Wednesday, January 30, 2008

Nickel and Dime "Mother Market" to DEATH

The last two weeks have been rather enlightening for me... so far. Here's what developed that "turned on" the light in my head. I just hope the light is what I think it is. I was reading the book about Larry Livermore called "Reminiscences of a Stock Operator" that I downloaded from ForexProject in PDF. The book is outdated in terms of the trading laws and some other things but as far as trader psychology and approach I think there is value in reading this book. I have read comments from readers that suggest Livermore never tells how he made all his cash in trading, I disagree. He didn't give a step by step account but I picked up some pointers. One such pointer was that he was always talking about having a "bigger line to swing". That means the more capitol one has, the more you can put on any one trade and thus make more profit in terms of dollars. He made millions and lost millions, and did it all over again. Then I recalled looking at a spreadsheet I downloaded somewhere that showed how fast your dollars grow when compounding. So I returned to the spreadsheet and had a look. I didn't do what I need it to do so I made my own. Here are my assumptions;
make at least 10 pips per day

trade 5 days a week, one or two pairs

start with $2000 (one lot, 100,000, at 50:1)

Maximum size of 5 lots - assuming I get there!
Here is the spreadsheet that shows what you can do if you make 10 pips a day, if it has errors, I would love for you to point them out. As you can see, it would take 6 months to get to $50,000.
Then I thought "my account is another person or entity, just like a corporation", I don't need this money to pay bills, I have a day job for that. What if I could automate this and make this "entity" wake up at 3am and trade until 11am (the best time to trade Forex). This "entity" would only have to capture 10 pips a day to make this work. Is that achievable in an automated program? The short answer is "yes it is". So assuming the above is correct and without any glaring errors in calculation, I am now testing my system and checking the trades daily. I have found some problems but I'm getting close. I have completed only 2 days of testing and the first showed 24 pips, the seconds showed 8 pips. I'm not concentrating on the signals so much as the order transmission. I don't think it is very difficult to capture 10 pips a day, but to do it constantly may take some work. If that target can be achieved, then the power of time will make the coin grow. To capture 10 pips, I plan to trade the system only between 3am and 11am EST, and trade only one pair, probably EURUSD, but that remains to be decided. 10 pips do not seem like a mountain, that’s why I call this post "nickel and dime". For the testing of the order system, I'm using 6 pairs to work out the bugs. Comments on this are more than welcome, as are any suggestions.

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