Hi guys, I have been using reddit for years in my personal life (not trading!) and wanted to give something back in an area where i am an expert. I worked at an investment bank for seven years and joined them as a graduate FX trader so have lots of professional experience, by which i mean I was trained and paid by a big institution to trade on their behalf. This is very different to being a full-time home trader, although that is not to discredit those guys, who can accumulate a good amount of experience/wisdom through self learning. When I get time I'm going to write a mid-length posts on each topic for you guys along the lines of how i was trained. I guess there would be 15-20 topics in total so about 50-60 posts. Feel free to comment or ask questions. The first topic is Risk Management and we'll cover it in three parts Part I
Why it matters
Using stops sensibly
Picking a clear level
Why it matters
The first rule of making money through trading is to ensure you do not lose money. Look at any serious hedge fund’s website and they’ll talk about their first priority being “preservation of investor capital.” You have to keep it before you grow it. Strangely, if you look at retail trading websites, for every one article on risk management there are probably fifty on trade selection. This is completely the wrong way around. The great news is that this stuff is pretty simple and process-driven. Anyone can learn and follow best practices. Seriously, avoiding mistakes is one of the most important things: there's not some holy grail system for finding winning trades, rather a routine and fairly boring set of processes that ensure that you are profitable, despite having plenty of losing trades alongside the winners.
Capital and position sizing
The first thing you have to know is how much capital you are working with. Let’s say you have $100,000 deposited. This is your maximum trading capital. Your trading capital is not the leveraged amount. It is the amount of money you have deposited and can withdraw or lose. Position sizing is what ensures that a losing streak does not take you out of the market. A rule of thumb is that one should risk no more than 2% of one’s account balance on an individual trade and no more than 8% of one’s account balance on a specific theme. We’ll look at why that’s a rule of thumb later. For now let’s just accept those numbers and look at examples. So we have $100,000 in our account. And we wish to buy EURUSD. We should therefore not be risking more than 2% which $2,000. We look at a technical chart and decide to leave a stop below the monthly low, which is 55 pips below market. We’ll come back to this in a bit. So what should our position size be? We go to the calculator page, select Position Size and enter our details. There are many such calculators online - just google "Pip calculator". https://preview.redd.it/y38zb666e5h51.jpg?width=1200&format=pjpg&auto=webp&s=26e4fe569dc5c1f43ce4c746230c49b138691d14 So the appropriate size is a buy position of 363,636 EURUSD. If it reaches our stop level we know we’ll lose precisely $2,000 or 2% of our capital. You should be using this calculator (or something similar) on every single trade so that you know your risk. Now imagine that we have similar bets on EURJPY and EURGBP, which have also broken above moving averages. Clearly this EUR-momentum is a theme. If it works all three bets are likely to pay off. But if it goes wrong we are likely to lose on all three at once. We are going to look at this concept of correlation in more detail later. The total amount of risk in our portfolio - if all of the trades on this EUR-momentum theme were to hit their stops - should not exceed $8,000 or 8% of total capital. This allows us to go big on themes we like without going bust when the theme does not work. As we’ll see later, many traders only win on 40-60% of trades. So you have to accept losing trades will be common and ensure you size trades so they cannot ruin you. Similarly, like poker players, we should risk more on trades we feel confident about and less on trades that seem less compelling. However, this should always be subject to overall position sizing constraints. For example before you put on each trade you might rate the strength of your conviction in the trade and allocate a position size accordingly: https://preview.redd.it/q2ea6rgae5h51.png?width=1200&format=png&auto=webp&s=4332cb8d0bbbc3d8db972c1f28e8189105393e5b To keep yourself disciplined you should try to ensure that no more than one in twenty trades are graded exceptional and allocated 5% of account balance risk. It really should be a rare moment when all the stars align for you. Notice that the nice thing about dealing in percentages is that it scales. Say you start out with $100,000 but end the year up 50% at $150,000. Now a 1% bet will risk $1,500 rather than $1,000. That makes sense as your capital has grown. It is extremely common for retail accounts to blow-up by making only 4-5 losing trades because they are leveraged at 50:1 and have taken on far too large a position, relative to their account balance. Consider that GBPUSD tends to move 1% each day. If you have an account balance of $10k then it would be crazy to take a position of $500k (50:1 leveraged). A 1% move on $500k is $5k. Two perfectly regular down days in a row — or a single day’s move of 2% — and you will receive a margin call from the broker, have the account closed out, and have lost all your money. Do not let this happen to you. Use position sizing discipline to protect yourself.
If you’re wondering - why “about 2%” per trade? - that’s a fair question. Why not 0.5% or 10% or any other number? The Kelly Criterion is a formula that was adapted for use in casinos. If you know the odds of winning and the expected pay-off, it tells you how much you should bet in each round. This is harder than it sounds. Let’s say you could bet on a weighted coin flip, where it lands on heads 60% of the time and tails 40% of the time. The payout is $2 per $1 bet. Well, absolutely you should bet. The odds are in your favour. But if you have, say, $100 it is less obvious how much you should bet to avoid ruin. Say you bet $50, the odds that it could land on tails twice in a row are 16%. You could easily be out after the first two flips. Equally, betting $1 is not going to maximise your advantage. The odds are 60/40 in your favour so only betting $1 is likely too conservative. The Kelly Criterion is a formula that produces the long-run optimal bet size, given the odds. Applying the formula to forex trading looks like this: Position size % = Winning trade % - ( (1- Winning trade %) / Risk-reward ratio If you have recorded hundreds of trades in your journal - see next chapter - you can calculate what this outputs for you specifically. If you don't have hundreds of trades then let’s assume some realistic defaults of Winning trade % being 30% and Risk-reward ratio being 3. The 3 implies your TP is 3x the distance of your stop from entry e.g. 300 pips take profit and 100 pips stop loss. So that’s 0.3 - (1 - 0.3) / 3 = 6.6%. Hold on a second. 6.6% of your account probably feels like a LOT to risk per trade.This is the main observation people have on Kelly: whilst it may optimise the long-run results it doesn’t take into account the pain of drawdowns. It is better thought of as the rational maximum limit. You needn’t go right up to the limit! With a 30% winning trade ratio, the odds of you losing on four trades in a row is nearly one in four. That would result in a drawdown of nearly a quarter of your starting account balance. Could you really stomach that and put on the fifth trade, cool as ice? Most of us could not. Accordingly people tend to reduce the bet size. For example, let’s say you know you would feel emotionally affected by losing 25% of your account. Well, the simplest way is to divide the Kelly output by four. You have effectively hidden 75% of your account balance from Kelly and it is now optimised to avoid a total wipeout of just the 25% it can see. This gives 6.6% / 4 = 1.65%. Of course different trading approaches and different risk appetites will provide different optimal bet sizes but as a rule of thumb something between 1-2% is appropriate for the style and risk appetite of most retail traders. Incidentally be very wary of systems or traders who claim high winning trade % like 80%. Invariably these don’t pass a basic sense-check:
How many live trades have you done? Often they’ll have done only a handful of real trades and the rest are simulated backtests, which are overfitted. The model will soon die.
What is your risk-reward ratio on each trade? If you have a take profit $3 away and a stop loss $100 away, of course most trades will be winners. You will not be making money, however! In general most traders should trade smaller position sizes and less frequently than they do. If you are going to bias one way or the other, far better to start off too small.
How to use stop losses sensibly
Stop losses have a bad reputation amongst the retail community but are absolutely essential to risk management. No serious discretionary trader can operate without them. A stop loss is a resting order, left with the broker, to automatically close your position if it reaches a certain price. For a recap on the various order types visit this chapter. The valid concern with stop losses is that disreputable brokers look for a concentration of stops and then, when the market is close, whipsaw the price through the stop levels so that the clients ‘stop out’ and sell to the broker at a low rate before the market naturally comes back higher. This is referred to as ‘stop hunting’. This would be extremely immoral behaviour and the way to guard against it is to use a highly reputable top-tier broker in a well regulated region such as the UK. Why are stop losses so important? Well, there is no other way to manage risk with certainty. You should always have a pre-determined stop loss before you put on a trade. Not having one is a recipe for disaster: you will find yourself emotionally attached to the trade as it goes against you and it will be extremely hard to cut the loss. This is a well known behavioural bias that we’ll explore in a later chapter. Learning to take a loss and move on rationally is a key lesson for new traders. A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not. Bruce Kovner, founder of the hedge fund Caxton Associates There is an old saying amongst bank traders which is “losers average losers”. It is tempting, having bought EURUSD and seeing it go lower, to buy more. Your average price will improve if you keep buying as it goes lower. If it was cheap before it must be a bargain now, right? Wrong. Where does that end? Always have a pre-determined cut-off point which limits your risk. A level where you know the reason for the trade was proved ‘wrong’ ... and stick to it strictly. If you trade using discretion, use stops.
Picking a clear level
Where you leave your stop loss is key. Typically traders will leave them at big technical levels such as recent highs or lows. For example if EURUSD is trading at 1.1250 and the recent month’s low is 1.1205 then leaving it just below at 1.1200 seems sensible. If you were going long, just below the double bottom support zone seems like a sensible area to leave a stop You want to give it a bit of breathing room as we know support zones often get challenged before the price rallies. This is because lots of traders identify the same zones. You won’t be the only one selling around 1.1200. The “weak hands” who leave their sell stop order at exactly the level are likely to get taken out as the market tests the support. Those who leave it ten or fifteen pips below the level have more breathing room and will survive a quick test of the level before a resumed run-up. Your timeframe and trading style clearly play a part. Here’s a candlestick chart (one candle is one day) for GBPUSD. https://preview.redd.it/moyngdy4f5h51.png?width=1200&format=png&auto=webp&s=91af88da00dd3a09e202880d8029b0ddf04fb802 If you are putting on a trend-following trade you expect to hold for weeks then you need to have a stop loss that can withstand the daily noise. Look at the downtrend on the chart. There were plenty of days in which the price rallied 60 pips or more during the wider downtrend. So having a really tight stop of, say, 25 pips that gets chopped up in noisy short-term moves is not going to work for this kind of trade. You need to use a wider stop and take a smaller position size, determined by the stop level. There are several tools you can use to help you estimate what is a safe distance and we’ll look at those in the next section. There are of course exceptions. For example, if you are doing range-break style trading you might have a really tight stop, set just below the previous range high. https://preview.redd.it/ygy0tko7f5h51.png?width=1200&format=png&auto=webp&s=34af49da61c911befdc0db26af66f6c313556c81 Clearly then where you set stops will depend on your trading style as well as your holding horizons and the volatility of each instrument. Here are some guidelines that can help:
Use technical analysis to pick important levels (support, resistance, previous high/lows, moving averages etc.) as these provide clear exit and entry points on a trade.
Ensure that the stop gives your trade enough room to breathe and reflects your timeframe and typical volatility of each pair. See next section.
Always pick your stop level first. Then use a calculator to determine the appropriate lot size for the position, based on the % of your account balance you wish to risk on the trade.
So far we have talked about price-based stops. There is another sort which is more of a fundamental stop, used alongside - not instead of - price stops. If either breaks you’re out. For example if you stop understanding why a product is going up or down and your fundamental thesis has been confirmed wrong, get out. For example, if you are long because you think the central bank is turning hawkish and AUDUSD is going to play catch up with rates … then you hear dovish noises from the central bank and the bond yields retrace lower and back in line with the currency - close your AUDUSD position. You already know your thesis was wrong. No need to give away more money to the market.
Coming up in part II
EDIT: part II here Letting stops breathe When to change a stop Entering and exiting winning positions Risk:reward ratios Risk-adjusted returns
Coming up in part III
Squeezes and other risks Market positioning Bet correlation Crap trades, timeouts and monthly limits *** Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
Former investment bank FX trader: Risk management part II
Firstly, thanks for the overwhelming comments and feedback. Genuinely really appreciated. I am pleased 500+ of you find it useful. If you didn't read the first post you can do so here: risk management part I. You'll need to do so in order to make sense of the topic. As ever please comment/reply below with questions or feedback and I'll do my best to get back to you. Part II
Letting stops breathe
When to change a stop
Entering and exiting winning positions
Letting stops breathe
We talked earlier about giving a position enough room to breathe so it is not stopped out in day-to-day noise. Let’s consider the chart below and imagine you had a trailing stop. It would be super painful to miss out on the wider move just because you left a stop that was too tight. Imagine being long and stopped out on a meaningless retracement ... ouch! One simple technique is simply to look at your chosen chart - let’s say daily bars. And then look at previous trends and use the measuring tool. Those generally look something like this and then you just click and drag to measure. For example if we wanted to bet on a downtrend on the chart above we might look at the biggest retracement on the previous uptrend. That max drawdown was about 100 pips or just under 1%. So you’d want your stop to be able to withstand at least that. If market conditions have changed - for example if CVIX has risen - and daily ranges are now higher you should incorporate that. If you know a big event is coming up you might think about that, too. The human brain is a remarkable tool and the power of the eye-ball method is not to be dismissed. This is how most discretionary traders do it. There are also more analytical approaches. Some look at the Average True Range (ATR). This attempts to capture the volatility of a pair, typically averaged over a number of sessions. It looks at three separate measures and takes the largest reading. Think of this as a moving average of how much a pair moves. For example, below shows the daily move in EURUSD was around 60 pips before spiking to 140 pips in March. Conditions were clearly far more volatile in March. Accordingly, you would need to leave your stop further away in March and take a correspondingly smaller position size. ATR is available on pretty much all charting systems Professional traders tend to use standard deviation as a measure of volatility instead of ATR. There are advantages and disadvantages to both. Averages are useful but can be misleading when regimes switch (see above chart). Once you have chosen a measure of volatility, stop distance can then be back-tested and optimised. For example does 2x ATR work best or 5x ATR for a given style and time horizon? Discretionary traders may still eye-ball the ATR or standard deviation to get a feeling for how it has changed over time and what ‘normal’ feels like for a chosen study period - daily, weekly, monthly etc.
Reasons to change a stop
As a general rule you should be disciplined and not change your stops. Remember - losers average losers. This is really hard at first and we’re going to look at that in more detail later. There are some good reasons to modify stops but they are rare. One reason is if another risk management process demands you stop trading and close positions. We’ll look at this later. In that case just close out your positions at market and take the loss/gains as they are. Another is event risk. If you have some big upcoming data like Non Farm Payrolls that you know can move the market +/- 150 pips and you have no edge going into the release then many traders will take off or scale down their positions. They’ll go back into the positions when the data is out and the market has quietened down after fifteen minutes or so. This is a matter of some debate - many traders consider it a coin toss and argue you win some and lose some and it all averages out. Trailing stops can also be used to ‘lock in’ profits. We looked at those before. As the trade moves in your favour (say up if you are long) the stop loss ratchets with it. This means you may well end up ‘stopping out’ at a profit - as per the below example. The mighty trailing stop loss order It is perfectly reasonable to have your stop loss move in the direction of PNL. This is not exposing you to more risk than you originally were comfortable with. It is taking less and less risk as the trade moves in your favour. Trend-followers in particular love trailing stops. One final question traders ask is what they should do if they get stopped out but still like the trade. Should they try the same trade again a day later for the same reasons? Nope. Look for a different trade rather than getting emotionally wed to the original idea. Let’s say a particular stock looked cheap based on valuation metrics yesterday, you bought, it went down and you got stopped out. Well, it is going to look even better on those same metrics today. Maybe the market just doesn’t respect value at the moment and is driven by momentum. Wait it out. Otherwise, why even have a stop in the first place?
Entering and exiting winning positions
Take profits are the opposite of stop losses. They are also resting orders, left with the broker, to automatically close your position if it reaches a certain price. Imagine I’m long EURUSD at 1.1250. If it hits a previous high of 1.1400 (150 pips higher) I will leave a sell order to take profit and close the position. The rookie mistake on take profits is to take profit too early. One should start from the assumption that you will win on no more than half of your trades. Therefore you will need to ensure that you win more on the ones that work than you lose on those that don’t. Sad to say but incredibly common: retail traders often take profits way too early This is going to be the exact opposite of what your emotions want you to do. We are going to look at that in the Psychology of Trading chapter. Remember: let winners run. Just like stops you need to know in advance the level where you will close out at a profit. Then let the trade happen. Don’t override yourself and let emotions force you to take a small profit. A classic mistake to avoid. The trader puts on a trade and it almost stops out before rebounding. As soon as it is slightly in the money they spook and cut out, instead of letting it run to their original take profit. Do not do this.
Entering positions with limit orders
That covers exiting a position but how about getting into one? Take profits can also be left speculatively to enter a position. Sometimes referred to as “bids” (buy orders) or “offers” (sell orders). Imagine the price is 1.1250 and the recent low is 1.1205. You might wish to leave a bid around 1.2010 to enter a long position, if the market reaches that price. This way you don’t need to sit at the computer and wait. Again, typically traders will use tech analysis to identify attractive levels. Again - other traders will cluster with your orders. Just like the stop loss we need to bake that in. So this time if we know everyone is going to buy around the recent low of 1.1205 we might leave the take profit bit a little bit above there at 1.1210 to ensure it gets done. Sure it costs 5 more pips but how mad would you be if the low was 1.1207 and then it rallied a hundred points and you didn’t have the trade on?! There are two more methods that traders often use for entering a position. Scaling in is one such technique. Let’s imagine that you think we are in a long-term bulltrend for AUDUSD but experiencing a brief retracement. You want to take a total position of 500,000 AUD and don’t have a strong view on the current price action. You might therefore leave a series of five bids of 100,000. As the price moves lower each one gets hit. The nice thing about scaling in is it reduces pressure on you to pick the perfect level. Of course the risk is that not all your orders get hit before the price moves higher and you have to trade at-market. Pyramiding is the second technique. Pyramiding is for take profits what a trailing stop loss is to regular stops. It is especially common for momentum traders. Pyramiding into a position means buying more as it goes in your favour Again let’s imagine we’re bullish AUDUSD and want to take a position of 500,000 AUD. Here we add 100,000 when our first signal is reached. Then we add subsequent clips of 100,000 when the trade moves in our favour. We are waiting for confirmation that the move is correct. Obviously this is quite nice as we humans love trading when it goes in our direction. However, the drawback is obvious: we haven’t had the full amount of risk on from the start of the trend. You can see the attractions and drawbacks of both approaches. It is best to experiment and choose techniques that work for your own personal psychology as these will be the easiest for you to stick with and build a disciplined process around.
Risk:reward and win ratios
Be extremely skeptical of people who claim to win on 80% of trades. Most traders will win on roughly 50% of trades and lose on 50% of trades. This is why risk management is so important! Once you start keeping a trading journal you’ll be able to see how the win/loss ratio looks for you. Until then, assume you’re typical and that every other trade will lose money. If that is the case then you need to be sure you make more on the wins than you lose on the losses. You can see the effect of this below. A combination of win % and risk:reward ratio determine if you are profitable A typical rule of thumb is that a ratio of 1:3 works well for most traders. That is, if you are prepared to risk 100 pips on your stop you should be setting a take profit at a level that would return you 300 pips. One needn’t be religious about these numbers - 11 pips and 28 pips would be perfectly fine - but they are a guideline. Again - you should still use technical analysis to find meaningful chart levels for both the stop and take profit. Don’t just blindly take your stop distance and do 3x the pips on the other side as your take profit. Use the ratio to set approximate targets and then look for a relevant resistance or support level in that kind of region.
Not all returns are equal. Suppose you are examining the track record of two traders. Now, both have produced a return of 14% over the year. Not bad! The first trader, however, made hundreds of small bets throughout the year and his cumulative PNL looked like the left image below. The second trader made just one bet — he sold CADJPY at the start of the year — and his PNL looked like the right image below with lots of large drawdowns and volatility. Would you rather have the first trading record or the second? If you were investing money and betting on who would do well next year which would you choose? Of course all sensible people would choose the first trader. Yet if you look only at returns one cannot distinguish between the two. Both are up 14% at that point in time. This is where the Sharpe ratio helps . A high Sharpe ratio indicates that a portfolio has better risk-adjusted performance. One cannot sensibly compare returns without considering the risk taken to earn that return. If I can earn 80% of the return of another investor at only 50% of the risk then a rational investor should simply leverage me at 2x and enjoy 160% of the return at the same level of risk. This is very important in the context of Execution Advisor algorithms (EAs) that are popular in the retail community. You must evaluate historic performance by its risk-adjusted return — not just the nominal return. Incidentally look at the Sharpe ratio of ones that have been live for a year or more ... Otherwise an EA developer could produce two EAs: the first simply buys at 1000:1 leverage on January 1st ; and the second sells in the same manner. At the end of the year, one of them will be discarded and the other will look incredible. Its risk-adjusted return, however, would be abysmal and the odds of repeated success are similarly poor.
The Sharpe ratio works like this:
It takes the average returns of your strategy;
It deducts from these the risk-free rate of return i.e. the rate anyone could have got by investing in US government bonds with very little risk;
It then divides this total return by its own volatility - the more smooth the return the higher and better the Sharpe, the more volatile the lower and worse the Sharpe.
For example, say the return last year was 15% with a volatility of 10% and US bonds are trading at 2%. That gives (15-2)/10 or a Sharpe ratio of 1.3. As a rule of thumb a Sharpe ratio of above 0.5 would be considered decent for a discretionary retail trader. Above 1 is excellent. You don’t really need to know how to calculate Sharpe ratios. Good trading software will do this for you. It will either be available in the system by default or you can add a plug-in.
VAR is another useful measure to help with drawdowns. It stands for Value at Risk. Normally people will use 99% VAR (conservative) or 95% VAR (aggressive). Let’s say you’re long EURUSD and using 95% VAR. The system will look at the historic movement of EURUSD. It might spit out a number of -1.2%. A 5% VAR of -1.2% tells you you should expect to lose 1.2% on 5% of days, whilst 95% of days should be better than that This means it is expected that on 5 days out of 100 (hence the 95%) the portfolio will lose 1.2% or more. This can help you manage your capital by taking appropriately sized positions. Typically you would look at VAR across your portfolio of trades rather than trade by trade. Sharpe ratios and VAR don’t give you the whole picture, though. Legendary fund manager, Howard Marks of Oaktree, notes that, while tools like VAR and Sharpe ratios are helpful and absolutely necessary, the best investors will also overlay their own judgment. Investors can calculate risk metrics like VaR and Sharpe ratios (we use them at Oaktree; they’re the best tools we have), but they shouldn’t put too much faith in them. The bottom line for me is that risk management should be the responsibility of every participant in the investment process, applying experience, judgment and knowledge of the underlying investments.Howard Marks of Oaktree Capital What he’s saying is don’t misplace your common sense. Do use these tools as they are helpful. However, you cannot fully rely on them. Both assume a normal distribution of returns. Whereas in real life you get “black swans” - events that should supposedly happen only once every thousand years but which actually seem to happen fairly often. These outlier events are often referred to as “tail risk”. Don’t make the mistake of saying “well, the model said…” - overlay what the model is telling you with your own common sense and good judgment.
Coming up in part III
Available here Squeezes and other risks Market positioning Bet correlation Crap trades, timeouts and monthly limits *** Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
This thread is the direct continuation of my previous entry, which you can find here. I have the feeling my rambles may be long, so I'm not going to repeat anything I already said in my previous post for the sake of keeping this brief. What is this? I am backtesting the strategy shared by ParallaxFx. I have just completed my second run of testing, and I am here to share my results with those who are interested. If you want to read more about the strategy, go to my previous thread where I linked it. What changed? Instead of using a fixed target of the -100.0 Fibonacci extension, I tracked both the -61.8 and the -100.0 targets. ParallaxFx used the -61.8 as a target, but never tried the second one, so I wanted to compare the two and see what happens. Where can I see your backtested result? I am going to do something I hope I won't regret and share the link to my spreadsheet. Hopefully I won't be doxxed, but I think I should be fine. You can find my spreadsheet at this link. There are a lot of entries, so it may take a while for them to load. In the "Trades" tab, you will find every trade I backtested with an attached screenshot and the results it would have had with the extended and the unextended target. You can see the UNCOMPOUNDED equity curve in the Summary tab, together with the overall statistics for the system. What was the sample size? I backtested on the Daily chart, from January 2017 to December 2019, over 28 currency pairs. I took a total of 310 trades - although keep in mind that every position is most often composed by two entries, meaning that you can roughly halve this number. What is the bottom line? If you're not interested in the details, here are the stats of the strategy based on how I traded it.
Extended: 223.46 R of return, 2.34 of profit factor, 0.72 R of expected value, 46.13% winrate. The average win is 2.72 R while the average loss is -1.00 R.
Unextended: 172.20 R of return, 2.19 of profit factor, 0.56 R of expected value, 53.23% winrate. The average win is 1.92 R while the average loss is -1.00 R.
The highest drawdown for both systems was 18 R. This seems like a lot, but remember you're splitting risk in half.
Here you can see the two uncompounded equity curves side by side: red is unextended and blue is extended. Who wins? The test suggests the strategy to be more profitable with the extended target. In addition, most of the trades that reached the unextended target but reversed before reaching the extended, were trades that I would have most likely not have taken with the extented target. This is because there was a resistance/support area in the way of the -100.0 extension level, but there was enough room for price to reach the -61.8 level. I will probably trade this strategy using the -100.0 level as target, unless there is an area in the way. In that case I will go for the unextended target. Drawdown management The expected losing streak for this system, using the extended target, is 7 trades in a row in a sample size of 100 trades. My goal is to have a drawdown cap of 4%, so my risk per trade will be 0.54%. If I ever find myself in a losing streak of more than 8 trades, I will reduce my risk per trade further. What's next? I'll be taking this strategy live. The wisest move would be to repeat the same testing over lower timeframes to verify the edge plays out there as well, but I would not be able to trust my results because I would have vague memories of where price went because of the testing I just did. I also believe markets are fractals, so I see no reason why this wouldn't work on lower timeframes. Before going live, I will expand this spreadsheet to include more specific analysis and I will continue backtesting at a slower pace. The goal is to reach 20 years of backtesting over these 28 pairs and put everything into this spreadsheet. It's not something I will do overnight, but I'll probably do one year every odd day, and maybe a couple more during the weekend. I think I don't have much else to add. I like the strategy. Feel free to ask questions.
I've been thinking a lot about my own trading and have come to some harsh conclusions. It's time we discuss some hard truths about technical analysis, mechanical trading, and psychology I think many of us don't want to accept.
I've had a rough week and it sounds like I'm not the only one. This week has wiped out my gains since July 1st, and I'm finding myself ever-so-slightly in the hole this month so far. I've made money every other month I've traded, so I'm not writing myself off as a failure, but nevertheless, I've done some digging to try and figure out what I'm struggling with. I hope the following observations about my own trading resonate with some of you and can help us all become better traders. First off: Fundamental/technical analysis. Since I started with forex a few years ago, I've put 100% of my time and effort into studying technicals. I think many traders, myself included, are drawn to technical analysis because we fall into the trap of thinking "If I just figure out what combination of indicators/chart patterns/algorithms work for me, trading will be smooth sailing." Being able to take a formulaic approach is incredibly appealing because it's much easier to simply check off a list of criteria than it is to interpret more nuanced information. For me, I found success drawing supply and demand zones, using Bollinger Bands to visualize market structure, and confirming reversal patterns with stochastics to trade from one zone to the next. I even studied the math behind those indicators to make sure I fully understood how they worked so I could identify their limitations, and for the most part, the strategy made money. Nevertheless, if I had a dollar for every time I take what I think is a perfect setup, then the market takes me on a wacky-ass ride of unexpected "crazy bullshit" that stops me out, I wouldn't be trading for a living. After some introspection, my conclusion is that those moments are not "crazy bullshit", but rather are the results of factors that fall outside of the (actually very narrow) scope of technical analysis. This has been hard to accept, as I previously learned technical analysis was perfectly viable as a sole perspective. I was taught that the market can be predicted based on analyzing past behavior. It seems obvious now, but when I think about it, no combination of chart patterns or indicators can predict next week's unemployment figures, interest rates, or what announcements (or blunders) world leaders are going to make on the global stage. Technicals work, but they only work when the market is reacting to fundamental factors, and as soon as a new fundamental change comes along, every bit of technical analysis used until that point becomes obsolete. What I'm trying to say is, at the very least, I need to be able to understand when, why, and how the game is going to change if my technicals are going to serve me. As such, I need to stop shirking fundamental analysis. It's time I start paying attention to that economic calendar and put in the effort to learn what each event means and how to interpret the results to figure out how the market will react. It's simply not as easy as looking at the technicals. It should be obvious that there's no magic formula to trading, but many of us try hard to avoid coming to terms with the fact that there's a lot more to "analysis" than just price action, risk management, and indicators. The problem is we as traders want trading to be easy. It's a career that society glorifies, and even if we tell ourselves we know it's not a get-rich-quick scheme, we still want to "figure it out" so we can spend a few hours a week scribbling on our charts and making simple black and white decisions while we kick back and "live comfortably". And so we try to trick ourselves into thinking it is easy by endlessly parroting mantras like "Risk management is all that matters" and "Trading is 100% psychology" and "All you need to do is find the strategy that works for you and stick to it." The first two are certainly pieces of the puzzle, but there's so much more to the big picture. The last mantra isn't even remotely true, and brings me to my second point, which thankfully is something I figured out early in my career, but it's too related to the previous topic to not mention: Mechanical strategies. The sentiment that you need to clearly define a precise, detailed strategy and always stick to it is another lie to make trading seem simpler than it really is. Even when I was just starting to demo trade, I was finding trades that would tick all the boxes outlined by my strategy, but my gut would hesitate. Long after I identified that problem, I also began to notice that I'd be forcing myself to hold onto trades, even if they were not moving as fast or far as I initially thought they would. Once I decided to leave room for my own instinct and discretion, I became much more successful. It's important to understand your strategy is a set of rules you yourself made up. If your strategy does not line up with your own professional opinion of the situation based on your personal experiences and observations, you need to find out why. Yes, you absolutely should draw on your past experiences and be consistent in how you examine the market, how much you risk, and what tools you use, but give yourself enough credit to form your own opinions. The market is not consistent. Do not expect to succeed by applying one cookie-cutter set of rules to different currencies, at different times, during different events. Long-term success in any other line of work is dependent on critical thinking and the ability to adapt to an ever-changing world, and forex is no different. It's not simple, it's not easy, and you will have to make difficult decisions. This wound up being longer than I anticipated, so thanks for reading. I'm eager to hear everyone's thoughts on these topics, so please share them.
Im a growing trader and i have a question, any help would be appreciated
I'm still a fairly new trader, I've with known about the markets for a few years but i only started lately with about approximately 6 months of consistently educating myself and teaching myself on all the different parts of trading, some parts I feel confident with while others might not be the best that I can be YET. a list of things i can say i understand would be fundamental analysis, technical analysis...to a certain extent (always room for improvement) indicators and various tools like the macd, momentum indicators, rsi, stochastic indicators, bollinger bands, etc, risk managment and protecting capital the meaning of certain candelstick patterns, diffrent markets like stocks, forex, commodities and dividend stock. i also learnt how not to fall for stupid internet scams. ive been trading with a demo account for the most of my learning period but i have traded with a live account too. I took a liking to the 4 hour timeframe and built my own trading plan from there onwards , i guess i just feel like my personality matches the 4h charts, but i use 1D 1H 30M also. I just want to be a succesful trader and improve my standard of life, buy myself a cozy house, fall in love, help my mother pay her bills, these regular things. I'm working on making enough money to fund my account since im only 19 With all i have already taught myself I cant help but feel like theres someting important that i am missing and have not stumbled into yet to teach myself or learn. Like what is the next step in my growth? i feel like i dont have all the pieces of the puzzle. what do you think it might be?
I'm still a fairly new trader, I've know about it for a few years but i only really started properly with about 6 months of consistently educating myself and teaching myself on all the different parts of trading, some I feel confident with while others might not be the best that I can be YET. a list of things i can say i understand would be fundamental analysis, technical analysis...(to a certain extent)always room for growth... indicators and various tools like the macd, momentum indicators, rsi, stochastic indicators, bollinger bands, etc, risk managment and protecting capital the meaning of certain candelstick patterns, different markets like stocks, forex, commodities and dividend stocks. i also learnt how not to fall for stupid internet scams. ive been trading with a demo account for the most of my learning period but i have traded with a live account too. Doubling my small accounts of about $40 I took a liking to the 4 hour timeframe and built my own trading plan from there onwards , i guess i just feel like my personality matches the 4h charts, although i use D1, H1, 30M also in my analysis I just want to be a succesful trader and inprove my standard of life, buy myself a cozy house, fall in love, help my mother pay her bills, these regular things. I'm working on making enouph money to fund my account since im only 19 With all i have already taught myself I cant help but feel like theres someting important that i am missing and have not stumbled into yet to teach myself or learn. Like what is the next step in my growth? i just feel like i dont have all the pieces of the puzzle. what do you think it might be?
So here it is, three more days and October begins, which marks one year of trading for me. I figured I would contribute to the forum and share some of my experience, a little about me, and what I've learned so far. Whoever wants to listen, that's great. This might get long so buckle up.. Three years ago, I was visiting Toronto. I don't get out much, but my roommate at the time travels there occasionally. He asked everyone at our place if we wanted to come along for a weekend. My roommate has an uncle that lives there and we didn't have to worry about a hotel because his uncle owns a small house that's unlived in which we could stay at. I was the only one to go with. Anyways, we walk around the city, seeing the sights and whatnot. My friend says to me "where next?" "I don't know, you're the tour guide" "We can go check out Bay Street" "what's 'Bay Street?'" "It's like the Canadian Wall street! If you haven't seen it you gotta see it!" Walking along Bay, I admire all the nice buildings and architecture, everything seems larger than life to me. I love things like that. The huge granite facades with intricate designs and towering pillars to make you think, How the fuck did they make that? My attention pivots to a man walking on the sidewalk opposite us. His gait stood out among everyone, he walked with such a purpose.. He laughed into the cell phone to his ear. In the elbow-shoving city environment, he moved with a stride that exuded a power which not only commanded respect, but assumed it. I bet HE can get a text back, hell he's probably got girls waiting on him. This dude was dressed to kill, a navy suit that you could just tell from across the street was way out of my budget, it was a nice fucking suit. I want that. His life, across the street, seemed a world a way from my own. I've worn a suit maybe twice in my life. For my first communion, it was too big for me, I was eleven or whatever so who gives a shit, right? I'm positive I looked ridiculous. The other time? I can't remember. I want that. I want the suit. I want the wealth, the independence.I want the respect and power, and I don't give a shit what anyone thinks about it. Cue self doubt. Well, He's probably some rich banker's son. That's a world you're born into. I don't know shit about it. \sigh* keep walking..* A year later, I'm visiting my parents at their house, they live an hour away from my place. My dad is back from Tennessee, his engineering job was laying people off and he got canned... Or he saw the end was near and just left... I don't know, hard to pay attention to the guy honestly because he kind of just drones on and on. ("Wait, so your mom lives in Michigan, but your dad moved to Tennessee... for a job?" Yea man, I don't fucking know, not going to touch on that one.) The whole project was a shit show that was doomed to never get done, the way he tells it. And he's obviously jaded from multiple similar experiences at other life-sucking engineer jobs. My mom is a retired nurse practitioner who no longer works because of her illness. I ask him what he's doing for work now and he tells me he trades stocks from home. I didn't even know you could do that. I didn't know "trading" was a thing. I thought you just invest and hope for the best. "Oh that's cool, how much money do you need to do that?" "Ehh, most say you need at least $25,000 as a minimum" "Oh... guess I can't do that..." Six months later, I get a call and it's my dad. We talk a little about whatever. Off topic, he starts asking if I'm happy doing what I'm doing (I was a painter, commercial and residential) I tell him yes but it's kind of a pain in the ass and I don't see it as a long term thing. Then he gets around to asking if I'd like to come work with him. He basically pitches it to me. I'm not one to be sold on something, I'm always skeptical. So I ask all the questions that any rational person would ask and he just swats them away with reassuring phrases. He was real confident about it. But basically he says for this to work, I have to quit my job and move back home so he can teach me how to trade and be by my side so I don't do anything stupid. "My Name, you can make so much money." I say that I can't raise the $25,000 because I'm not far above just living paycheck to paycheck. "I can help you out with that." Wow, okay, well... let me think about it. My "maybe" very soon turned into a "definitely." So over the next six months, I continue to work my day job painting, and I try to save up what I could for the transition (it wasn't a whole lot, I sucked at saving. I was great at spending though!). My dad gives me a book on day trading (which I will mention later) and I teach myself what I can about the stock market using Investopedia. Also in the meantime, my dad sends me encouraging emails. He tells me to think of an annual income I would like to make as a trader, and used "more than $100,000 but less than a million" as a guideline. He tells me about stocks that he traded that day or just ones that moved and describes the basic price action and the prices to buy and sell at. Basically saying "if you bought X amount of shares here and sold it at X price here, you could make a quick 500 bucks!" I then use a trading sim to trade those symbols and try to emulate what he says. Piece of cake. ;) Wow, that's way more than what I make in a day. He tells me not to tell anyone about my trading because most people just think it's gambling. "Don't tell your Mom either." He says most people who try this fail because they don't know how to stop out and take a loss. He talks about how every day he was in a popular chatroom, some noob would say something like, "Hey guys, I bought at X price (high of day or thereabout), my account is down 80% .. uhh I'm waiting for it to come back to my entry price.. what do I do??" Well shit, I'm not that fucking dumb. If that's all it takes to make it is to buy low, sell high, and always respect a stop then I'll be fantastic. By the end of September, I was very determined. I had been looking forward everyday to quitting my painting job because while it used to be something I loved, it was just sucking the life out of me at this point. Especially working commercial, you just get worked like a dog. I wasn't living up to my potential with that job and I felt awful for it every minute of every day. I knew that I needed a job where I could use my brain instead of slaving my body to fulfill someone else's dream. "Someone's gotta put gas in the boss's boat" That's a line my buddy once said that he probably doesn't know sticks with me to this day. It ain't me. So now it was October 2018, and I'm back living with Mom n' Pops. I was so determined that on my last day of work I gave away all of my painting tools to my buddy like, "here, I don't need this shit." Moving out of my rental was easy because I don't own much, 'can't take it with ya.' Excited for the future I now spend my days bundled up in winter wear in the cold air of our hoarder-like basement with a space heater at my feet. My laptop connected to a TV monitor, I'm looking at stocks next to my dad and his screens in his cluttered corner. Our Trading Dungeon. I don't trade any money, (I wasn't aware of any real-time sim programs) I just watch and learn from my dad. Now you've got to keep in mind, and look at a chart of the S&P, this is right at the beginning of Oct '18, I came in right at the market top. Right at the start of the shit-show. For the next three or four weeks, I watch my dad pretty much scratch on every trade, taking small loss after small loss, and cursing under his breath at the screen. Click. "dammit." Click. "shit." Click. Click. "you fuck." Click. This gets really fucking annoying as time goes on, for weeks, and I get this attitude like ugh, just let me do it. I'll make us some fucking money. So I convince him to let me start trading live. I didn't know anything about brokers so I set up an account using his broker, which was Fidelity. It was a pain and I had to jump through a lot of hoops to be able to day trade with this broker. I actually had to make a joint account with my dad as I couldn't get approved for margin because my credit score is shit (never owned a credit card) and my net worth, not much. Anyways, they straight up discourage day trading and I get all kinds of warning messages with big red letters that made me shit myself like oooaaahhh what the fuck did I do now. Did I forget to close a position?? Did I fat finger an order? Am I now in debt for thousands of dollars to Fidelity?? They're going to come after me like they came after Madoff. Even after you are approved for PDT you still get these warning messages in your account. Some would say if I didn't comply with "whatever rule" they'd even suspend my account for 60 days. It was ridiculous, hard to describe because it doesn't make sense, and it took the support guy on the phone a good 20 minutes to explain it to me. Basically I got the answer "yea it's all good, you did nothing wrong. As long as you have the cash in your account to cover whatever the trade balance was" So I just kept getting these warnings that I had to ignore everyday. I hate Fidelity. My fist day trading, I made a few so-so trades and then I got impatient. I saw YECO breaking out and I chased, soon realized I chased, so I got out. -$500. Shit, I have to make that back, I don't want my dad to see this. Got back in. Shit. -$400. So my first day trading, I lost $900. My dumbass was using market orders so that sure didn't help. I reeled the risk back and traded more proper position size for a while, but the commissions for a round trip are $10, so taking six trades per day, I'm losing $60 at a minimum on top of my losing trades. Quickly I realized I didn't know what the hell I was doing. What about my dad? Does HE know? One day, in the trading dungeon, I was frustrated with the experience I'd been having and just feeling lost overall. I asked him. "So, are you consistently profitable?" "mmm... I do alright." "Yea but like, are you consistently profitable over time?" ......................... "I do alright." Silence. "Do you know any consistently profitable traders?" "Well the one who wrote that book I gave you, Tina Turner.. umm and there's Ross Cameron" ...................... "So you don't know any consistently profitable traders, personally.. People who are not trying to sell you something?" "no." ................... Holy fucking shit, what did this idiot get me into. He can't even say it to my face and admit it. This entire life decision, quitting my job, leaving my rental, moving from my city to back home, giving shit away, it all relied on that. I was supposed to be an apprentice to a consistently profitable day trader who trades for a living. It was so assumed, that I never even thought to ask! Why would you tell your son to quit his job for something that you yourself cannot do? Is this all a scam? Did my dad get sold a DREAM? Did I buy into some kind of ponzi scheme? How many of those winning trades he showed me did he actually take?Are there ANY consistently profitable DAY TRADERS who TRADE FOR A LIVING?Why do 90% fail? Is it because the other 10% are scamming the rest in some way? Completely lost, I just had no clue what was what. If I was going to succeed at this, if it was even possible to succeed at this, it was entirely up to me. I had to figure it out. I still remember the feeling like an overwhelming, crushing weight on me as it all sunk in. This is going to be a big deal.. I'm not the type to give up though. In that moment, I said to myself, I'm going to fucking win at this. I don't know if this is possible, but I'm going to find out. I cannot say with certainty that I will succeed, but no matter what, I will not give up. I'm going to give all of myself to this. I will find the truth. It was a deep moment for me. I don't like getting on my soapbox, but when I said those things, I meant it. I really, really meant it. I still do, and I still will. Now it might seem like I'm being hard on my dad. He has done a lot for me and I am very grateful for that. We're sarcastic as hell to each other, I love the bastard. Hell, I wouldn't have the opportunity to trade at all if not for him. But maybe you can also understand how overwhelmed I felt at that time. Not on purpose, of course he means well. But I am not a trusting person at all and I was willing to put trust into him after all the convincing and was very disappointed when I witnessed the reality of the situation. I would have structured this transition to trading differently, you don't just quit your job and start trading. Nobody was there to tell me that! I was told quite the opposite. I'm glad it happened anyway, so fuck it. I heard Kevin O'Leary once say, "If I knew in the beginning how difficult starting a business was, I don't know that I ever would've started." This applies very much to my experience. So what did I do? Well like everyone I read and read and Googled and Youtube'd my ass off. I sure as hell didn't pay for a course because I didn't have the money and I'm like 99% sure I would be disappointed by whatever they were teaching as pretty much everything can be found online or in books for cheap or free. Also I discovered Thinkorswim and I used that to sim trade in real-time for three months. This is way the hell different than going on a sim at 5x speed and just clicking a few buy and sell buttons. Lol, useless. When you sim trade in real-time you're forced to have a routine, and you're forced to experience missing trades with no chance to rewind or skip the boring parts. That's a step up because you're "in it". I also traded real money too, made some, lost more than I made. went back to sim. Traded live again, made some but lost more, fell back to PDT. Dad fronted me more cash. This has happened a few times. He's dug me out of some holes because he believes in me. I'm fortunate. Oh yeah, about that book my dad gave me. It's called A Beginner's Guide to Day Trading Online by Toni Turner. This book... is shit. This was supposed to be my framework for how to trade and I swear it's like literally nothing in this book fucking works lol. I could tell this pretty early on, intuitively, just by looking at charts. It's basically a buy-the-breakout type strategy, if you want to call it a strategy. No real methodology to anything just vague crap and showing you cherry-picked charts with entries that are way too late. With experience in the markets you will eventually come to find that MOST BREAKOUTS FAIL. It talks about support/resistance lines and describes them as, "picture throwing a ball down at the floor, it bounces up and then it bounces down off the ceiling, then back up." So many asinine assumptions. These ideas are a text book way of how to trade like dumb money. Don't get me wrong, these trades can work but you need to be able to identify the setups which are more probable and identify reasons not to take others. So I basically had to un-learn all that shit. Present day, I have a routine in place. I'm out of the dungeon and trade by myself in my room. I trade with a discount broker that is catered to day traders and doesn't rape me on commissions. My mornings have a framework for analyzing the news and economic events of the particular day, I journal so that I can recognize what I'm doing right and where I need to improve. I record my screens for later review to improve my tape reading skills. I am actually tracking my trades now and doing backtesting in equities as well as forex. I'm not a fast reader but I do read a lot, as much as I can. So far I have read about 17-18 books on trading and psychology. I've definitely got a lot more skilled at trading. As of yet I am not net profitable. Writing that sounds like selling myself short though, honestly. Because a lot of my trades are very good and are executed well. I have talent. However, lesser quality trades and trades which are inappropriately sized/ attempted too many times bring down that P/L. I'm not the type of trader to ignore a stop, I'm more the trader that just widdles their account down with small losses. I trade live because at this point, sim has lost its value, live trading is the ultimate teacher. So I do trade live but I just don't go big like I did before, I keep it small. I could show you trades that I did great on and make people think I'm killing it but I really just don't need the validation. I don't care, I'm real about it. I just want to get better. I don't need people to think I'm a genius, I'm just trying to make some money. Psychologically, to be honest with you, I currently feel beaten down and exhausted. I put a lot of energy into this, and sometimes I work myself physically sick, it's happened multiple times. About once a week, usually Saturday, I get a headache that lasts all day. My body's stress rebound mechanism you might call it. Getting over one of those sick periods now, which is why I barely even traded this week. I know I missed a lot of volatility this week and some A+ setups but I really just don't give a shit lol. I just currently don't have the mental capital, I think anyone who's been day trading every day for a year or more can understand what I mean by that. I'm still being productive though. Again, I'm not here to present an image of some badass trader, just keeping it real. To give something 100% day after day while receiving so much resistance, it takes a toll on you. So a break is necessary to avoid making bad trading decisions. That being said, I'm progressing more and more and eliminating those lesser quality trades and identifying my bad habits. I take steps to control those habits and strengthen my good habits such as having a solid routine, doing review and market research, taking profits at the right times, etc. So maybe I can give some advice to some that are new to day trading, those who are feeling lost, or just in general thinking "...What the fuck..." I thought that every night for the first 6 months lol. First of all, manage expectations. If you read my story of how I came to be a trader, you can see I had a false impression of trading in many aspects. Give yourself a realistic time horizon to how progress should be made. Do not set a monetary goal for yourself, or any time-based goal that is measured in your P/L. If you tell yourself, "I want to make X per day, X per week, or X per year" you're setting yourself up to feel like shit every single day when it's clear as the blue sky that you won't reach that goal anytime soon. As a matter of fact, it will appear you are moving further AWAY from that goal if you just focus on your P/L, which brings me to my next point. You will lose money. In the beginning, most likely, you will lose money. I did it, you'll do it, the greatest Paul Tudor Jones did it. Trading is a skill that needs to be developed, and it is a process. Just look at it as paying your tuition to the market. Sim is fine but don't assume you have acquired this skill until you are adept at trading real money. So when you do make that leap, just trade small. Just survive. Trade small. get the experience. Protect your capital. To reach break even on your bottom line is a huge accomplishment. In many ways, experience and screen time are the secret sauce. Have a routine. This is very important. I actually will probably make a more in-depth post in the future about this if people want it. When I first started, I was overwhelmed with the feeling "What the fuck am I supposed to DO?" I felt lost. There's no boss to tell you how to be productive or how to find the right stocks, which is mostly a blessing, but a curse for new traders. All that shit you see, don't believe all that bullshit. You know what I'm talking about. The bragposting, the clickbait Youtube videos, the ads preying on you. "I made X amount of money in a day and I'm fucking 19 lolz look at my Lamborghini" It's all a gimmick to sell you the dream. It's designed to poke right at your insecurities, that's marketing at it's finest. As for the bragposting on forums honestly, who cares. And I'm not pointing fingers on this forum, just any trading forum in general. They are never adding anything of value to the community in their posts. They never say this is how I did it. No, they just want you to think they're a genius. I can show you my $900 day trading the shit out of TSLA, but that doesn't tell the whole story. Gamblers never show you when they lose, you might never hear from those guys again because behind the scenes, they over-leveraged themselves and blew up. Some may actually be consistently profitable and the trades are 100% legit. That's fantastic. But again, I don't care, and you shouldn't either. You shouldn't compare yourself to others. "Everyone's a genius in a bull market" Here's the thing.. Markets change. Edges disappear. Trading strategies were made by traders who traded during times when everything they did worked. Buy all the breakouts? Sure! It's the fucking tech bubble! Everything works! I'm sure all those typical setups used to work fantastically at some point in time. But the more people realize them, the less effective they are. SOMEONE has to be losing money on the opposite side of a winning trade, and who's willing to do that when the trade is so obvious? That being said, some things are obvious AND still work. Technical analysis works... sometimes. The caveat to that is, filters. You need to, in some way, filter out certain setups from others. For example, you could say, "I won't take a wedge pattern setup on an intraday chart unless it is in a higher time frame uptrend, without nearby resistance, and trading above average volume with news on that day." Have a plan. If you can't describe your plan, you don't have one. Think in probabilities. You should think entirely in "if, then" scenarios. If X has happens, then Y will probably happen. "If BABA breaks this premarket support level on the open I will look for a pop up to short into." Backtest. Most traders lose mainly because they think they have an edge but they don't. You read these books and all this stuff online telling you "this is a high probability setup" but do you know that for a fact? There's different ways to backtest, but I think the best way for a beginner is manual backtesting with a chart and an excel sheet. This builds up that screen time and pattern recognition faster. This video shows how to do that. Once I saw someone do it, it didn't seem so boring and awful as I thought it was. Intelligence is not enough. You're smarter than most people, that's great, but that alone is not enough to make you money in trading necessarily. Brilliant people try and fail at this all the time, lawyers, doctors, surgeons, engineers.. Why do they fail if they're so smart? It's all a fucking scam. No, a number of reasons, but the biggest is discipline and emotional intelligence. Journal every day.K no thanks, bro. That's fucking gay. That's how I felt when I heard this advice but really that is pride and laziness talking. This is the process you need to do to learn what works for you and what doesn't. Review the trades you took, what your plan was, what actually happened, how you executed. Identify what you did well and what you can work on. This is how you develop discipline and emotional intelligence, by monitoring yourself. How you feel physically and mentally, and how these states affect your decision-making. Always be learning. Read as much as you can. Good quality books. Here's the best I've read so far; Market Wizards -Jack Schwager One Good Trade -Mike Bellafiore The Daily Trading Coach -Bret Steenbarger Psycho-cybernetics -Maxwell Maltz Why You Win or Lose -Fred Kelly The Art and Science of Technical Analysis -Adam Grimes Dark Pools -Scott Patterson Be nimble. Everyday I do my research on the symbols I'm trading and the fundamental news that's driving them. I might be trading a large cap that's gapping up with a beat on EPS and revenue and positive guidance. But if I see that stock pop up and fail miserably on the open amidst huge selling pressure, and I look and see the broader market tanking, guess what, I'm getting short, and that's just day trading. The movement of the market, on an intraday timeframe, doesn't have to make logical sense. Adapt. In March I used to be able to buy a breakout on a symbol and swing it for the majority of the day. In the summer I was basically scalping on the open and being done for the day. Volatility changes, and so do my profit targets. Be accountable. Be humble. Be honest. I take 100% responsibility for every dime I've lost or made in the market. It's not the market makers fault, it wasn't the HFTs, I pressed the button. I know my bad habits and I know my good habits.. my strengths/ my weaknesses. Protect yourself from toxicity. Stay away from traders and people on forums who just have that negative mindset. That "can't be done" mentality. Day trading is a scam!! It can certainly be done. Prove it, you bastard. I'm posting to this particular forum because I don't see much of that here and apparently the mods to a good job of not tolerating it. As the mod wrote in the rules, they're most likely raging from a loss. Also, the Stocktwits mentality of "AAPL is going to TANK on the open! $180, here we come. $$$" , or the grandiose stories, "I just knew AMZN was going to go up on earnings. I could feel it. I went ALL IN. Options money, baby! ka-ching!$" Lol, that is so toxic to a new trader. Get away from that. How will you be able to remain nimble when this is your thought process? Be good to yourself. Stop beating yourself up. You're an entrepreneur. You're boldly going where no man has gone before. You've got balls. Acknowledge your mistakes, don't identify with them. You are not your mistakes and you are not your bad habits. These are only things that you do, and you can take action necessary to do them less. It doesn't matter what people think. Maybe they think you're a fool, a gambler. You don't need their approval. You don't need to talk to your co-workers and friends about it to satisfy some subconscious plea for guidance; is this a good idea? You don't need anyone's permission to become the person you want to be. They don't believe in you? Fuck 'em. I believe in you.
T3 Newsbeat Live is run by Mark Melnick, a 20-year veteran trader from New York. According to him, he made his first million at the age of 19 during the dot-com boom back in the late 90s. He claims that his trading room is the fastest growing trading room at T3 and also the Wall Street’s #1 trading room. You can see this in the description of his videos on Youtube. He is a big proponent of reaching the highest win rate possible in trading. He openly shares some of his trading strategies in free videos and claims that some of his strategies are batting over 70% or even 80 %. He also often says that some of the members enjoy a win rate over 90% using his strategies. I will let you be the judge of this. Self-Promotion He makes a lot of videos to attract new people into his trading room. His daily videos are uploaded on Facebook and Youtube almost daily even on Weekends (mostly excluding Friday evening & Saturdays). In so many videos you’d hear him talking about how his trading room has an edge over other trading rooms while bashing other trading rooms as a whole. He often talks about how his trading room bought stocks/options at the near bottom or shorted at the near top using his “algorithmic analysis” which can be applied to all markets (stocks, future, forex, crypto). Piques your curiosity, right? In fact, that’s how I got to give his trading room a try. “Who in the hell wouldn’t want to catch the top & bottom in the markets, right?” So, you would think people in his room and himself are making a killing using his algorithmic analysis? Not so fast… (in fact, his algorithmic analysis is just drawing trendlines and identifying the most probable support and resistance) When it works (of course, nothing works 100% of the time), you are able to catch just few cents off the top and bottom when it works if you follow his trade. However, you have no idea how long you’d have to hold your position. Mark doesn’t know either. So, he usually goes for nickels and dimes and rarely holds a position longer than 5 minutes. Even if he’s good at picking bottoms and tops, you’d often risk more than nickels and dimes just to make nickels and dimes. Make sense, right? ……. ……. ……. Also, because he gets out of his positions fast, he misses out on riding some potentially big trades. Oh, how I wish stay in that position a bit longer. He doesn’t say but one can surmise that he often leave too much on the table. Of course, it’s important to take your profit fast when you scalp but you consistently leave too much on the table like he does, one has to wonder if he has any system for taking profits (otherwise, it’s all discretionary guessing). This type of bottom/top picking is not his main strategy, though. The strategy that makes him the most amount of money might surprise you. I will get to this later. How Mark Trades (Mark’s Trading Setups and Strategies) Mainly, he scans the market in the morning for earnings reports, analysts’ upgrades/downgrades and other catalysts that have potential to make moves in the market. He openly shares his mockery or insult of analysts, calling certain analysts “idiots” or “imbeciles”. He puts on his first trade(s) early in the morning (from 9:30AM to 10:00AM Eastern Standard Time) when the market move is the most volatile. Some of his strategies use market order during this period of volatile time using options. You can see why this can be very risky and especially on thinly traded options with side spread. He does point out this but sometimes you hear people in the room stuck in an options position that they can’t get out. Just like his trades from calling the top/bottom of a stock, he gets in and gets out of a position within minutes if not seconds while going for nickels and dimes while staring at 1minute and 5-minutes charts. That applies to most, if not all of his strategies. (Yes, sometimes he does catch bigger moves than nickels and dimes.) When you trade during the most volatile time in the morning, you’re subjected to wild moves in both directions. If you’re overly prudent or inexperienced in trading, your stop (unless very wide), has a very high chance of hitting. A lot of times it might stop you out and go in the direction that you predicted. So, when you’ve been trading during this time, you’d probably don’t set a stoploss order or a hard stop to avoid getting fleeced. You do have to be proactive at cutting your loss as quickly as possible. Otherwise you’d find yourself scrambling to get out your position while the bid keeps dropping. I have to say that Mark is very cautious and he does get out of trades very fast if he has doubt. A lot of times he lets out exhausting, heavy sighs and even murmurs some swear words when things don’t seem to go the way he wants in a trade. Besides calling certain analysts, “imbeciles” and “idiots”, this is quite unprofessional but no one in the room has the gut to point things out like this. The irony is that he is the “head of trading psychology” at T3 and it doesn’t seem like that he doesn’t have much control over his trading psychology and let alone his emotion. People in trading chatrooms, like a herd of sheep, as a whole exhibit herd mentality. Even in an online chatroom, you don’t often see someone ruffling feathers and say what they really want to say. This is probably because of the certain amount of people believing whatever he says without questioning the validity and quality of his comments. He has several strategies and according to him all of them have win rate over %70. However, he also comes up with new strategies as often as every month. He either comes up with new strategy or tweaks his existing strategies. According to him, the reason is that the market is always evolving and you need to constantly adapt yourself to the ever-changing market environment. What do you think? Does this sound like someone with an edge? And for someone who scalps for nickels and dimes, he claims to have the highest Sharpe Ratio that he has ever seen in the industry. I’m NOT making this up. He often utters remarks like “My Sharpe Ratio is one of the highest I’ve seen in my twenty-year trading career.”, “I want to create a of traders with a very high Sharpe Ratio. How can you achieve a high Sharpe Ratio when you scalp all the time? And let’s not even talk about commissions generated from frequent scalping. Who cares about commissions when you can be a scalper with high Sharpe Ratio? Now, I want to talk about something controversial about his most profitable strategy. Chatters According to him, he makes the most amount of money using what he calls “Chatters”. He admits he bets on this kind of trades heavily. His chatter trades are based on the “newsflow” of big funds making a move in certain stocks and piggybacking on the same trade before others catch on. No one knows how he exactly gets his “newsflow” and he doesn’t give a straight answer when asked. Maybe he pays a lot for this kind of information or maybe it’s given to him for free. Who knows? But it makes sense. The name of the room is Newsbeat Live. Without this the name wouldn’t be the same. This is probably the only real edge that he has and it’s understandable that he doesn’t want to reveal how he get this kind of newsflow and from where. By joining his trading room he’ll make a callout on these trades for you to take advantage of. In order to do this kind of trade, you have to be very quick on your trigger finger. Almost always the initial move is done within a couple of minutes, if not seconds. If you get in late, you find yourself a sucker buying at or near the top. Also, because you want to get in as soon as you hear his “chatter” announcements, he advised people to get in within 5 seconds of each chatter announcement and use market order to get in. He said that if he had a small account, he’d bet 100% on this kind of “high-octane” chatter trades and get in and get out fast for “easy” money. This was how chatter trades were done …Until one they when many people got burned badly. Back in September or October of 2019, a lot of people in the room lost a lot money because they market ordered call options contracts on a chatter trade. The spread on that trade was something like BID: 0.5 ASK: 5.00 few seconds after he announced it. I didn’t take that trade. No way, I’m going to buy something that has a spread like that. If you’ve been trading options you know that this kind of spread can happen. Many people that day in the room marketed-in on the trade, taking the offer at ASK. They found themselves buying at $5.0 per contract when someone probably bought the same contract at $0.40 or $0.50 just few seconds ago. Someone walked away with decent profits on that trade. This was the biggest trading chatroom fiasco I’ve ever seen. People in the room grieving and throwing numbers of how much they had just lost. 10K, 20K, 30K and even $60K. Could it be also that someone who lost more and didn’t want to talk about it because it’d hurt too much? And how embarrassing to talk about such a loss. I give credit to people who spoke up about it. People were obviously distressed and what did Mr. Mark Melnick do at this moment? Initially, he didn’t say much. But what he said he was going to walk away from the trading desk to clear his mind. It took a while for him to come back and he mentioned that it hurt him a lot that people lost a lot of money and encouraged people not to hesitate to contact him. I don’t think he ever said anything about that he made a mistake insinuating to load up on chatter trades. No apology since everyone who took the trade did it at their own risk. He advised people to reach out to their broker and do whatever it takes to get their trades annulled because the market makers in that trades were despicable crooks and evil. But let’s get one thing clear. Perhaps the cold hard truth. Since Mark is the one who announces chatter trades. he basically frontruns everyone who gets in on these trades after him. There were times when he doesn’t take his own chatter trades and lets the room have it. But when he does, it’s a guarantee win for him. He has some sycophantic followers in his trading room and these people are always hungry for chatter plays. I can imagine drooling over the idea of next chatter trades. It’s human to naturally seek the least path of resistance and this type of trade requires no skill but having fast trigger finger and a platform that allows fast execution. By taking his chatter trades, you are most likely to make money as long as you act fast to get in and get out. The thing is, you don’t know when it’s exactly the next chatter trade is going to happen. If you take a bathroom break, you just miss it. If you take a phone call or answer a door bell, you just missed it. So, it requires you to be glued to your monitor(s) if you want to make the most of your subscription. So, we went over Mark’s most profitable strategy. But wait we haven’t yet to talk about his overnight swing trades. Mark’s Swing Trades His overnight swing trades jokes. Yes, jokes. A lot of his overnight trades are done just before earnings announcements when implied volatility is at the highest. You’ve ever bought a call option just before earnings, predicted the right direction but only to find out that you still lost money next morning? This is because of the implied volatility crush post earnings. A lot of people new to options don’t know this and get taken advantage by veterans this way. I don’t know if Mark knows or not but I witnessed him buying options this way. I think he understand the concept of implied volatility but why he gets on such trades is a mystery. I haven’t exactly checked the result of all of his swing trades but I wouldn’t be surprised if people lost more money following his swing trades than anything in the room. Final Word Mark offers “free-consultation” on the phone for people who struggle in their trading. He said that he takes a lot of phone calls but often you’d get the feeling that he is distracted, unable to give an undivided attention for his consultation. “How would you like to get on a free consultation with a millionaire scalper who can take your trading to the next level?” Appealing isn’t it? But would you want to get on the phone with someone who is going to give a consultation, even if he or she is distracted? Oh, it’s a free consultation. Ok, why not? What do I got to lose? In his videos, you’d hear him saying that he cares for everyone in his trading room and considers them as part of his family. And he runs the trading room out of his good heart and intention more than making money. Besides he says that he makes more money from his trading than running the room. My suggestion is that you have a look and you’d be the judge. He does hold “open house” for his trading room from time to time. Also, I believe that if you try his trading room for the first time, you try it for a month for about $50. As for me, he’s just another front runner using his trading room to profit with a bad sense of humor and exaggeration that make you cringe.
Strat for 50 - 100% a Year - Common Points, Example of Setup 3 and First Weeks Results.
Part 1 Part 2 We're going to start this post with dealing with common heckles. Some people have heckled me already in this posting series. I know from having done things like this publicly a few times before there are catchphrase heckles to be dealt with, and we'll do this one and for all here. If I've linked you here, you've done a FMH (Frequently Made Heckle). If you're not a heckler, you can skip the line break for the strategy stuff, but this section may still be interesting for you. FMH 1 : Elliot wave does not work all the time. I know. The clock in my living-room does not work all the time. If it tells me it's 2am and I look out and it's broad day light, I use some discerning judgement based on my experience of looking out of a window, and I suspect it may be incorrect. If it tells me it's 8.30am and I look out and see little kids with school bags walking past the window, I suspect the clock may have a point. When I write all the rules and exceptions in my posts, I am not doing this to make the posts longer. These are rules and exceptions designed to describe situations when it probably is happening. Of course it does not "Always work". I am not say it does. Your assumption I have not thought through the same extraordinary simplistic, "But, what if ...." questions is either you under estimating me, over estimating you, or both. FMH 2 : Fibs levels do not work, studies show it is as good as random. Two points. Firstly, I've read some of these studies. These hypothetical things done by people who have never traded in the market and want to produce intellectual ideas about it. While reading through the method of the experiment it's apparent to me it won't work. I could save them some time if they call me and tell me their hypothesis; "Nope. You'll lose about 20% a year doing that. Good general idea. Okay starting point, but you get fucked here, here and here. Work on that". I will not value the opinion of someone paid to write papers on fibs over my experience being paid to trade them. I will not go out my way to try to get you to value my opinion. I've learned people will either test things I say and know the truth of them for their selves with me posting the amount of interesting evidence/results that I do, and others would not test it if I posted a million examples. Point two. Not perfect does not mean not practical. Fib levels do not react absolutely perfectly. I suspect the reason for this is so many people use them to put stops behind these days. In days gone by, they were probably more accurate, but as stop clusters became more predictable and concentrated this change. Game theory sort of stuff. Read more about my thoughts on this here. The thing is, for those who pay enough time and attention, there are patterns of when the fibs either do work very well, or "do not work" in the exact same way over and over again. If they do "not work" in the same way over and over, that's the same as working to me. I am looking for patterns to trade for profit. Not to compile a pretty chart of data points as to if price turned specifically on the 61.8 over a million samples. FMH 3 - "Everything you're saying is wrong", "You're an idiot", "I am non-specifically and non-constructively disagreeing" (Yeah, people drop that last one, verbatim, all the time) Pics, or it didn't happen. I am willing to "get up here" so to speak and succeed or fail in front of everyone. I'm posting what I do, and explaining all my rational. Results are being tracked. Time and continuity will display my outcomes. Is there a way you suggest you can provide stronger proof I am wrong that I am proposing to prove I am right? If you're just saying you think I am stupid, because you know the market so much better than me my standard reply is as follows; " If you'd like to propose, explain and track a strategy you think will outperform this we can both keep our records and that will best determine who's opinions have profitability. It seems something that would be good for the community. " Pics or it didn't happen. Only analysts and economists are paid for opinions. My job demands a far more practical approach. FMH 4 - "What REALLY happened with (insert news related thing) this and your guesses were just lucky". If I said it would happen yesterday, then set trades for it happening and profited from them today; it does not matter to me the reason you give me for it tomorrow. If you choose to view the market as being like this, you may. If it ever does start to become more relevant to me making profits or not, I will pay attention to other things. Right now, I do not follow them closely and that has never mattered. Either I am consistently lucky, physic or right. Pick the flavor for you. I will not engage in conversation on any of these points coming from a closed minded perspective. By which I mean you only commenting to tell me why you're right. If you feel someone has to add balance with these comments, go ahead. I encourage people to be scientific in their approach and having different viewpoints helps with this. Do your own experiments. I will answer honest questions, and will gladly engage people who disagree with me and do so from the perspective of personal study. Usually we can both learn and teach if both of us have firsthand knowledge. This is rare, but enjoyable. ================================================================================================== On to GBPUSD. As I said may be possible in the previous post, the trade for the bigger run up post Chicago was missed. This can happen. It's better to miss bad opportunities than squander good money on bad ones, and at the time I had the option of entering, there was no way to tell the difference between these - so I did nothing. Later in the day price continued to be consistent with the formations of a spike pattern. Here I engaged the market. GBPUSD 1 Minute My entering pattern was to first open two small trades with a 13 pip stop. This was an emergency stop, I always planned to tighten it up (it'd only hit in the event of an immediate capitulation). The risk here was about 0.15%. When the market moved a bit lower, I entered more positions and having more data felt better about where to place stops. All stops went to 6 pips or less (bigger position, same starting risk). As price reached the best level, I opened my largest trade. Stop went from 3 - 6 pips with big stops being 2 pips. Effective stop something like 3-4 pips. Targets hit for 10 - 12 pips, giving an effective pay off on risk just short of 1:3. I do not use aggressive position sizing in this part of the trade (usually it already carries made profits), so the net risk was low. Around 0.25%. Net gain in positions was 0.6%. GBPUSD 1 min From left to right the positions get bigger. Notice also the biggest position (low) takes profit a good bit before where I forecast the high (bulk close). This trade hitting should give assurance of breakeven on this trade, so the risk on capital is gone on this trade on a double top move, then profits accumulated in the breakout. Results for the day; https://preview.redd.it/96zq7cy1j9i31.png?width=821&format=png&auto=webp&s=d324348621a5c0931a90de207fe8aebb116f934d Current Gain = 0.65% Max risk exposure possible - 0.4% Max real equity drawdown - < 0.2% Due to not being entirely available for trading today this was a big under-performance of what the strategy could have achieved. It's been a decent example day to show the logistics of how the trades can form. To make 2 - 3% today with the same draw-down was possible.
“Hey, gold, what are you doing over there at $1470? You are supposed to aim at $1900 – we are in a crisis here!” – that’s your righteous question to the precious metal. Although it did show an elevated trajectory for a while until recently, none of that seems “worthy” of the severity of the moment. Gold, monthly chart Especially, if you zoom in and see the most recent move of the shining metal. By falling to the support of $1450, it completely erased all the coronavirus-related gains and got back to where it was at the end of the year 2019. Then, the US and China seized tariff fire and eventually announced that they were finally closing the theater of trade war and were on the way to sign the trade agreement. That was promising peace and prosperity to the nations, and the year was ending well, full of moderately optimistic expectations for 2020. Not for gold though. “Well”, - gold thought – “there is no place for me in such a confident and economically expanding riskless world”. Eventually, its price gave room to the calmness of the market and continued its usual trajectory of mildly gaining value. Gold, daily chart The interesting thing is that when the virus came – that is marked by the red vertical line – gold did not change its trajectory. If you remove the last move it did - that brick-like drop from $1700 to $1450 – and ignore that the virus is now reigning the globe, you would have little ground to suspect that something unusual is happening in the world. At least, from gold’s point of view: according to the chart, it didn’t seem to worry about states bent into recession and tens of thousands sick or dead. Not more than before that, at least. The curve of the price performance did not change before and after the outbreak – the straight green line confirms that. Visually, until the second half of February, when China was in flames of the coronavirus, gold felt exactly like it did in December when the US and China were cheerful of each other’s commitments to the trade deal. And there is another interesting thing – the very last episode of gold price performance. The said drop. It is absolutely extraordinary because it is – in theory – supposed to be reversed. A millennia-long-living asset bringing joy to the eye of its owner, gold normally gets multiplied attention from investors seeking to secure and guard their funds when troubles kick in. Now, it is all the contrary: it plunges like a fraudulent security of a third-grade bank. What’s happening?
First, a very superficial but a very fair conclusion is: gold is not a “yes-sir” safe-haven commodity and does not react to the world of events as such. Nor does it react “on time”. Therefore, second, it is not as predictable as, say, oil prices are in their response to the KSA-Russia oil price stalemate. Does it mean that gold should be disregarded as a refuge to the money of scared investors? No. But we have to delineate gold as a physical asset owned by individuals and organizations and guarded in, say, Fort Knox and gold traded in multiple market platforms as a virtual asset through, including, derivatives such as CFDs. It is exactly the latter that we have in Forex. And these, although they do have a correlation to the price of the physical gold nuggets traded across the world, are largely affected by speculations and price manipulations, whatever they may be. That’s why you cannot rely on gold 100% as on a safe haven all the time in your trade. You have to weigh it against other assets, measure its reaction to the events and elaborate your judgment about it. The general guidelines are there – gold rises in the times of crises – but that alone is not enough to make successful trades. You need tactical information on its movement and tactical levels to watch. And its recent drop from $1700 to $1450 is another justification for that. If you bought gold even at the lows of $1600 expecting it to reverse upward on the spooked market mood, you would lose your funds by the current moment. So again, what’s happening?
Red pill #2
First, you have to factor-in market unpredictability into your general trading methodology. More precisely, you have to factor-in the fact the sometimes you will see prices move the way you cannot predict and do not understand. And that has nothing to do with available information: in hindsight, you can explain almost any phenomenon on the Forex market, regardless of your level of situational awareness. For example, how can we explain the recent performance of the gold price? Observers’ opinions vary from blunt references to omnipresent panic that nullifies the safe-haven immunity of gold to sophisticated schemes that advocate selling off this metal to suppress its automatically increasing equity share fueled by other assets’ reduction. While both may be relevant, for you that means one honest confession cited by Bloomberg after US Fed’s failure to make markets happy by the rate cut: "The traditional rules are out of order and there is nothing which can be classified as a safe haven – not even gold". Note: this “even” underlines that fundamentally, gold has an undisputed recognition as a reserve asset, but at the moment, it does not function as it normally would.
Steel started gaining value as it seems to be a “newly-founded” safe-haven asset as seen from the perspective of the Chinese market. But we are not suggesting you piling up steel rods in your backyard. The suggestion is: be flexible. Treat gold as your usual currency pair. Don’t take it for granted that it is “supposed” to rise in bad times. It is not, as you have already learned. Not always, at least. And one apparently cannot really know when it follows the default rule, and when it doesn’t. But one can always apply the same rules of observation and market interpretation which are applied to the rest of the Forex market. Follow the trend, reinforce it with fundamentals. If these don’t work, go technical. Once you have indications for upward reversal – buy. Once you have a downward move anticipated – short. Currently, from a purely technical perspective, a short-term upward correction is likely to happen because there is no fundamental reason to press on for a non-stop plunge while the Awesome Oscillator and the hesitation at the current level of $1470 indicate an upward-sideways mood.
Blue pill #2
No pain no gain. But as Warren Buffet said, Mr. Market doesn’t force you to trade. If you feel like you are confident to do it, you are welcome – you have all the instruments, and FBS is all but available to help you. If not – come any other minute, hour or day – he will always be glad to serve you with opportunities to make profits.
However, keep in mind that Mr. Market, although happy to serve you endless chances of benefit, doesn’t decide when the next coronavirus comes. Therefore, don’t lose your chance to use this once-in-a-decade strike of nature to your financial advantage.
I was going through old emails today and came across this one I sent out to family on January 4, 2018. It was a reflection on the 2017 crypto bull market and where I saw it heading, as well as some general advice on crypto, investment, and being safe about how you handle yourself in cryptoland. I feel that we are on the cusp of a new bull market right now, so I thought that I would put this out for at least a few people to see *before* the next bull run, not after. While the details have changed, I don't see a thing in this email that I fundamentally wouldn't say again, although I'd also probably insist that people get a Yubikey and use that for all 2FA where it is supported. Happy reading, and sorry for some of the formatting weirdness -- I cleaned it up pretty well from the original email formatting, but I love lists and indents and Reddit has limitations... :-/ Also, don't laught at my token picks from January 2018! It was a long time ago and (luckliy) I took my own advice about moving a bunch into USD shortly after I sent this. I didn't hit the top, and I came back in too early in the summer of 2018, but I got lucky in many respects. ----------------------------------------------------------------------- Jan-4, 2018 Hey all! I woke up this morning to ETH at a solid $1000 and decided to put some thoughts together on what I think crypto has done and what I think it will do. *******, if you could share this to your kids I’d appreciate it -- I don’t have e-mail addresses, and it’s a bit unwieldy for FB Messenger… Hopefully they’ll at least find it thought-provoking. If not, they can use it as further evidence that I’m a nutjob. 😉 Some history before I head into the future. I first mined some BTC in 2011 or 2012 (Can’t remember exactly, but it was around the Christmas holidays when I started because I had time off from work to get it set up and running.) I kept it up through the start of summer in 2012, but stopped because it made my PC run hot and as it was no longer winter, ********** didn’t appreciate the sound of the fans blowing that hot air into the room any more. I’ve always said that the first BTC I mined was at $1, but looking back at it now, that’s not true – It was around $2. Here’s a link to BTC price history. In the summer of 2013 I got a new PC and moved my programs and files over before scrapping the old one. I hadn’t touched my BTC mining folder for a year then, and I didn’t even think about salvaging those wallet files. They are now gone forever, including the 9-10BTC that were in them. While I can intellectually justify the loss, it was sloppy and underlines a key thing about cryptocurrency that I believe will limit its widespread adoption by the general public until it is addressed and solved: In cryptoland, you are your own bank, and if you lose your password or account number, there is no person or organization that can help you reset it so that you can get access back. Your money is gone forever. On April 12, 2014 I bought my first BTC through Coinbase. BTC had spiked to $1000 and been in the news, at least in Japan. This made me remember my old wallet and freak out for a couple of months trying to find it and reclaim the coins. I then FOMO’d (Fear Of Missing Out”) and bought $100 worth of BTC. I was actually very lucky in my timing and bought at around $430. Even so, except for a brief 50% swing up almost immediately afterwards that made me check prices 5 times a day, BTC fell below my purchase price by the end of September and I didn’t get back to even until the end of 2015. In May 2015 I bought my first ETH at around $1. I sent some guy on bitcointalk ~$100 worth of BTC and he sent me 100 ETH – all on trust because the amounts were small and this was a small group of people. BTC was down in the $250 range at that point, so I had lost 30-40% of my initial investment. This was of the $100 invested, so not that much in real terms, but huge in percentages. It also meant that I had to buy another $100 of BTC on Coinbase to send to this guy. A few months after I purchased my ETH, BTC had doubled and ETH had gone down to $0.50, halving the value of my ETH holdings. I was even on the first BTC purchase finally, but was now down 50% on the ETH I had bought. The good news was that this made me start to look at things more seriously. Where I had skimmed white papers and gotten a superficial understanding of the technology before FOMO’ing, I started to act as an investor, not a speculator. Let me define how I see those two different types of activity:
Investors buy because the price is less than the value they see in the investment. Speculators buy because they think that someone will pay more in the future than they are paying now.
Investors trade on information (The white paper was really well-written, had a clear technical advantage over other alternatives, and addresses a need that I can understand and value.) Speculators trade on sentiment. (Buy the rumor! Sell the news!)
Investors usually look at the investment and themselves and can describe why they purchase in those terms (ABC-Coin provides (service) that isn’t addressed yet and matches (requirements) for an investment.) Speculators usually describe why they bought something in terms of how other people think (I think that other people think that the price will rise, so I want to get ahead of that.)
Investors don’t necessarily check the price every day. The can, and very often I do, but it isn’t required because fundamentals don’t often change on a dime. Speculators need to be glued to a price feed, because sentiment very often changes on a dime.
Investors like ideas, people, business plans, and market opportunities. Good ones are like Spock. Speculators like trends. They are tribal.
Investors have a longer time horizon than speculators. In cryptoland, the notion of a “longer” time horizon is still laughably small (months) compared to traditional markets, but it certainly isn’t weeks or days or hours, which is whre speculators often live.
So what has been my experience as an investor? After sitting out the rest of 2015 because I needed to understand the market better, I bought into ETH quite heavily, with my initial big purchases being in March-April of 2016. Those purchases were in the $11-$14 range. ETH, of course, dropped immediately to under $10, then came back and bounced around my purchase range for a while until December of 2016, when I purchased a lot more at around $8. I also purchased my first ICO in August of 2016, HEAT. I bought 25ETH worth. Those tokens are now worth about half of their ICO price, so about 12.5ETH or $12500 instead of the $25000 they would be worth if I had just kept ETH. There are some other things with HEAT that mean I’ve done quite a bit better than those numbers would suggest, but the fact is that the single best thing I could have done is to hold ETH and not spend the effort/time/cost of working with HEAT. That holds true for about every top-25 token on the market when compared to ETH. It certainly holds true for the many, many tokens I tried to trade in Q1-Q2 of 2017. In almost every single case I would have done better and slept better had I just held ETH instead of trying to be smarter than Mr. Market. But, I made money on all of them except one because the crypto market went up more in USD terms than any individual coin went down in ETH or BTC terms. This underlines something that I read somewhere and that I take to heart: A rising market makes everyone seem like a genius. A monkey throwing darts at a list of the top 100 cryptocurrencies last year would have doubled his money. Here’s a chart from September that shows 2017 year-to-date returns for the top 10 cryptocurrencies, and all of them went up a *lot* more between then and December. A monkey throwing darts at this list there would have quintupled his money. When evaluating performance, then, you have to beat the monkey, and preferably you should try to beat a Wall Street monkey. I couldn’t, so I stopped trying around July 2017. My benchmark was the BLX, a DAA (Digital Asset Array – think fund like a Fidelity fund) created by ICONOMI. I wasn’t even close to beating the BLX returns, so I did several things.
I went from holding about 25 different tokens to holding 10 now. More on that in a bit.
I used those funds to buy ETH and BLX. ETH has done crazy-good since then and BLX has beaten BTC handily, although it hasn’t done as well as ETH.
I used some of those funds to set up an arbitrage operation.
The arbitrage operation is why I kept the 11 tokens that I have now. All but a couple are used in an ETH/token pair for arbitrage, and each one of them except for one special case is part of BLX. Why did I do that? I did that because ICONOMI did a better job of picking long-term holds than I did, and in arbitrage the only speculative thing you must do is pick the pairs to trade. My pairs are (No particular order):
I also hold PLU, PLBT, and ART. These two are multi-year holds for me. I have not purchased BTC once since my initial $200, except for a few cases where BTC was the only way to go to/from an altcoin that didn’t trade against ETH yet. Right now I hold about the same 0.3BTC that I held after my first $100 purchase, so I don’t really count it. Looking forward to this year, I am positioning myself as follows:
ETH will still be my core holding. It is the “deepest in the stack” crypto investment that I have. “Deep in the stack” is a programming term that gets at the idea that most software is built on other software. If you just think about your notebook, you have your OS, and programs run on that. But even inside the OS there is a stack. The bottom of your stack is the kernel, and on top of that are the drivers, protocols, and other layers that allow the programs to talk to the OS, the hard drive, the screen, the mouse, your printer, etc. You can change your mouse or printer easily. Changing things deeper in the stack becomes harder and harder. ETH is deep in the crypto stack, so is very hard to dislodge – Around 60 of the top 100 cryptocurrencies by market cap run on top of Ethereum, so getting rid of Ethereum is something that would take a long time to do.
DNT, QTUM, ZRX, and OMG are all, to varying degrees, “deep in the stack” tokens that, once established, will be very hard to dislodge.
That said, I am peeling away some of my holdings into USD right now, because big changes are afoot and they are going to cause market disruptions. I’m going to come right out and admit that this is speculative, but I’m also going to back it up with some non-speculative facts.
The SEC has been sending out hundreds of subpoenas to cryptocurrency organizations over the past 3-4 months. These subpoenas are simply asking for information and nobody has been charged with any crimes or misdoings, but it is clear that the SEC is getting together information so that they can begin to regulate cryptoland. When that happens, other countries will follow, and that means:
Some tokens will be deemed outright scams and people will be prosecuted.
Some tokens will be deemed securities and will be regulated.
Some tokens will not be deemed scams or securities and will continue as they have.
Looking at this, it is clear to me that the tokens that escape prosecution and regulation should do better, but the short-term impact will be brutal and ugly. It would not surprise me at all to see a 50% drop in overall market cap within Q1-Q2, with Q1 being more likely.
Cryptoland has always been a bit nuts, but it is more nuts now than I have ever seen it. Back in 2011-2014 it was a freaks-n-geeks show where people were all about the technology and I would sit around for a 3-day weekend installing a *nix VM on my Windows machine so that I could compile the most recent source and run a CUDA SHA-256 routine rather than thrash my CPU. If that doesn’t make sense to you, you wouldn’t have even thought about being involved.
Now, people see Bitcoin advertisements in their Facebook feed and think “I gotta get on the BTC train!” before going to Coinbase and buying some with a credit card. They don’t know anything about crypto, and they are getting eaten alive – It is no coincidence that BTC peaked after the Thanksgiving holidays when people sat around the table and Janice got Uncle Mike and Cousin Bob all excited as she talked about going to Cancun for Christmas because of her crypto winnings. Huge amounts of fiat got transferred from newbies to BTC whales during this period, and once the whales were done, BTC had dropped from $20,000 to $12,000. It’s now back at $15,000, but for people who bought at a higher level, this sucks. As a result many have moved from BTC to ETH, with the single biggest money flow in crypto in December being the BTC à ETH flow. As a result, it’s no coincidence that ETH is at all-time highs now. The thing is, though, that even most people that moved from BTC to ETH really have no idea what they are doing. They are acting on buzzwords and emotion. They are speculators and are going to get crushed.
The stock market is quite high right now, but people are starting to worry that it is too high and that we are going to enter into a period of inflation again. This has caused gold to go up a lot the last quarter and is likely also responsible a bit for the rise in cryptos. If this view is correct, then cryptos stay stronger than if that pressure wasn’t there. If wrong, then cryptos will swing down as money exits cryptoland for more traditional markets.
I am spending most of my time and money on the arbitrage effort. The nice thing about arbitrage is that it works as the markets go up, and it works as the markets go down. When markets are too volatile, however, arbitrage can get very messy and dangerous, with each trade generating a loss instead of a profit, so I am working right now to tune the algorithms to take into account rate-of-change and add in some circuit breaker triggers. Once this is done I will expand those operations.
I am getting much more serious about systems security.
I have a Nano Ledger and recommend that anyone with >$1000 of crypto have one. The Trezor is also supposed to be good, but I haven’t used it.
I will set up a dedicated *nix notebook that is used for nothing except my crypto work. All it takes is one keylogger to get on your PC/Mac and your crypto is gone. What is on your Nano Ledger will be OK, but they will sweep out your exchange account or Coinbase account faster than you can type. A standard Linux installation with Chrome and nothing else is as about as secure as you can get in the civilian world.
If you don’t use LastPass or a similar password manager yet, you need to do that. Your password to LastPass should be at least 16 characters long and should not have a recognizable English word in it. If you think that “Iluvu4evah” is a secure password, you’re wrong.
Hackers know that “4”=”for” and “u”=”you”. Writing a script to substitute those in is trivial if they want to write the script, but it’s much easier for them to download one of the many, many programs out there that already do this.
If your password contains any string of numbers from anything that can be associated with you at any time in your life, it is insecure. Take those numbers out of the character count because they are an insignificant barrier to cracking your account.
The good news is that you probably won’t be targeted, but if you ever mention online that you are doing anything significant in crypto, that chance increased enormously.
*Never* talk with *anyone* about how much you have in crypto. You’ll notice that I haven’t here. There is no reason to tell even a family member how much you have unless you are sharing a tax form. Sure, you may trust them, but all it takes if for someone to overhead someone else mention at a party that a relative got into crypto a long time ago and made a bunch of money. That person can also then be subjected to the $10 hack and force you to send all your crypto to them.
Your password to LastPass (Or equivalent.) should look something like this -> 6k0jQMoziX&D#4W8
Yes, it’s a headache. Imagine your headache, though, were you to open your account one day and find all of your money gone.
Looking at my notes, I have two other things that I wanted to work into this email that I didn’t get to, so here they are:
Just like with free apps and other software, if you are getting something of value and you didn’t pay anything for it, you need to ask why this is. With apps, the phrase is “If you didn’t pay for the product, you are the product”, and this works for things such as pump groups, tips, and even technical analysis. Here’s how I see it.
Technical analysis (TA) is something that has been argued about for longer than I’ve been alive, but I think that it falls into the same boat. In short, TA argues that there are patterns in trading that can be read and acted upon to signal when one must buy or sell. It has been used forever in the stock and foreign exchange markets, and people use it in crypto as well. Let’s break down these assumptions a bit.
i. First, if crypto were like the stock or forex markets we’d all be happy with 5-7% gains per year rather than easily seeing that in a day. For TA to work the same way in crypto as it does in stocks and foreign exchange, the signals would have to be *much* stronger and faster-reacting than they work in the traditional market, but people use them in exactly the same way. ii. Another area where crypto is very different than the stock and forex markets centers around market efficiency theory. This theory says that markets are efficient and that the price reflects all the available information at any given time. This is why gold in New York is similar in price to gold in London or Shanghai, and why arbitrage margins are easily <0.1% in those markets compared to cryptoland where I can easily get 10x that. Crypto simply has too much speculation and not enough professional traders in it yet to operate as an efficient market. That fundamentally changes the way that the market behaves and should make any TA patterns from traditional markets irrelevant in crypto. iii. There are services, both free and paid that claim to put out signals based on TA for when one should buy and sell. If you think for even a second that they are not front-running (Placing orders ahead of yours to profit.) you and the other people using the service, you’re naïve. iv. Likewise, if you don’t think that there are people that have but together computerized systems to get ahead of people doing manual TA, you’re naïve. The guys that I have programming my arbitrage bots have offered to build me a TA bot and set up a service to sell signals once our position is taken. I said no, but I am sure that they will do it themselves or sell that to someone else. Basically they look at TA as a tip machine where when a certain pattern is seen, people act on that “tip”. They use software to see that “tip” faster and take a position on it so that when slower participants come in they either have to sell lower or buy higher than the TA bot did. Remember, if you are getting a tip for free, you’re the product. In TA I see a system when people are all acting on free preset “tips” and getting played by the more sophisticated market participants. Again, you have to beat that Wall Street monkey.
If you still don’t agree that TA is bogus, think about it this way: If TA was real, Wall Street would have figured it out decades ago and we would have TA funds that would be beating the market. We don’t.
If you still don’t agree that TA is bogus and that its real and well, proven, then you must think that all smart traders use them. Now follow that logic forward and think about what would happen if every smart trader pushing big money followed TA. The signals would only last for a split second and would then be overwhelmed by people acting on them, making them impossible to leverage. This is essentially what the efficient market theory postulates for all information, including TA.
OK, the one last item. Read this weekly newsletter – You can sign up at the bottom. It is free, so they’re selling something, right? 😉 From what I can tell, though, Evan is a straight-up guy who posts links and almost zero editorial comments. Happy 2018.
Ah, but maybe you want to look around a bit and see how China’s total debt is compared with other economies, like this? （你可能想看看其他经济体与中国的债务情况相比是怎么样的，如下图）
（G10债务分布图） If you put China’s data on this chart, it will be somewhere around Canada and New Zealand. Guess Which Country Has Debt Of Nearly 1000% Of GDP... Shocking, isn’t it? 如果你将中国的数据插入上图进行比较的话，中国的数据大约会在加拿大和新西兰之间。猜猜看哪个国家债务大约是自己GDP的10倍....（英国）非常震惊吧 UK has almost 1000% Debt-to-GDP ratio, compared with China’s < 300% Debt-to-GDP ratio, mostly because of that over-sized financial debt - at the end of the day, the government must stand behind it. On top of that, the UK has no resource to sell, hardly any industry left, going through a divorce with EU, and almost never ever meets her fiscal targets. And yet, UK, with its near 1000% debt-to-GDP ratio, is still viewed as the gold standard among safe havens. PRESENTING: The Rosetta Stone Of The Entire Sovereign Debt Crisis Why? Because UK issues debt in her own currency. And who prints the pound? The UK government. 英国的债务/GDP占比将近1000%而中国只是小于300%，其原因是其过于庞大的金融债务——政府最终将不得不为之站台。在此之上，英国没用可出售的资源，没有任何本国工业，正在脱离欧盟，而且英国基本上从来没有达成其财务目标。即使如此，英国仍然被某些传媒视为安全经济体的黄金标准。其原因就是英债都以英镑的方式结算。那么是谁印英镑的呢？英国政府。 Then you take a look at Japan, wow that’s 600%+ debt-to-GDP ratio! But - Japan’s debt is not only mostly internal, in Japanese Yen, but also with 0% or even negative interest. You can roll this kind of debt over practically forever. That’s why people have been yelling about Japanese debt for the last 20 years, and nothing happens. 然后你看看日本，将近600%的债务/GDP占比！但是，日本的债务几乎都是内部的，以日元的形式出售的债务，而且日本是0利率甚至是负利率。实际上这种债务你可以无限积累下去(经济常识：如果是负利率，政府只要保持债务不变，多出来的部分会自行消失)。这就是为啥人们对日债担心了20年但屁事没有发生。 Then you take a look at those economies that have blown up on debt: Argentina: Government/Sovereign debt in USD, with jurisdiction in New York!Greece: Government/Sovereign debt in Euro, with jurisdiction in Brussels!Iceland: External financial debt → nationalized into Government/Sovereign debt in USD and Euro alone was 700%+ GDP in 2008, with jurisdiction in New York and Brussels. 然后你看看那些因债务问题毁掉的经济体： 阿根廷：政府/主权债务以美元形式结算，其裁判权在纽约!希腊：政府/主权债务以欧元方式结算，其裁判权在布鲁塞尔！冰岛：外部金融债务→债务国有化后2008年政府/主权债务以美元和欧元的形式达到GDP的700%，其裁判权在纽约和布鲁塞尔 Then you look at China, with her debt almost entirely internal, in Chinese RMB to Chinese citizens, government debt at 55%, lower than the US, Japan, and EU average, in her own currency. China’s external debt is about 9% of GDP, globally ranked 184th (less than North Korea, similar to Kosovo) - anyway you look at it, it’s hardly the kind of material to make a banking crisis. China is borrowing a little bit from her own piggy bank. Argentina/Greece/Iceland were borrowing a lot from the Mafia. 然后你看看中国，中国的债务基本都是内部以人民币结算的。中国政府债务只占总债务的55%，比美国，日本和欧盟都要低，再次强调，其债务以人民币结算。中国外部债务只占GDP的9%，全球排行184位（比朝鲜低，比科索沃高）。无论怎么看，你都不会看到中国有任何银行危机的迹象。中国只是向其国内贪心的银行借钱。阿根廷/希腊/冰岛可是像美国欧盟这些黑手党借钱。 PS: The most significant increase in China’s debt is in the financial sector, driven by rising real estate price (which means higher value of housing loans). Right now, the Chinese government is basically using it as a tool to do macro-economic engineering. The goal is to cap urban growth in top tier cities (Beijing, Shanghai, etc.) and push the economic growth to second- and third- tier cities (Hangzhou, the city that just hosted G20, is an example.http://www.g20.org/English/Hangzhou/About/index.html Now you can look back and see why the Chinese government decided to host G20 in a city nobody has ever heard of). This is clearly stated by the Chinese government like 100 times since last year in the official news channels. The reason? Top tier Chinese cities like Shanghai (25 million) already have more city residents than the whole nation of Australia! The metropolitan area of Shanghai (44 million) has more people than the entire population of Canada! In one city! Beijing’s population grew by 8 million within the last decade! The place is simply full.List of cities in China by population and built-up area PS: 中国最显著的债务增长是在其金融领域内不断升高的房价造成的（不断增高的房贷造成债务问题）。现在中国政府正在利用房价作为宏观经济调控的工具。其目的是限制一线城市的城市化进程和加速二三线城市的发展（刚刚举办了G20的杭州就是个例子，现在你就能知道为啥中国政府将G20放在一个没人听说过的城市举行了）。这些政策中国政府已经在官媒上宣布了无数次。原因就是一线城市，例如上海（2500万人口），其居民数量比阿根廷全国人口还要多！上海都市圈（4400万人口）的人口数量比加拿大全国还要多！北京人口数量在过去的10年内增长了800万！这些城市的人口数量已经饱和了。 In addition to real estate prices, the Chinese government is also doing stuff like restricting residents permits, disallowing second or third homes, even restricting jobs to local residents, everything to say “this place is full. We have these other nice choices, with lower housing prices. Go there.” Young people complaining about housing prices in tier-one cities? But that’s the whole point. The debt you have to take on to live in tier-one cities SHOULD SCARE YOU OFF. The Chinese government is trying to stop the influx of people pouring into tier-one cities, and get these smart and energetic youths to go build two, three, four, five. … more Shanghai’s in other parts of China. 1.4 billion people can’t all fit into tier-one cities. 除了以房地产为手段，中国政府也加强控制了居住证的发放，禁止第二/三套房买入甚至对本地居民的工作种类进行限制，这些都是为了表达一个意思：这些地方都人满为患了。二三线城市有更低的房价和更好的生活条件，快点去那里吧！年轻人都在抱怨一线城市的高房价？但这就是中国政府想要的。你在一线城市生存需要的代价会把你吓退。中国政府正在尝试控制一线城市的人口流入而让有技术和充满活力的年轻人去建设二三四五线城市——让更多的上海出现在国家的其他地方。14亿人口是没可能全部都聚集在一线城市的。 5.9k Views · View Upvotes Upvote91Downvote Comments4+ Share
There is too much debt, and a lot of it is likely to turn into bad debt, but that does not equal a banking crisis. 是因为中国贷款太多了，而这些贷款大多数会变成不良贷款，但这些都不等银行危机 Banking crisis may be a nice term to bandy around and get clicks and headlines, but does not really explain what is going on. 银行危机或许是一个十分吸引眼球的头条，但是根本就不能解释实际的情况 There was a lot of debt financing, especially after the 2008 subprime mortgage crisis in the US. In order to keep the economy on a steady keel, the Chinese government, through its banks, pumped money to Chinese state-owned enterprises, in order to keep high employment and maintain an image of “growth”. A lot of this money then found its way into the underground banking system through “wealth management products” and other means. A lot of this has turned into bad debt. 中国政府有过很多次债务融资，特别是08年美国次贷危机之后。为了稳住经济增长，中国政府通过银行将大量人民币注入到国企内以维持就业率和高增长的形象。但这些钱最终大都以理财产品和其他形式流进了地下钱庄。这些大部分都变成了不良贷款。 Another problem area, which frequently overlaps with the “wealth management products” is the local government financing vehicle used to fund local property development, which I have discussed here: Paul Denlinger's answer to Why does China have so many ghost towns? 另一个有问题的领域，和“理财产品”有莫大关联的，就是地方政府为当地基础建设所采用的金融工具（我在这个地方有详细的分析：https://www.quora.com/Why-does-China-have-so-many-ghost-towns/answePaul-Denlinger?srid=tR&share=22b99cfc） What is likely to happen in China is that growth will slow down in some areas, while there will be certain newer parts of the economy which will continue to grow. If the Chinese government is able to support the newer parts of the economy and help them to grow, while cutting back on loans to the weaker parts of the economy, it may be able to handle this transition better. 最可能发生的情况就是中国的经济增长将会放缓，但是肯定会用新的增站点。如果中国政府能支持新的增长点而且能减低夕阳工业的不良贷款率，那么或许能更好地度过过渡期。 This is exactly what the Chinese government is trying to do and you can read about it here:Here is how China is going to quietly save its economy 这些正是中国政府正在尝试去做的，你可以读读这个文章了解一下：http://www.scmp.com/news/china/economy/article/2022491/china-deploys-policy-banks-stealth-mission-stimulate-growth So, if you are expecting there to be a dramatic run on the banks, and the Chinese people to take to the streets and overthrow the Chinese Communist Party, and become a full-blown democracy like Taiwan, Japan or South Korea, you are very likely to be disappointed. 所以，如果你是期待一次强烈的bank run（自行百度啥是bank run），然后中国人民上街推翻TG，中国大陆变成与台湾，日本韩国一样的政体，那么你要失望了。 4.3k Views · View Upvotes Upvote62Downvote Comments2+ Share
Is China facing a Banking crisis? 中国是在面临一个银行危机吗？ Yes. 对 Is it facing a full blown Banking crisis? 中国正在面临一个全面性的银行危机吗？ No. 错 Combined debt of China is almost 300% of its GDP. But the the categorized in 4 parts as it is shown in the image with the question too. 中国的总债务大概是GDP的300%。但是分在了如图所示的4个领域内。 The corporate debt has the lion's portion of the total debt. The household debt and non corporate debt are nothing to worry about because it is less many other developed countries and has some room to grow. 公司债务在总债务中占了大头。个人债务和非公司债务根本没啥可担心的因为这些比大多数发达国家还要低所以还有增长的空间。 Government Debt is not too big when compared to standards set by many global institutions like IMF, World Bank, etc. 政府债务以多数国际组织，例如世行和IMF，设定得标准来看其实不高。 The only major concern which is of a serious magnitude is the corporate debt. This is also reiterated by many economists. 最主要的关注点就是公司债务了。许多经济学家都重申了这点无数次了。 Now the problem with China is that data that comes out of major Chinese institutions is murky so their are many different types of estimates by many different institutions but the common theme in it is corporate debt and its size. 中国最大的问题就是中国国内组织公布的数据来源不清晰所以不同的国际组织对中国经济的实际情况估算会不一样。但所有组织最关心的都是中国的公司债务与其规模。 Corporate debt consists of debt owned by state owned corporations and private corporations. Private corporations in China are generally crowded out by the state owned corporations because of connections and political agenda. 公司债务又分成了国企和私企的债务。中国私企大多数收到国企排挤，这是有政体造成的。 Many state owned corporations have invested into unproductive projects as a result of excess boost given by government after 2008 to prop up the economy. This has resulted in a huge amount of NPAs. So, in all the major problem is state owned corporations piling up huge amount of debt. To solve this problem, the government tried to convert the debt into shares which the bank owns and can recover money through profit dividends but this was one of the causes for last year's stock market crash. 在08年过度的经济刺激政策下，很多国企在许多无效益项目上投了许多钱。这造成了大量的无效能资产。所以，最大的问题是国企堆积了大量债务。为了解决这个问题，政府正在尝试将国企的债务转化为股份，那么银行就能将债务转化为红利而最终将债务收回了。但这造成了上年的股灾..... Hence, it is a big crisis but not the one government cannot handle with so much trade surplus and forex reserves. But actions are definitely needed to stop it from growing into a bigger problem. 所以，这是一个危机但仍然是政府能控制的，毕竟中国政府有大量贸易顺差和外汇储备。但是仍然需要实际行动来防止事态的扩展。 906 Views · View Upvotes Upvote18Downvote Comments1+ Share
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