Trade small to win

Yes, the ratio ROR/MaxDD (per each cycle) is an important parameter.

The higher this ratio the better the trader/EA is.
I am curious to see what range this parameter the investors feel comfortable with. Let see some examples of the combination of ROR and MaxDD (and calculated ROR/MaxDD ratio):

1a/ ROR= 8%.........DD= 25%..........ROR/MaxDD= 8%/25%= 0.32
1b/ ROR= 10%.........DD= 30%..........ROR/MaxDD= 10%/30%= 0.33
2a/ ROR= 8%.........DD= 20%..........ROR/MaxDD= 8%/20%= 0.4
2b/ ROR= 10%.........DD= 25%..........ROR/MaxDD= 10%/25%= 0.4
3a/ ROR= 5%.........DD= 10%..........ROR/MaxDD= 5%/10%= 0.5
3b/ ROR= 10%.........DD= 20%..........ROR/MaxDD= 10%/20%= 0.5
3c/ ROR= 20%.........DD= 40%..........ROR/MaxDD= 20%/40%= 0.5


Which one is more appeal to you? Which ones are not accepatble to you? Everyone are welcome to give the opinion.


Thanks,
CuongVC

CuongVC posted: Now I am focus on small and consistent.

I think, if we can only make 3% a month consistently, we are already in good shape. We should start making consistent small return first then improve that rate gradually. Say 1% per month first, then 2%, then 3%, 4%,...

I agree with your thinking. I generally trade small and my results reflect this. It's kept me in the game for over 6 years and I expect it to continue. I also don't aim for any set percentage per month or anything. Whatever the market feels fit to give me, I will take with pleasure. I traded large when I first started (like all noobs do) and it wasn't a pleasant experience. Now everything is calm and I sleep like a baby even when A/J drops 1,000 pips in a day 😀

Yes, most of us are not happy with small return like 5% per month because we have small account size. Thing is like this: you have 500USD account, 5% of it is 25USD, very small amount compare to the effort we spend severall hours a day, every day. So we increase the size of trades, and get some quick buck like 100USD (25%, so good) and then after a short while this type of trading kill the account. Then we try again by deposit another 500USD to the account. Fail again..., this can happen many times.

If we have 5,000USD acount, then 5% is 250USD a month, it brings a better feeling.
If we have 20,000USD acount, then 5% is 1000USD a month, it is now a boost to our living condition.

So, we have to increase the capital, target on reasonable return. Then we will success.

Yes, it helps to have more capital. I am adequately capitalised but I still prefer to trade small as it offers many more opportunities like being able to trade other currencies or adding to your existing trades at a better price (I'm not very good with perfect entries). I'll whack a larger trade on now and again but it's not often because the market will usually remind me why I stopped doing it in the first place.

You've got it perfectly right in my book. Once you know how to trade, then trade with a well capitalised account so that you don't need to take unnecessary risks that you would if trading with a small account. The problem is, if you haven't got good money management with a small account then you probably aren't likely to with a larger account. I think a lot of people have unrealistic expectations of what return they should be making and that's why we see the boom and bust of so many accounts.

Here is a good thread that a friend just recommended to me. I need to do more of this style of trading. I have sub-accounts set up to do more longer term trading but I always seem to cut the trades short (the ones that are in profit of course). It's that instant gratification thing that just gets in the way.

https://www.forexfactory.com/showthread.php?t=245149

CuongVC posted:
    Yes, most of us are not happy with small return like 5% per month because we have small account size. Thing is like this: you have 500USD account, 5% of it is 25USD, very small amount compare to the effort we spend severall hours a day, every day. So we increase the size of trades, and get some quick buck like 100USD (25%, so good) and then after a short while this type of trading kill the account. Then we try again by deposit another 500USD to the account. Fail again..., this can happen many times.

If we have 5,000USD acount, then 5% is 250USD a month, it brings a better feeling.
If we have 20,000USD acount, then 5% is 1000USD a month, it is now a boost to our living condition.

So, we have to increase the capital, target on reasonable return. Then we will success.

Hi,

You are right. This is what i am doing right now.

SIM

Interesting... allow me to share my thoughts.

Trading small is a great way for ppl like me who knows jack about trading manually. I use to think $100 to turn into $1000 in a month. Or rather I was influences by that though. But that's a gamblers though.

I am trying to achieve 5% per month which would bring about 60% per year. That is a great business return if you ask me. However that is gross profits... if I were to think more like a business... then 25% net profit is considered a great return after deducting operation... Pocket money and VPS and probably expenses on buying EA.

However... at this point in time. 5% seems to be a far reach for me.. As I am only managing 2% per month. Don't get me wrong... 2% is still as good as it gets for a guy like me.

I guess these sort of target is very relative and it should improve with time and experiences. 5%-8%.... probably I need another year of experiences to bump my targets up a notch. Hey... as they say... aim high and if you miss the target... give or take... 4% might still be an improvement to my current 2%... hehe

But one day... I will master it and make gazillion % per month... muahahaha

Thank you for all the participants.

I start to love this forums. I hope we continue to have a good atmosphere for disscussing. As some of you may know, I have been a pretty active poster in Oanda forum but there are so many 'fighting on the internet' there so I almost stop posting there. I think forums should be a place that promote everyone to speak out one's thought in a respective maner.

I have many ideas and I will gradually post in here, as long as the atmosphere/environment promote/encourage it.


Back to Forex trading...

So we can say that the main factor to be a long term, consistent winner is to trade small enough. Ofcourse, different trader can have different return but if you found yourself having a very choppy Equity curve then you need to reduce the size of your trades.
To measure how heavy we are trading, I use the parameter 100PV% (100-pip-value%). For a 1000USD account if you often trade so that 1 pip move change your equity 1 USD, that is a change of 1/1000= 0.1% of the equity. The 100PV% will be 100x(1/1000)= 10%. This means a 100 pip move will change your equity 10%.

Based on this parameter I classify the trade level into severall cases:
Case.........................1..............2..............3...............4..............5..............6.................7
Equity (USD)............1000.........1000........1000........1000.........1000........1000...........1000
PV (USD) ..................0.1...........0.25...........0.5............0.75.........1.............2.5..............5
100PV% (%).............1.0%.........2.5%........5.0%.........7.5%........10.0%.......25.0%.......50.0%
Speed (Miles/hr).........10.............25............50.............75............100...........250...........500

With level 1, 100 pip change equity only 1%, is very safe like driving a car with 10 miles per hour. At level 7, 100 pip can make your equity increase 50% or decrease 50%, this is very high speed like 500 miles per hour.


Experience/skillfull traders can trade at high level safely (and gain a lot), this is simmilar to experience/skill full car driver can drive at higher speed safely (and get to the destination much sooner). You have to know your safe 'driving speed' to not exceed that. With time, your safe speed will increase then you can drive faster. You can always drive safely.

CuongVC

Mmmm, that's still too much for me. If I had a $1,000 account the most I would be trading would be 50 cents (whether that be one trade or a few e.g. 20 cents + 20 cents + 10 cents etc). I only have one account where I have been trying to practice really good money management and I've got positions open equalling 5:1 true leverage (position size/account size). In my other accounts I'm not so good and if I go slightly overboard in one account, I just transfer some money over from another account. I keep spreadsheets of account balance, open positions, current drawdown etc so I can see where everything is at. At the moment over all my accounts I have true leverage of 3.4:1. As I don't use hard stops (unless my positions are in profit) I've worked out this leverage by position size/account size minus margin + drawdown. Of course this is subject to change on a daily basis as I haven't defined my risk by using a hard stop. I hope I am making sense here as I am by no means a mathematician. And if I had a $1,000 account, I woud have to totally change the way I trade, define my risk and use hard stops.

With PV=50 cents for 1000USD account, you are in a very safe area. Lots of room to take action. You are right that PV (pip value) is not for one trade but for all trades, in Oanda we call it position. I am refering to 'only one pair trading' since it is my style and much simplier to calculate/evaluate.

Ok, we have been in agreement that trade small is the key to win long term. Now I think we can talk about the return. How to get say 2% a month? I welcome any thoughts. I will be back soon.

I think that is all a matter of personality and circumstances. If you work then you have to trade longer term. If you don't then you are free to trade as you like - long, medium or short. Some days I'll sit down and play the market like a pinball machine and yet I still feel naughty because a lot of people say scalping is bad, bad, bad. Other days I'll only place a trade or two. So as to how to get a consistent 2% a month, I am clueless because, for me, the market doesn't work like that. It giveth and it taketh 😀 Anyway, I'll put my accounts up so that you can see I really am one of those small percent people.

To me trading is like playing Poker. Have you ever played Poker before? There are certainly some profound similarities between the two. In Poker you only play big hands to win and fold on small hands. Even with the big hands there will still be a chance of losing because someone else might have a better hand than you have. You have to work it out psychologically whether or not you can beat other hands so to double or just bet to stay in. I reckon those who are serious about trading forex should have a go at playing poker. It will change the way you think about the market. It certainly changed mine and made me more profitable.

Then the question about trading small or large, it should be answered in due course ......

Cheers,

Patience posted:
    I think that is all a matter of personality and circumstances. If you work then you have to trade longer term. If you don't then you are free to trade as you like - long, medium or short. Some days I'll sit down and play the market like a pinball machine and yet I still feel naughty because a lot of people say scalping is bad, bad, bad. Other days I'll only place a trade or two. So as to how to get a consistent 2% a month, I am clueless because, for me, the market doesn't work like that. It giveth and it taketh 😀 Anyway, I'll put my accounts up so that you can see I really am one of those small percent people.

You are right regarding to circumstances. Still I want to figure out what are/is the easier/easiest way to gain long term at a certain rate of return assuming we have all the condition needed for any trading style (like we can place as many trades as we want, we can trade at any hour of a day, we have the ability to trade as small or as big as we want...). May be this is too ambitious a goal but that is me who just like to sold math problem...

Things like method are always interest me.

For example, scalping is costly regarding spread cost since the ratio between spread and TP is too high (like 2 pip/ 5-10pip TP); Or, setting a certain percentage gain a day is too rigid. We better target on a longer goal like monthly or longer.
I noticed that most of trades will become a winner if we provide it enough time. Most of trades ared closed (either by stop loss or take profit or manually close) prematurely.


Sorry for a not well organized post. Just some of my thoughts.
 

I haven't played poker but I like pokie machines. I don't have to bluff the pokie machine. It just smiles at me and usually takes my money. With forex it doesn't have to be like that - a slot eating all your money. Depending on your pain threshold and money management, a little (or sometimes a lot) of time can turn that losing position into a winning one. When I was a noob my friend and I managed to get our account in a right mess. We kept seeing charts differently, he always wanted to place big trades, I wanted to place smaller ones so in the end I just took over the account and (with what little knowledge I had back then) I carried out damage control and practised the art of patience. It took 2.5 years to get all the positions closed and that account back to breakeven.

I think the easiest way to gain long term is to hold and go with the main trend but, of course, that is easier said than done. I'm still against setting a certain percentage gain because if you set yourself a goal you are going to take trades that you may not necessarily take because you haven't reached your daily/weekly/monthly target. The market sometimes offers up opportunities where you can blow your expected target (if you have one) out of the water and it's just a matter of capitalising on the opportunity when it happens.

I've often heard people say that scalping is costly. I don't see it this way. I see it as the cost of doing business. When scalping you can often take profit at what you perceive to be the peak of the momentum and then get back in at a lower price at times but at least you've locked in some profit. But then again, I'm not a true scalper because I don't use a stop loss. I should really say that I intend it to be a short term trade which sometimes turns into a longer term trade. I only take trades where I feel comfortable with the price level. If I feel it is at an extreme I just don't trade and when I enter the trade I have already imagined the worst case scenario. I've tried many different ways of trading. The highly leveraged scalps with stoploss. The day trades where you set a T/P only to return at the end of the day to see the T/P missed and PA back to where you entered the position (or even lower). It's hard to catch a trend at the right point. I've only successfully done it a couple of times and even then I cut the positions too early because the market always seems to go that much further than you think it will. Other times I haven't cut the positions soon enough and watched the market eat a lot of my profit.

The questions I always tend to ask myself is 'do I feel comfortable taking this trade and am I prepared for adverse consequences?' Because I trade low leverage, it's not really a big deal but if I can't answer truthfully then it's time to step away from the laptop.

I didn't say scalping is not profitable. I said it costly in the meaning: spread cost is high compare to net profit. I used to scalp everyday but almost not anymore because it so stressfull compare to it return. Trading longer term is much less stressfull and easy to achieve return like 5% per month. We have to make less trades to achieve the same return to scalping.

But actually we can combine severall trading styles into one account. We can scalp in the hours that the market move up and down a lot in one area like in Sydney session (small move in small range), and if some trades get in the pretty big temporary loss (in pip), we can put it to longterm group.

Regarding setting a certain percentage gain per day/week or month. That is the minimum everage gain, and should be pretty much easy to achieve. I prefer to set some goal for a month not for a day or a week since it is not too short or not too long. Many months should have more gain than this target. We always have to have some goal in mind, so that we can plan our activity. Of course we have to 'adjust our actions arcordingly along the way (when market reveal itself to us)'. I have said that if we provide enough time, almost all trades will end up with profit. If we think it goes up, we buy. But it goes down, we evaluate the market again to buy more or to sell, the process continue... After a while we will have many trades hit TP (or manually closed with profit) and severall trades in red (may be big pip), these group should be given more time to have more chance of getting back to break-even or even to profit. That is what I called combine severall styles in one trading strategy. No fix rules like SL=100pip, TP=200pip; or every day must gain say 0.2%; or every day must enter 1 or 2 or 5 trades,...

But we still need to have some goal in mind like 3% per month for example. 'Trading small' gives us a lot of room to adjust our exposure to the market to achieve our goal, and if the market allow, or even better than the goal.