by now i’ve done some follow-up analysis of my portfolio, on how i ended up with such losses as described in my previous posts in category ‘trading’. what i found is that i had simply over-traded, which in the low volatility and slowly trending conditions meant that cumulative spreads had eaten away even those small profits which i succeeded to generate during some rare turns of tides on some currency pairs. (while during a significant volatility more trades with my strategy means more profit, in low volatility conditions it doesn’t play out that way).
my attempted solution which i practiced for couple of days: i doubled the required minimum price change before modifying positions. the mathematical reality is that bigger changes in prices are way more rare (exponentially negative). while before i was making hundreds of trades a day across my portfolio, then the last few days i made only tens of trades, mostly just watching the prices to fluctuate almost around the value of the spread, which didn’t allow to make any changes in portfolio. i did begin recovering losses, a tiny bit, but this would have meant that instead of generating a reasonable profit in average once a month, in similar market conditions i could be able to generate a reasonable profit in average only about once a year (before it would make sense to close all positions and to begin again with minimum bets). not good, but that’s the reality with low volatility currency pairs.
to counter this situation i had to abandon the balancing of currencies across one trading platform. i continue with the same currency pairs for the test’s sake, but now i take only positive positions (only ‘buy’), which in some sense reduces the risk in case if one currency should crash. as you know, shorting is always way more risky due to the fact that losses can in theory go up to infinity (you will go broke faster), while if you go long you will only risk the total amount on the taken positions.
for balancing risks, now between the trading platforms only, i separated again the strategies: on mt4 i continue with my well tested increasing/decreasing method, and on mt5, exactly with the same currency pairs, also betting ‘long’ (buy) only, i’m after the price trends. thus, if on one trading platform i should lose then on the other platform i will gain.
that’s my current tactics to try to generate profit in low volatility conditions, will see what results it will produce. today i already began recovering losses several times faster than the last few days (surprisingly on both trading platforms), but it may just be a coincidence. will see how the situation develops further.
the challenge i have right now is to generate profit in relatively low volatility conditions. the two strategies i’ve been testing previously both have their issues. the increasing/decreasing strategy is costing too much in paid spreads, and the catching trends strategy is quite a sure loser in a long term. thus, to combine the two strategies mathematically, where it is clearly defined in which conditions to switch the strategy, is a challenge. for the initial test run i picked those conditions from my mind, relying on the experience in analysing random fluctuations for over twenty years, but the values may need to be changed depending on the results, adjusting to the particular behavior of forex, if it does behave differently from randomness, in a large scale.
even as the low/medium volatility is not the best for trading currencies, as of now i prefer to stick to the selected somewhat stable currencies and to figure out how to generate profit with the low volatility and slow trends, instead of betting on risky currency pairs with high volatility. some time ago i wrote that i don’t expect to find anything new, but i may have been wrong with the opinion that nothing new is to be found in my own formulas.. there are countless ways to combine the formulas and some combinations may still be hiding beneficial surprises in them, which i had overlooked previously.
it appears to me that i found a good combination of using two strategies at the same time: first trying to catch a trend and when the trend goes in a wrong direction, switching to the old strategy of increasing/decreasing bets. all that without the need to end one strategy closing all positions, to start all over with another one. lots of tests needs to be done even if the current test will show some promise. so far i’ve got the feeling that there’s something not right with the mt4 and mt5 apps.. there should not be only losses during tests — even if i had taken positions at random i should have never lost so much so fast, especially considering that my positions are balanced out — some positions should have generated large profit at least once, because many positions had big losses and my positions are largely taken in reverse, not to go broke during a crash of a single currency. but at random conditions all is possible — call it a bad luck if you will. i keep testing and thinking about how to tackle a fraud, if there is a fraud there in sense of an automated system not letting you to find out profitable strategies. honestly i’ve been lazy and busy enough to compare each currency pair with real values on other trading platforms.. they need to be monitored continuously then, not just once. if it goes on like this, sharply into negative on any taken position as soon as stakes get high, then i can verify the prices later with historical data. so far i’m considering it to be just a coincidence that while positions are with low bets they gain and with high bets they always lose.. much more data is needed, to come to a definite conclusion. the new combined strategy is only in my mind, which i just began implementing, thus some flaws can be detected, and the formulas adjusted accordingly.
it may seem that i change my strategies too fast, but as i’m having positions on two trading accounts on twenty currency pairs each, in reverse between them, then i don’t need much time to see where it is all heading to. when everything is going rapidly in negative direction with almost no exception on any taken position — with too small gains compared to losses — there must be something very wrong.. it almost seems that it cannot be just bad luck but you never know, in fact in theoretical rare circumstances it can. as always, i say that during testing with no real money at stake it is actually good to encounter very bad situations for training purposes, because in real life bad luck and mistakes do happen, and one needs to know how to tackle those situations, in the end to come out of negative balance with profit.
after analysing the situation in my portfolio and seeing the continuous trend, i decided to switch my current strategy. the new temporary strategy in long term will be a losing one, but in current currency market moves it is actually a safer way to generate profit. the problem with the previous strategy is that my selected currency pairs have too little volatility to make profit, while trending periods last too long. in very long periods the old strategy will definitely work, it is proven, but it keeps cash busy for too long — you can wait for a tide to turn for many months. with the new strategy, appliccable only during trending markets, the risk is way smaller, in sense of the necessary investment needed to generate large profit, but it only works during long periods of trending markets. as soon as tide turns i must terminate the gamble and to switch back to the old strategy. right now it appears to be the right decision because i don’t wish to increase bets on my losing positions — everything has its mathematically reasonable limit. i should have began with way smaller initial bets, but the reasons for such large investment right in the beginning are explained in my previous posts. in fact i was ignoring one of my own principles which is also described in my book Random Fluctuations [download my books for free]. it’s a good lesson to trust mathematics over your will to recover sudden unexpected losses fast. in current market conditions the switch of strategy makes total sense, while i can swich back to the old strategy on the level where i left it, when needed, when the market shows the right conditions for it. the test goes on.. i still have 80% from the initial cash available, to switch strategies when there are necessary conditions for a change.
the strategy of catching trends will not work on roulette, it is proven to be mathematically impossible. however, on stock market, in certain conditions, the strategy could do the trick. you must remember though to quit the strategy as soon as trending conditions go away. my way of catching trends also has a mathematical formula to it, not just sitting and waiting for the cash to come in. i’m about to find out if it is appliccable on forex.
today i moved whole the current test operation to mt4 while setting up mt5 as a control.
the math is all correct but for some reason i keep losing money even with several pleasant medium volatility moments.. i mean i recover some losses but never enough. i should have done better. this week i had to shift some positions between mt4 and mt5, because mt5 had reached its allowed limit on leverage — cannot increase bets on losing positions even though half cash is still in game. today i modified the overall strategy again, a bit. why? because in total, between mt4 and mt5, i’m some 20% in negative.. far from being broke but i don’t feel comfortable with such a trend. a modification was necessary not to continue going into negative with such pace. will see. i like it, it’s interesting: hard during practice should mean easy in real life. friday evening should be with a better trading outlook, to turn losses on some currency pairs into profits. in any case i’m in for a long strategy, not for a fast and risky ‘game’.
so far the turning tides on forex haven’t been big enough to get my balance into positive and to begin another test. thus i’m going on with the current test (read previous posts) till i make some profit or at least recover all the losses. the negative balance is increasing again, slowly. nothing to do but to wait for a bigger turn in tide or at least bigger volatility on the same level, to recover losses and, if volatility permits, to make some profit on my selected currency pairs.