Items Tagged With h-system

I had a decent trade today catching a lot of the GBP/USD move upward during the European and US Session.  I only traded 1 lot since this was a discretionary trade but nevertheless profited 59 pips.  The H-system didn't generate any signals because of rare Asian session movement.  My discretionary methods do have rules but are not as systematic as the H-system.  I feel like my personality is more geared toward systematic methods of trading and therefore trying to systematize if possible is ultimately my goal.  

I feel like my confusion earlier in the week has waned.  I'm committed to trading the H-system and I'm working hard to manufacture additional systems that could eventually be used in production.  Mike sent me an email yesterday stating that he has had instances, as I'm sure a lot of you have, where he has suffered over 10 consecutive losses.  At no time though did he feel confused because he trusted his system after backtesting it on 10 years worth of data and therefore considered it just part of trading.  He never doubted his system.

I've put together a basic backtesting script that doesn't take any fancy exits or stop loss adjustments into account but nevertheless, the results are interesting.

From January 2005 until yesterday, if I entered a 1 lot position here are the results for different limits and stop losses:

30 pip stop and 30 pip limit: 2820 pip profit

25 pip stop and 30 pip limit: 2705 pip profit

20 pip stop and 30 pip limit: 2210 pip profit 

30 pip stop and 25 pip limit: 2580 pip profit

30 pip stop and 20 pip limit: 2290 pip profit

30 pip stop and 35 pip limit: 2395 pip profit

30 pip stop and 40 pip limit: 2580 pip profit 

30 pip stop and 45 pip limit: 2130 pip profit

30 pip stop and 60 pip limit: 1860 pip profit

So the most profitable is the 30 pip stop and 30 pip limit but this is a 1:1 risk/reward.  The least profitable is when setting the stop and limit to have a 1:2 risk/reward.  The 1:2 backtest is still profitable so which one is the smartest to use? I'm not sure.  Should you choose a trading system with a superior risk/reward over one without even though it has tested as less profitable?  Once again, I don't know.  I'll have to add some more advanced logic to the script to emulate my H-system rules. 

Like I said yesterday, this month has not been a good one for many reasons.  I'm currently at -430 pips for February.  The good news is that I finally caught up on recording 2 weeks of Forex trading history which can always be viewed at http://www.forexproject.com/My_Trade_History.

The results could be worse...  Before I completed the history update, I had feared I was down over 600 pips so seeing -430 was a little encouraging.  I actually feel like I may be able to recover with 4 trading days left in this shortened month of February.  I've lost on 3 straight h-system trades which is really indicative of how this system has performed overall for the month, lousy.  http://www.forexproject.com/H_Trading_System

My savior was an EUR/USD trade I took last night where I was able to capture a total of 129 pips(3 lots).  I might have been even more severely in the red if it weren't for this.

I have not been able to follow some of the Lien Schlossberg trade calls but from what I can see, they may turn a slight profit this month.  On the 11 trades I've personally taken due to their calls, I've only profited 2 pips.   But as I said, I've missed a couple of their calls that were profitable.

I'm starting to get back into the swing of things now.   I also feel good about the fact that this website is still alive and running.  I almost had to shut it down or risk having 1/2 of it taken from me due to the divorce.  It's kind of funny that this site was even mentioned in a settlement proposal because I don't make a damn thing compared to the work I put in to it.  Nevertheless, this site is all mine and will continue to move forward.

I was able to rebound today with a +90 pip h-system trade and a +21 pip Lien Schlossberg trade.  This brought my January 2007 total to +80 pips.  It isn't much but nevertheless, it is my fifth straight month trading forex profitably. 

I want to talk about the trading signal service that Kathy Lien and Boris Schlossberg offer.  I lost 97 pips using their service this month.  In their defense, I missed two of their most profitable trades because I just didn't have the ability to trade at the time.  Even if I would have caught these trades, I still would have been negative for the month.  If I had to estimate it, I might have been down about 30 pips if I could have taken these trades.  Their member area shows that with today's profitable trade, they were profitable by about 30 pips in the month of January.   This performance is under ideal conditions; where I was able to trade at their exact entry and exit points.  This was usually not the case since emails or text messages lagged or the price just slipped.  I didn't follow 3 of their signals, 2 because I wasn't available to trade at that time and another because by the time I received their email to enter the trade, their target was already hit.  Most of their signals require entering at market price so you don't have any prep time whatsoever.  In addition, their signals occur at random times throughout the day and night.  Strangely, they have no qualms opening a trade in the afternoon (US EST) which I would never do myself.  Realistically, although they show a profit on paper, it would have been very difficult for someone using their service this month to show a profit.  I would be surprised if I was wrong.   They rarely had that surefire trade that allowed one to get in, grab profits, and get out.  Their trades tended to take some time to develop, sometimes for better and sometimes for worse.  Although their initial call showed a 2:1 reward/risk ratio, it rarely showed this ratio in the end.  For instance, today's trade call went out with profit target of 55 pips and a stop loss of 30 pips, almost a 2:1 ratio.  Similar to many past trade calls, they sent out a message to close the trade immediately at market before the target was hit.  This particular trade was closed with a profit of 32 pips (under ideal conditions) for a reward/risk of 1:1.  Their risk/reward more times than not worked out to no better than 1:1. 

The point of all of this is not to bad mouth the service, just to make everyone aware of the caveats with forex signal services.   Kathy Lien and Boris Schlossberg are undoubtedly very informed about the Forex market and carry an almost implied trust.   This is a good thing but what I realize more and more is that just because they're well informed doesn't mean they can make money trading.  One month doesn't tell the whole story either but I don't think one should imply that well-known traders who command a certain level of forex celebrity make money trading forex.  I'm not saying that Boris and Kathy don't make money trading forex.  They really didn't this month but they very well might next month.  One thing for sure is that they aren't making a killing from trading forex.  They probably are making a killing selling their signals though.

I promised I would use the service through the end of February, so I will follow through on this.

I've contemplated introducing everyone to my trading system because it's just so easy but I never do because I don't want to be responsible for losing trader's money.  It's also a system that has definitely been used by others in either its current incarnation or some modified version of it.  As I close out the month of January with another H-system win; the system produced 10 wins and only 2 loses this month; I wonder if my success with this system has my thinking skewed.   Is it really as easy as this? Since I've started tracking this system's individual performance, I've had the following success:

• September 2006  +294 pips
• October 2006  +279 pips
• November 2006  -28 pips
• December 2006  +61 pips
• January 2006  +467 pips

These results are produced with a trading system that produces a 1:1 reward/risk most of the time.  Most people would reject this system on this fact alone.  Believe me, I've tried to get more reward out of it but most of the time this trades during the European session (I'm asleep) and I can't squeeze more out of it because I'm not there to do it.  

I think that having a very simple system where I follow a simple set a rules is the way to go.  I do truly believe this but I should also note that I haven't been able to find another simple system in addition to the h-system.   So is it really that simple? The system is simple but finding out if it was viable was not.  It took a lot of time and effort.  Everyday, I learn a little more about it that may assist in making the system more successful.   I do think that profiting from trading can be this easy as long as you keep certain things in check like fear and greed.  Emotional or impulsive trading can really knock you off track and can ruin your entire plan in an instant.  I really don't know what more there is to trading than this.  I have a simple strategy, I follow the strategy taking my gains and losses sometimes consecutively, I try not to let fear or greed enter my mind, and in the end I'm profitable. Is it wrong for me to think that people over complicate trading? I haven't been doing this long enough to come to this conclusion just yet.  I could have 3 consecutive losing months with this system and my entire way of thinking could change.  

Since I had such a terrible forex trading month in February, I've had to do some thinking over the last week to re-evaluate my trading.  What kind of things have I been thinking about? Let me give you a quick brain dump right now.

1. My comfort level with the GBP/USD is getting increasingly better and better.  Obviously no one can predict what direction a currency is bound to head but I feel like I've been able to determine the correct movement of the GBP/USD to a certain extent.  Now I just need to find out how to profit more from this.  Maybe I need to be more instinctual in my trading and go with the feeling. 
   
2. On the other hand, I am totally uncomfortable with my stop loss levels.  I received one comment about my poor choice of a 1:1 reward/risk when I trade the GBP/USD.  His answer was simply to use a 15 pip stop and 30 pip target which would give me a 2:1 reward/risk.  Unfortunately I think this is much easier said than done.  I've had enough experience over the past 18 months to know that a 15 pip stop with the GBP/USD is suicide.  You need to pick a less volatile currency pair if you want to use a 15 pip stop, like the AUD/USD.  My problem is that I have a full-time job and I don't have the luxury of trading the European session.  Therefore I cannot incorporate a more complex stop loss strategy.  I don't know what the answer to all of this is.  I'm fully aware that in order for my h-system to be profitable in the long run, it needs to win more than lose.
3. Due to visitor comments on this site, I'm more intrigued with the possibility of opening an account with FXDD.  Doing this would allow me to use expert advisors with Metatrader.   I previously turned the h-system into an expert advisor so the only additional work that would have to take place would be if I incorporated a different stop strategy. 
   
4. Part of the reason my performance from last month looks so bad is because I hastily used the h-system on the GBP/CHF and GBP/JPY.   I lost my focus.
5. March has started off better, I'm currently up 114 pips.
6. I'm not going to pressure myself as much to add another system using other currency pairs.  I'll continue to search for a new system because I enjoy the challenge but my focus should remain on the GBP/USD.  As I state in #1, if I can continue to increase my comfort level with the GBP/USD as much as possible, this may be the answer to success. 
   

Piptopia, Rob Booker's site has a short post that says to do one thing right instead of getting tangled up with multiple financial instruments, indicators, time frames, and trading systems.  I've said this in the past and that's why I was concentrating on 1 currency pair and 1-2 trading systems associated with this currency pair.  But what happens when this system doesn't work anymore in the current market conditions? This is probably where patience comes into play.

I'm in the situation right now where my trading system isn't working out like it once was but I am sticking with it and trying to remain patient.  At the same time, I'm trying to explore other ways of trading and to be absolutely honest, don't know where to begin.  This has happened in the past to me, a period of confusion that sets in and takes me over.  I'm not trading recklessly but I feel frozen, unsure of anything.  My patience is being tested as I start to move away from my primary currency pairs to other currency pairs and multiple time frames.  I'm searching for something, anything but maybe I just need some time away to regroup.  Should I trade short-term or long-term, should I trade just the GBP/USD or start incorporating new currency pairs, should I try discretionary trading again or stick with system trading, should I....  What to do.  I wish I knew at this point what to do but one thing I do know is that I shouldn't jump in and start trading with this uncertainty hanging over me.  I'll continue to put trades in based on my systems but I'm not about to do something rash that would threaten my account balance.

When this confusion has happened in the past, some people have recommended that I just start trading in my demo account but I always felt that I couldn't take my demo account serious enough for it to be much help.  If I start using my demo account this time around, I'm not sure if anything will be any different.  Maybe I should consider trading smaller lots but this is just throwing away money at the expense of trying new things.  Therefore I'm going to try something new to see what type of involvement I can get from others to make trading more competitive and perhaps, more meaningful.  I've set up a FXContest on Oanda in which anyone can be a part of.  Quite simply, as long as you have a demo (FXGame) account with Oanda, you can join the contest.  FAQ's regarding the contest can be found at https://fx2.oanda.com/mod_perl/fxcontest/fxcontest.pl?rm=help#q6.  If you already have an FXGame account, it's as easy as going to the "Forex Project Contest 1" and joining.  You can do this at https://fx2.oanda.com/mod_perl/fxcontest/fxcontest.pl?rm=contestDetails&contestId=130.   If you currently don't have an FXGame account, they will instruct you on creating one and then you can join the contest.  The contest is slated to begin next Sunday, March 25th and will end 2 weeks later.  Performance is based on portfolio return.  They talk about this more in the FAQ's link above.  

I don't know if this is of interest to anyone but if it is, feel free to join.  I thought about offering some sort of prize that goes to the winner but I'd rather wait to see what type of involvement the contest gets first.  

Lastly, I just want to give credit to Booker's post that's mentioned in the first paragraph; you can find it here:  http://www.robbooker.com/blog/2007/03/20/do_one_thing_right.php

I was busy this weekend doing backtesting.  I focused primarily on backtesting the H-system to improve on its performance.  I was able to obtain much better results by letting the third lot position run which is pretty much what I thought even before backtesting.  I was also able to obtain better results by using a breakeven stop.  My initial stop-loss is always set to 30 pips and I found that moving the stop-loss to breakeven when the position was up 25 pips was optimal.  I know this is only 5 pips from the target but nevertheless, this produced better results than without a breakeven stop or with a breakeven stop lower than 25 pips.  The GBP/USD is a mover and it needs some room to move.  From my experience, it's tough to find profitability with a stop lower than 30 pips.

In the process of coding the backtesting of the H-system, I created a new system that is basically a derivative of the H-system.  This new system isn't difficult to backtest manually so I did it for 2 years but I decided to automate it too just in case I made human errors.  The results from manually and automatically testing were very similar.  This new system is actually more profitable than the H-system on paper.  Like I said over the weekend, I don't want to jump to any final conclusions but by developing a standard backtesting infrastructure, the mistakes that I may have encountered before are lessened.  Therefore, I'm pretty confident with the results.  Now it's time to forward test this new strategy.  My weakness or possible downfall may be my willingness to forward test with real money.  I decided to do this with this new system today, profiting 21 pips on 1 lot.  Here is the equity curve of my newest system from January 2005 to present making the assumption that I'm starting with $10,000.  The label "Profit in USD" in the graph below is wrong.  It should read, "Equity in USD."

The H-system has performed well since I started trading it again; it looks like October may be one of my most profitable months trading.  On Friday, I was up 287 pips.  Yesterday, I captured 90 pips and today I'm up 40 pips on my closed lots with a guaranteed profit of 30 pips on my only open lot.  That brings the total to 447 pips for October.  

I've been working on a couple more systems to add into the mix.  The goal for me right now is to trade multiple systems and to incorporate additional currency pairs instead of just the GBP/USD.  One system that I just finished backtesting on 5 years of data uses the USD/JPY only and trades during the Asian and European sessions.  It certainly loses more than it wins but the average reward/risk on each trade is 2:1. 

As this journey continues going forward, certain things that I was told when I first started trading become realized more and more each day.   All of these things are based on what I personally have noticed over the past year and don't necessarily mean they are true to you.  Remember that I've only been trading currencies for a year.  I may look back at this post a year from now and roll my eyes wondering how I could have ever thought this.  

1. I have to keep discretionary trading to a minimum.  This doesn't mean that I won't use any bit of discretion when trading but my personality is more suited to trading systematically with a touch of discretion.  The systematic part is present in each and every trade but the discretion may or may not be needed in a particular trade.  
2. You don't have to win more than you lose.  This means making money management the most important part of your system.  In fact, I shouldn't make winning or losing my #1 goal.  The #1 goal should be to preserve my capital. 
   
3. Searching for the holy grail is not fruitless.   This may sound contradictory but there is nothing wrong with trying to find the holy grail as long as you remain realistic.  Trying to find that perfect system helps one come to that realization that there may not be one.  Searching also provides one with experience and motivation to find the best of the best.   The holy grail to me doesn't have to be a system that wins 100% of the time.  It can be a system that suits me best and produces an outcome that is favorable to my trading experience. 
   
4. I don't need a mentor because I have you and you have me.  I'm not saying that I can provide you with advice on how to do this for a living nor am I saying that a mentor won't help you.  I'm saying that you have every other trader at your disposal either through forums or emails that you can tap to get you back on track.  Everyone that has every sent me an email or comment has helped immensely no matter what the question was.  It's actually unbelievable how helpful and honest most people can be.  It helps restore my faith in humanity.  I've also tried to answer every question that was ever posed of me because it's just another nugget that you or I can use to come to our own conclusions.  Rob Booker or any other mentor won't tell you how to be profitable.  Booker will give you advice based on his understanding but it won't work for you until you can put it all together on your own.  For instance, he tries to get his students to trade breakouts of the European session high or low during the US session.  I don't think he expects you to continue trading this forever or continue to follow everything he has to say for the rest of your life.  All he is doing is giving you the discipline to follow a system, tweak a system, and make decisions on your own. 

I have a lot more realizations but I think this is enough for one day.