Thursday, March 6, 2008

Too Much good News for the EURO? We'll see tomorrow! -IFCN Wk 13 -Thu- Equity: $637.77

Thank you, readers....

I've had 5 people email me about their results trading FirstStrike and OneNight Stand. All of them started on different weeks, but of course, they all had great results last week. I've printed part of one response below:

Hi Joel,

I'm not writing this because I have any pressing questions or intelligent remarks to make but rather to let you know I'm still here. I'm one of the readers of your forex newsletter and blog and I really appreciate all the work you're putting into those.

I started trading FS and ONS live week 2 of this year. I decided to use Oanda even though they lack OCO orders (and I've had some extra fills and stop outs because of this), mainly because they have no limit on minimum unit size.... As you wrote in your blog, when it rains it pours, and this (last) week has seen an 16.52% increase of the account. Nice after a 6 week drawdown.

But ... it's sooooooo easy to take your profits and run, especially after a drawdown.
Seeing the account being up so much, Thursday morning I tightened my stops and of course all of them got hit and I missed out on the Thursday and Friday run. Lesson learned. This (undesireable) behaviour has been reinforced a couple of times, because then it happened to be the right thing to do (equity wise, not system following wise).....


Thanks T-----, for the note. I'm glad you are having some success. Trading is much more challenging than most people give it credit.

Another great letter came today with very good questions. I'm including many of the details as well as my answers as they are probably things most readers of the blog will find interesting. My answers follow the questions in blue.  (private details always eliminated)

Hi Joel,

I am following your challenge with continued interest - has your related correspondence increased since the recent lift-off in your demo account equity?!

Yes, it has increased some. Most notable is how many new visitors the blog gets. It is very interesting from the perspective of “price being the greatest advertiser”.

Currently I'm reading 'Fooled by Randomness' (I'm finding it both fascinating and very entertaining) and have just bought Ralph Vince's latest work on Portfolio Management.

Good books! Vince is accurate, but you almost need a math major translator to help even if you were a math major. Taleb's works will forever stand the test of time. And they present the greatest possible benefit. The mind is the thing we need to tame the most.

I have coded First Strike for Trading Blox but so far have only tested it on EOD data. Where do you obtain your intraday FX data from? I've seen the free data from Dukascopy but am unsure how correct it is.

I use Signal. I don't need to test it (any longer), though. I trade it, and 5 versions similar to it (on different time frames). Amazingly, EOD data testing is just about as good as intraday testing (done correctly). It is a simple system. Simple things tend to work.

Do you exclusively use TradeStation for backtesting?

No. I also use custom software, and have used an Excel spreadsheet for testing.

Your point about systematic traders becoming more discretionary over time makes sense. For a beginner, having a rigid system as a framework is invaluable - as time goes on and you get more intuition/knowledge about the markets, then you can override your system in some ways. However I have read about experienced traders who have found these overrides have not really helped their performance.

I will go so far as to say that if you give someone a system that makes only 1 pip edge per trade after execution details-- mechanically-- and have an intelligent human trading it; within a relatively short time, perhaps a year or two-- he will likely be averaging 10 to 20 pips a trade using the same basic structure, with just a little personal input.

But only if he is really interested in making return. The most important part of a system is it's control over the human to force a loss or an exit of positions that are not going his way any longer. The second important thing is to force an entry that the human would not normally prefer to take.

In a thread on the Trading Blox forum you mention that an experienced trader can modify the size of a trade dependent on the level of edge it has. Do you think that your methods for this are objective enough to be added as additional rules/filters to a completely automated system?

Yes. But why make a completely automated system?

You wouldn't be able to trust it completely after you created it anyway. It would still be subject to more “handling”. Humans live in a “real” world which is changing perceptions every second. Only a properly trained human can get exceptional returns while machines can get very good returns.

That difference is why I can have a 240% return in a year, while my long term system from which I get the signals from makes only 62%. In a bad year my system will have a 45% drawdown, and I will experience a 35% drawdown. Taking the very same trades. Just different percentages of size in my entries and exits.  And knowing additional factors.

Luck? Sure. Maybe so.  I've been told that, “you're the luckiest bastard I've have ever known” for 25 years.

Luck is just a perception others have of someone doing something they don't think they can do. Anything I've done trading is possible for anyone (who doesn't drool) to learn. You just need to start trading a system that actually works a little..., and then continue learning. Knowing someone who has gone through the process (successfully) helps a lot too. I believe that I could show anyone with a 100 IQ and the ability to stop promptly at a stop sign--- how to trade profitably.

Finally, on the subject of slippage with Oanda. I'm currently testing with FXGame but am still not clear on the amount of slippage you get. Do you often get any slippage on your stop orders?

Less than one in 200 trades.

Good trading and thanks for making all this public.



Thanks X---- for the input and the good questions. Best wishes.

To IFC Newsletter subscribers only:

As you know, a couple of days ago I sent out a trading alert about a low risk/high probability trade that I call the SURE-BREAKOUT TRADE. The details below went with it:

“This shorter term trade is a very powerful one that I've traded for many years. It is one of the strongest stand alone methods I've seen. It requires waiting for a market to achieve a balanced state and then one takes a breakout trade from a particularly tight, mathematically defined (price and time) range. It has a profit target listed which can be used to drop the entire position, or in the case of the trade being in the direction of the overall trend..., a place to drop off perhaps half of your position and make it possible for you to have a better than "free" trade in the direction of the trend.

The odds on this trade are very good. It typically wins 70% of the trades to the profit target. Losses are always about 2/3rds the size of the profit target. If one breakout fails, meaning I get stopped out before hitting the profit target, I always am willing to take the reverse trade if it happens within 12 hours of the stopout loss. Otherwise, the first trade is the trade I take on this setup.”

Then I sent out a recap after it executed:

The SURE-BREAKOUT TRADE sent out yesterday was a success!


SELL 1.9812, stop 1.9878. Profit Target= 1.9732

The trade was executed @ 1:10 CST and was completed at 3:05 CST.
Profit: 80 pips
I took the trade in the Alpha account too. There were 4 others this week that happened in other pairs that I didn't take in the challenge account. I may end up making a separate (free) blog for just Sure Breakout trades that I notice setup. I will let you know if it happens. Time is precious for me. I like to sleep too.

Alpha account equity now at $637.77.

This has been a choppy week in most of the currency pairs.

Tomorrow should be a key day in these currencies with the first Friday release of Employment figures.

See you tomorrow.

Thanks for watching.

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: and tell me to which address you would like it sent.

PPS: Please do not use AOL or Yahoo addresses. Nothing personal, but they've been known to filter out more good mail than actual spam. Try a Gmail address. It's free, simple and perfect for traders!

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