Trading Black Swans in Forex - page 3
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This is essentially the same idea that is behind my snowball anti-grid EA. (google: snowball, anti-grid). It does essentially the opposite of what most losing traders do: It will not take small wins and wait for the big loss, instead it will take small losses and wait for the big profit. Snowball works semiautomatic, you have to decide when to take profit, it still needs discretion. Profits grow quadratically with price, losses grow linear with time. I have phenomenal results with this approach, it is almost unreal.
I will take a look at that...
Its the one's that have a fantastic trading year, an awesome run on the table, made that one killer bank heist, but just couldn't quit the game while ahead and instead they kept trading/playing/heisting in an attempt to relive the glory again that eventually lose it all. The swan song :P
So true, Phillip
When I was a futures broker, a new client walked into my office and said, “what’s the cheapest contract? I have $2,000”. I said “Three-month Bank Bills, contract size $500,000, deposit $500”. He said, “great, get me four”. I said “four what, long or short?” This was when interest rates were peaking, not that anyone knew that at the time. After I explained the difference between long and short, he decided to go long FOUR contracts. A rise of rates by a few points would wipe him out.
The rise never came. Within 24 hours, he doubled his money. He said, “buy me four more”. The next day, his account doubled again, and he doubled his position again.
I explained to him that the smallest setback would wipe out his account. He said, “OK, only reinvest half of what I made, but don’t wait for my instructions, just do it”. He made about $1,000 every few hours and later every few minutes with his growing portfolio and I kept adding an extra contract every time he made the equivalent of two deposits.
This was when the RBA (Reserve Bank of Australia) official cash rate fell from 18% to 6%. In one month, this young electrician, who didn’t know the difference between long and short and who would be bored if you talked to him about RAROC, parlayed $2,000 into $500,000. Yes, five hundred thousand A$!
Inevitably, the time came for the market to turn. When it happened, I rang my client and advised him to close his positions. He said, “no, it’s temporary”. I explained that I had to liquidate enough of his contracts to keep his margin intact, which he understood. This scenario repeated every day until his account was $5,000, at which time he liquidated it.
He was philosophical about it and said, “I made 150% in two months” and presented me with a bottle of red wine. I think my commission on the trades was more than his profit.
So true, Phillip
When I was a futures broker, a new client walked into my office and said, “what’s the cheapest contract? I have $2,000”. I said “Three-month Bank Bills, contract size $500,000, deposit $500”. He said, “great, get me four”. I said “four what, long or short?” This was when interest rates were peaking, not that anyone knew that at the time. After I explained the difference between long and short, he decided to go long FOUR contracts. A rise of rates by a few points would wipe him out.
The rise never came. Within 24 hours, he doubled his money. He said, “buy me four more”. The next day, his account doubled again, and he doubled his position again.
I explained to him that the smallest setback would wipe out his account. He said, “OK, only reinvest half of what I made, but don’t wait for my instructions, just do it”. He made about $1,000 every few hours and later every few minutes with his growing portfolio and I kept adding an extra contract every time he made the equivalent of two deposits.
This was when the RBA (Reserve Bank of Australia) official cash rate fell from 18% to 6%. In one month, this young electrician, who didn’t know the difference between long and short and who would be bored if you talked to him about RAROC, parlayed $2,000 into $500,000. Yes, five hundred thousand A$!
Inevitably, the time came for the market to turn. When it happened, I rang my client and advised him to close his positions. He said, “no, it’s temporary”. I explained that I had to liquidate enough of his contracts to keep his margin intact, which he understood. This scenario repeated every day until his account was $5,000, at which time he liquidated it.
He was philosophical about it and said, “I made 150% in two months” and presented me with a bottle of red wine. I think my commission on the trades was more than his profit.
Great story, thanks for sharing ;)
Your system is not catching the black swans. It is just a plain old vanilla trend-catcher by first letting yourself bleed to death by the whipsaws while waiting for a big trend to come, hopefully and eventually.
The expected number of trades won't let you bleed to death, in addition to that RiskPercentage should be kept low, have you noticed that with only 5% Risk Percentage you could have made over 100% profits (upon EURUSD statements)? Even better, you would have survived the crash !
The dead sure way to make a million bucks out of the market by this system is to start with a couple of millions.
About the black swans and how often they occur.... A true black swan, like the recent mortgage crises, does only come along only about once every ten years, but with FX, with so much volatility, and so many pairs to trade, it would be easy to start looking for, shall we say, mini-black swans. I would define these as huge and rapid changes in price, even for FX. For example, a drop of 500 pips over the course of a half hour or less would certainly be a mini-black swan for a lot of players in the market, big and small, and the same forces that make the big black swans so profitable, will also be presnt there.
EngComp
I wish you were my futures broker back when I used to trade SPI and 10 Years futures at SFE in Sydney. My broker was LQuay.
EngComp
I wish you were my futures broker back when I used to trade SPI and 10 Years futures at SFE in Sydney. My broker was LQuay.
Reminds me of the song "Those were the days, my friend, we thought they'd never end".
I had a walk-in client room on the ground floor in Spring Street, under Jacksons. What memories...
A guy walked in and sold ten Nickel contracts on the London Metals Exchange for delivery in February.
I told him that nobody trades February, take March instead. No, February it had to be.
His ten lots were the only lots on the book for February. I ended up feeling sorry for the guy who had the other side.
My client insisted on making delivery. You should have seen the carnage, trying to get from having to take delivery.
When it was over, I asked my client "was this a bluff or could you have delivered?" He smiled and said "see you next time".
But I never saw him again. What do you think - was he bluffing? I made some inquiries. He was a retired mining engineer.
He had a warehouse full of nickel and had pulled the same stunt before. What a way to make a living.
500k out of 2k in 2 months and didn't quit,!!! I think she threw the stone back at him, he sold it for 2k and wanted to celebrate with a really expensive bottle of wine... cheers!!