Tuesday, December 18, 2007

Last Equity Check- $517.52- Still short EUD/USD

Good afternoon everybody!

Not much going on with our trade that is left-- short the EUD/USD. It's been a little ahead and a little behind since it got executed. We may have some fireworks later in the week. If the market can't move up and stop us out, the tendency is then to keep on going down a bit more. We'll see.

A little more about FirstStrike.

It is a volatility breakout method, of course. FirstStrike is based on the proven tendency that markets have some predictive behaviors that can be harnessed because of their moving away from the opening of a trading timeframe. That is what FirstStrike does. It profits from the weekly moves that currencies tend to make after the weekend. A perfect complement to ONS which earns profits from holding over weekends. This way we can earn more with our capital because of trading efficiencies. More about that in later posts.

In the FirstStrike ruleset material I mention Toby Crabel. He is a great trader/investor who operates out of Milwaukee, Wisconsin USA. He wrote a great book many years ago about volatility breakouts, some similar to FirstStrike-- which let the public know more about our secret weapon, and got "discovered". He has done very well for himself and his company in following up on precise market edges and managing larger accounts with extreme discipline.

Check out Mr. Crabel's website and his trading philosophy. He believes that "strategies should capture enduring and explainable market participant behavior". He also thinks that risk is handled best by taking large numbers of small trades instead of making a few large bets on a few trades. (Note: this is not a plug. I like the guy.)

And he does just what he believes. He trades a large number of simple systems, some similar in profile to FirstStrike, and many of them much worse. But all together, with all the trades involved, he is able to accomplish his goals. With relatively uncorrelated returns that are well positioned for risk reward. Not a lot of return on an absolute basis. But making incentive fees and management fees on 4 billion dollars is very profitable. Whatever it takes to hold on to the "money" is what his firms does. You would have to be stupid not to trade with low volatility like him.

I couldn't agree more with his philosophy. The problem is, most people have relatively earthbound sized trading accounts. To do what Mr. Crabel suggests takes lots of capital, which he now has..., and lots of profitable trading methods. (You don't need a huge edge remember, just a sure one!)

The only alternative then, is to trade smaller account sizes, and trade methods that have "enduring and explainable " behaviors that can be traded on markets you can afford. You have been introduced to two solid methods that have this going for them. Because trading in Forex enables you to change your position size to very small imcrements, you now have the ability to in an important way, to trade like a larger hedge fund. I doubt you will threaten Toby's business anytime soon, but you can become a player.

If you have other proven methods, you can trade them in addition to FirstStrike and ONS and drop your position sizing per trade to smooth equity swings. We'll talk tons more about money management in the months and years to come. It is truly the "secret sauce" that makes markets pay you for the risk you take.

Another question from a subsciber:

Questions I have:

Oanda account: What leverage one need to specify/use, the default 20:1 or something else?
My answer:50:1 gives you the greatest amount of options--- I use special money management for my challenge, possibly revealed later in the game. But a simple percentage risk, like .5%, .75%, or 1% or 2% equity risk per trade will build your account. Don't risk over 4% per trade. You won't like the equity swings.
ONS: Buy or Sell, but when, Friday Open, Friday Closed or Friday anytime when the buy or sell condition was met? If Friday is Holiday, trade Thursday?
My answer:Anytime after the Friday open, 00:00 CST when the buy or sell condition is met. If Friday is a holiday for all countries - NO TRADE! --Just 1 continent? Trade. Again--Both continents? No trade!
FirstStrike: If Friday is Holiday, exit Thursday or Monday?
My answer:If Friday is a holiday for all countries - Exit Thursday @ 15:00. Just 1 continent? No. Both continents? Yes

We still haven't been executed on the USD/JPY trade. I'm getting a little curious about it. If we get a strong move this week, maybe we will make some money back!

I'll keep you posted.

Last equity check - $517.52.

Have a great rest of you day.

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: newsletter@infiniteyield.com and tell me the address you would like it sent to.

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