Wednesday, August 6, 2008

Euro Contretemps! --IFCN Wk 35 -Wed- Equity: $717.77.

Two more FirstStrike trades have bit the dust since Monday's
Eur/Usd loss. Surprisingly, the long Usd/Jpy and not so
surprisingly, the short Gbp/Jpy.

The dollar is in the midst of a major rout against all
the other major currencies. It was inevitable, considering the
world's unflagging bearish stance of dollars and anything dollar related over the past 2 years.

The press just loved reporting how the great US was experiencing financial difficulties. The constant rant about how the US' excesses were finally coming home to roost was a bit too early, but understandable for the world's have-nots. The “coming home to roost” consequences are reserved for a later time....

Reminds me of a metaphor involving an auto accident. Be careful about laughing at your fellow traveler's soiled clothes from the contretemps before you realize yours are shredded.

When any market reaches an apex it has little else to do but
reverse. The greater the surprise to the largest group
financially involved-- the greater the rout! This is a HUGE
surprise to most which involves many interrelated markets, so a serious reversal is likely in order.

-----
I got an interesting email within the last day that I will share
with you.

Joel,

I’m glad to see that the FX markets are turning around. I
have a question I was hoping that you could provide some insight to with regards to trade size.

As you mentioned to me in a previous e-mail, if you increase
your profits, you will increase your trade size.

At what point do you need to start to splitting up your trades?

For example, a friend explained to me once when I asked the
question, “If I had $5M USD, and I wanted to buy Silver Eagle
coins, how long would it take to get the coins?”

His answer was to the effect of, “Well, if you put that much
money out on the street for that product at once, then you will be raising the price of the product you are buying. If you DID want to buy that much, you would have to do it a little at a time”. Translation…. You can’t effectively make that
big trade all at once.

I did a Wikipedia search under Algorithmic Trading
http://en.wikipedia.org/wiki/Algorithmic_trading and there is
discussion on how algorithms in the trading systems can take a trade and break it up into multiple orders.

The bigger the amount being traded, the more it needs to be broken up into smaller amounts.

So my question to you is, if you started an account with $500, and your trade risk was 1% per trade. At what point ($$ amount) would you need to begin splitting up your trade size?

Thanks!

Xxxxxx

-----

Answer:

Good question.

This question can only be replied with a "that depends" answer.

Which market?

I could buy $5 million in silver coins instantly (ok, 3 minutes)
without raising any street price anywhere. Of course, I know
where to buy. If you tried buying that quantity of silver from
the small locality of Witchita, Kansas you definitely would
drive up the price tremendously.

Same goes with most markets. I could theoretically trade
FirstStrike and ONS without changing anything with my current money management all the way up to 2 - 3 million account size. Then I might consider breaking up the trades a bit.

I would likely make the change sooner because I would be
able to smooth equity swings by entering at different entries. When the Alpha account gets big enough, I'll do it.

Thanks for the question.

Joel

-----
The following are this week's FirstStrike entries:

Eur/Usd: Long @1.5627, stopped out at 1.5571 for a 56 pip loss.
Gbp/Jpy: Short @211.98, stopped out at 212.88 for a 90 pip loss.
Gbp/Usd: Short @1.9686, stop 1.9746. Trade in progress.
Usd/Chf: Long @1.0530, stop 1.0470. Trade in progress.
Usd/Jpy: Long @108.30, stopped out at 107.70 for a 60 pip loss.

Note: Any
FirstStrike trade not stopped out before Friday gets exited on Friday just before 15:00 CST.

The Usd/Jpy trade getting stopped out was more than a little
irritating. I would have preferred that trade had remained
intact. I was sure that the dollar was going to gain vs. the
yen. The bump in profits would have been welcome.

Current equity is
$717.77.

Have a good evening.

Joel Rensink
www.infiniteyield.com

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 to which address you would like it sent. Please do not use AOL, Yahoo or Hotmail 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!





3 comments:

The Archiphage said...

I know you won't change your rules based on this, but using the 2am open had a significant positive impact this week. I'm short EUR/USD from 1.5539, and long USD/JPY from 108.20. My sense is that the difference will wash out over a long series of trades, since some weeks I've watched your 1am based entries make nice wins while I'm sitting here stopped out. Well, it's back to bed for me after the daily 2am order placing/stop moving session. Take care...

Joel said...

If you have good statistical reasons for starting your trade at a different time, go ahead.

I have mentioned numerous times that these trades are not magic. The trades we follow tend to have reasonable probabilities in their favor. What is magic is finding a trader who is willing and able to trade a method like this and actually will put on the trades when indicated.

Finding that person is truly amazing.

Joel

The Archiphage said...

I get better at this game with each trade I take, and especially each stop I honor. One day it might serve as a useful exercise for me to actually backtest whether there is any significant difference between our entries over long periods... but for now I'm sticking with the 2am Eastern time because I've gotten used to it. More to the point, I've re-arranged much of my life in order to make that time work because of what I've learned from you and a one Peter Crowns.
Speaking of stuff I've learned recently... I'm up over 350 pips on a DIBS entry I took in GBP on Wednesday morning. I don't know if I'll see infinite yield on this one, but what I've got is still pretty nice!