Making Too Much Money --- Sign Of Danger? - Forex Forum

Hi all,

I am a new trader, I have been trading for only about 2 years now.... after some initial mishaps learning the ropes, I got down a profitable method.

It's been slowly & steadily profitable since february this year - so make that 7 months - seems to be working right? Recently I started using alerts, all it tells me is when trades complete, and I set new trades back up right away - keeping the money more active. With the alerts my earnings shot up quite a lot.... and I calculated it out just today -- that I am now making (on average) 5% profit daily on my total account lately.

I always trade the exact same way - never changing my method one micron.

Initially I feel very happy, but I wonder if this 5% is really just a sign of bad risk management -- that its gonna bite me later. I know even experienced traders aim for 1% a day and feel lucky to get that.

Or maybe I should just expect over a year some sad times that will pull me down to a more reasonable 1% gain or less?

I am nowhere near margin btw... not ever.... and i even worked out that even if i had all trades just above stop loss for some reason i would still not get margin call. i do many small trades, trading near every currency right across the board, over 100 open trades at any given time, 24/7, grid trading i think that is called?

I have tight stop losses, and even tighter profit take, and I take profit almost every time....

But I wonder, I am relatively new still, is there something I could be missing here?

Thought I would ask the experts before I get too excited about my apparent success.

Tell us more about your way of trading...

its really simple, perhaps too simple .... i only look at the daily trends, and never try to predict when trend changes - i just follow the movements. if the lines going up, i buy. if the lines going down i sell. if it looks somewhat inbetween, i go off the last major movement.

What i am calling a "movement" perhaps requires a little explanation. I got my way of thinking about trading from old Copernicus writing.... he was talking about lifespan & he says for any observed system, the longer its life is observed to be, the less likely it is to die soon. also, the point of time you observe is most likely to be near the middle of its life cycle. so the moment of observation is unlikely to be a special moment. this law applies to
business, and currency trends too i think. so the more persistent a trend is, the more likely i believe it is too continue. a short-lived trend is probably not really a "trend" and is going to die out soon. does that make sense?

the one indicator i use is bollinger bar, but i barely even refer to it. my order size is very small, just 1000 euros worth (1/20 leverage), stop loss 20 euro, take profit 10 euro, bounds are tight (0.15 euro).

so yeh 5% a day.... wow! seems kind of unreal that i play around with forex only short time, i know almost nothing about it & i am making this much now, so i feel a little scared i must be doing something wrong.

if this keeps up my lifestyle will change dramatically over the next couple years. but if something seems to good to be true, it probably is.....right?

to the experienced traders: does anything here seem wrong? please point out if you see a flaw where this method could cause me trouble in future.

This post has been edited by kingwade: Sep 11 2008, 10:27

okay so today i just calculate my last 24 hours of trading and that added a little over 9% to my account total. i have checked and rechecked over my method, anything i can see going wrong..... calculated out unlikely worst case scenarios, like were all trades suddenly flip against me simultaneously or something, to check maximum possible drawdown, and it seems to check out as recoverable..... but i have the feeling that what i am doing can't be good risk management. its just too good.... or have i found a holy grail type killer combination here?

anyone else grid trade, stay active -- always in there kind of heavy (but not too heavy) with a ton of little trades, & maybe use alerts? can it be this lucrative?

i've read even getting 2% daily returns consistently is not really doable....

me thinks this must just be an easy pickings time on the market.... maybe all traders are happy right now....

This post has been edited by kingwade: Sep 11 2008, 20:15

I think you can't have this return during a lifetime of trading.
Do you use leverage? Stop loss? How much do you risk on each trade?

yeah i know the return seems much too high, that's why i am having this uncomfortable feeling of foreboding, but i don't see what i am doing possibly wrong.... it seems just linked to the alerts notifying me when trades complete, so i could cycle the money faster.

before that i was about 1% profit with the same trading volume, but i would close much fewer trades per day because i was not opening new trades as fast. i have changed nothing else with my method.

as above my specifics...

my order size is very small, just 1000 euros worth (at 1/20 leverage), stop loss 20 euro, take profit 10 euro, bounds are tight (0.15 euro).

i close dozens of small trades per day, most always taking the profit (results 10 profit takes or more for every stop usually). i have the occasional day with a miniscule near-zero amount or even a negative result if i get a whole bunch of stops, but the next day always fully recovers -- and then some. i'm most often getting more than 5% gain per day now, its the occasional negative day that brings down my average to 5%! i do have a lot of open trades at any given time, but not enough to risk a margin call....

if all my trades all stopped out together at the same time, it would be a heavy drawdown, but one i would recover from -- and isn't all trends across the board full hard reversing simultaneously pretty much a statistical improbability? i'm in on most currency pairs available on the platform, so the diversity aught to lend some protection against that kind of thing.

i'm thinking to perhaps cut my trade volume in half, that would still be 2.5% daily gain which is quite good, and feel safer. but if it isn't dangerous what i am doing, then perhaps i should continue? i don't know....

This post has been edited by kingwade: Sep 11 2008, 23:28

If it works then just let your account grow... and change nothing

Kingwade,
what you are going through is pure human behaviour.It is in our nature to be pessimistic. I dont think your system has anything wrong with it. All systems need some tweaking now and then because these markets are always changing.So I commend you for seeking advice from other traders.
From your posts, I gather you havent decided what your risk is. If you are making 5% a day you should be comfortable with 1-2% risk at all times. With those kind of returns (5%) one can double their account pretty quickly.Once you've done this, why not remove your principal? then all your trades will be 'risk free' so to speak. I would do this for psychological comfort not so that I can trade more leverage.
One last thing. You should be ready for the answer you want to hear. I believe your subconscious mind has decided something is wrong and is just awaiting confirmation. 'you see,I told you so. I knew it wouldnt work' said Kingwade's subconscious.
When I first read this post I wanted to take your system and tear it apart then prove to you just why it wouldn't work in the long run, but the only person who knows your system is you.Because it contains a large discretionary component that cannot be taught or even put on paper, you system may receive negative criticism and you may end up abandoning it and starting all over. Are you ready for that?

I recommend you read 'think and grow rich' by Napoleon Hill.
Cheers.

thanks a lot guys for the input... i've recently doubled my account twice, since i started getting 5% returns, so i just don't want to blow it all back out now.

i won't change anything except perhaps my amount of active trades to make it less risky.

good tip on the psychology there too, to remove my principle amount so i can relax more with it.


when you say 2% risk does that mean......

say for example, i have $100 in my account --- so i only would ever risk losing $2 MAXIMUM at any point in time if all trades were stopped out together?

just making sure i understand what you say is likely a comfortable risk level for me. sometimes i have trouble with trading terminology.

This post has been edited by kingwade: Sep 12 2008, 19:03

I cannot know your level of comfort.If your risk is 2% you should be ready to exit all trades when you are down to that level if you are feeling uncomfortable with your trades.Its not how many trades you lose it is what you lose when you lose and what you make when you profit. I believe my biggest loss per trade should not exceed my average profitable trade.There is always another trade.
May I ask what level of draw down you experience while trading?Some traders exit all trades when the account reaches a certain level.You can limit your exposure buy not trading all the time(especially when there is no clear opportunity), reducing leverage (esp in volatile times like today 15/09/08), trading pairs with less correlation and having targets. Targets have assisted me because I can control my greed.I exit positions without emotion and wait for the next trade. Trading highly correlated pairs is like increasing your exposure in the same trade.e.g if you are long usdchf and short eurusd you are in the same trade.
Your risk doesnt have to be 2%.It can even be 10% as long as you are comfortable with it.But your winning trades should always outnumber your losing ones.
Dave4x

This post has been edited by dave4x: Sep 15 2008, 10:46

the highest drawdown ive had in a single day is 8%, but typically more like 4% drawdown when that happens.

i win way more trades than losing (like 90% or more) on most days.... i've noticed a pattern of about 3-4 days of profiting for each day of drawdown - a drawdown day typically cuts away about half the previous days profits. the danger i see is i could potentially (maybe?) hit a week of severe drawdown days which would ruin months of progress.

i have cut back my risk - divided up my account into 4 subaccounts. 3 subaccounts to trade very lightly with this method -- with only 2% risk.... ive heard that recommended before, so its probably the smart way to go. the 4th subaccount i'll simply continue my present trading style.

this lets me use only a portion of my profits thus far to test my method longterm. if the method is genuinely successful, it doesn't need much initial funds to magnify real quick into millions. there is no need to use all my accounts funds testing it, and if its successful longterm i'll be one very happy guy. if it fails, oh well.... its no devastation, i just lose some money i already made and learned that low risk methods are the way to go.

This post has been edited by kingwade: Sep 16 2008, 13:31

kingwade,

You are not making too much money. I am loosing too much money on the market. But I learn and I have confidence I will get back into positive territory later.

I am envious and congratulate you for your success. You give a touch of hope.

If you read french you can read my blog to see how I lost. It is erbe.over-blog.net

best of luck in your trading

erbe

the one indicator i use is bollinger bar, but i barely even refer to it. my order size is very small, just 1000 euros worth (1/20 leverage), stop loss 20 euro, take profit 10 euro, bounds are tight (0.15 euro).

Kingwade,
If those are the drawdowns you experience then I'm really interested in your system. Could you please explain it in more detail. E.g. indicators used and their parameters, short triggers, long triggers,pairs traded, chart periods used etc I think you get the picture.

Dave4x

This post has been edited by dave4x: Sep 17 2008, 7:48