are kept untouched. Because there is very little discretionary aspects to the strategy there is no need for me to get involved on a discretionary basis, and then therefore it has no emotional impact on me.
From a first full month trading this strategy, I can see it is powerful as is captures the big moves and builds on its positons when the market is running in one direction and takes controlled losses when it’s not. It requires no discretionary decisions, so all emotion is left out of the equation and it can deal with the volatile events such as the US Elections.
Thoughts on the first months results….. a good start.
I’ll break it all down below, but even though I am up for the month, I did have two weeks where I made a negative return. I understand there will be losses and I in fact took more losses than wins in this first month. I am happy with the way I traded the strategy, although there were a few bumps at the start I got the hang of it. I stuck to the plan and even stuck to the early morning routine to place these trades, and as a result I didn’t get emotional about the losses and ended up for the month. And the great thing is, it’s such a simple strategy to follow.
Anyway let’s break down the results.
I am trading 5 currency pairs:
Within this month of trading I was triggered into a total of 83 trades. (It’s only looking at this figure now that I realise that it seems like I’ve over traded, but this is the nature of the strategy).
Of these 83 trades, 47% were winners and 53% were losers. Win rates are actually not that important to determine whether a strategy is profitable, and my results are evidence to this.* But thought I would highlight it.
What’s also important to note in relation to the less than 50% win rate, is that my average win was 99 pips, my average loss was -57 pips and average pips made per trade was just 18.
Talking of pips, I am going to present the results of this strategy in Net Pips gained (or lost), instead of the traditional % returns. Percentage return all depends on the size of your account and the amount you risk per trade, so I’m not going to put my % profit/loss figures here. But as an example I’ve used my results and applied them to a fictitious capital amount of £50,000. And then applied various risk percentages to each of the trades. The results for November are below:
We can see that even with a small 0.25% risk per trade this month’s results would have netted us over 1.5%.
But in total net pips gained, this month I made 1,429 pips. Again this is another figure which seems large, but this is because there are trades that trigger on the same pair in the same direction. It builds up a position and therefore is counting two lots of pips gained as they are separate trades.
Looking at the tables and graph, you can see which pairs did well this month and those that didn’t. Although it was only the one pair which I made negative pips on, the EUR/USD. But this isn’t to say I didn’t lose on the other pairs.
If I look at a weekly view of results, in the second week of November, the GBP/USD was my worst performing pair, (and actually the EUR/USD did well that week), but it ended up being the pair which gained the most pips. This is down to the strategy capitalising on price momentum.
So to round up, a satisfying result for the first month!
*Important to understand that this is just one month’s worth of results so does not reflect the overall capability of the strategy and therefore results may vary.
Note: Because this is a strategy that needs to run a full week I ran these trades from Monday 31st October to Friday 2nd December to capture the full month.
The next steps I will be looking to for the next month will involve:
• Adding the addition of automatic cancellations of un-triggered orders on the platform
• Continuing the tracking of price in my journal (I record key levels on a daily basis)
• Continuing to improve my trade analysis model
• Continuing to trade the plan!
Hope you guys have enjoyed the first addition of ‘Dairy of A Littlefish’, I’ll leave you with some additional bits I’ve come across over the last month.
Additional bits and pieces
- This Month’s Book: Think & Grow Rich – Napoleon Hill
- This Month’s Quote: “One of the most common causes of failure is the habit of quitting when overtaken by temporary defeat” – Napoleon Hill (Think & Grow Rich)
- This Month’s Podcast: ChatWithTraders: EP 097: How to think about strategies like a quant and diversify like a boss w/ Derek Wong.
Articles & Videos:
- Inside a Moneymaking Machine Like No Other
- What If Money Was No Object (thought provoking video)
Trade The Plan; Rinse & Repeat