Think Like a Casino by Creating Larger Statistical Samples
The large quantity of lots, whether Standard or Mini or Micro, across a large quantity of instruments is what allows us as Retail Spot Traders using the current Forex Broker commission structure an advantage to compete on a daily basis. Spread-based commission is a primary reason we actually do have a chance in competing against an Infinitely Capitalized Competitor (the market as a whole, including central banks)
Trading Retail Spot Forex allows us to eliminate additional costs involved in the placement of 1000 trades in addition to that initial first trade.
Yes in FX, the per-trade commission is just rearranged and built in to our spread.
But, other market mediums such as Equities also enjoy spread margins in addition to the per-trade commission.
Depending on the actual stock or ETF, many of these Deep Discount Brokers such as E-Trade, Ameritrade, Scottrade, and Schwab are actually padding those deep discount commissions by adding or increasing spread margin. Since just like with most FX Brokers, our relatively small trades are not actually routed directly to exchanges. When we buy 500 shares of MSFT for example, it is most likely filled with the Brokers own shares on hand. This is how Ameritrade can advertise ‘Instantaneous Fills!’.
The point is, the spread is whatever they say it is. Better relationships and higher volumes with larger Market Makers allow them to receive lower wholesale spreads and thus an increased margin to what they charge retail.
Built-In Commission Makes It All Possible
While yes these spreads in most Equities are much lower relatively than FX. But this additional per-trade commission completely changes everything for most of us active Retailers with account balances of less than $100,000. This cost can add up very quickly. Therefore, the ever-presence of it forces non-diversified strategies that are constantly trying to minimize this additional per-trade commission overhead cost … because it can be reduced.
Spot Forex also does not institute minimums. Brokers like OANDA and the new FXCM MT4 allow trades as small as 0.01 Standard Lot. Even with the addition of e-minis, CME and equivalent type futures exchanges require relatively large contract minimums.
We exploit these advantages made possible with built-in commissions and no minimums by diversifying extremely + reducing percentage capital used per pair. Thus equalizing our effective per position leverage more in line with the Banks and Hedge Funds.
Extreme diversification + variance across many small transactions with take profits ranging 2-2000 pips … puts historical probabilities and statistics in our favor.It is the same reason casinos have table limits. Many small bets keeps the greater than 50% house edge in their favor. It eliminates the risk that one player can come in with a huge bankroll and bankrupt Casino A (MGM Grand) while getting “lucky” during only a small sample of hands played with large bets placed for each.
Sure, that same “Lucky Player” will turn into an “Unlucky Player” the very next day at competing Casino B across the street (New York New York) using the same high risk betting tactic.
But that does not reconcile Casino A.
Casino B is not going to help save Casino A from bankruptcy.
We Are The House
When we engage in trading with the direction of the trend like 5NITRO+ and ClearChart 2 are telling us and use many units across many pairs to do so while creating variance with our entries and exits… we are actually the Casino. The odds are in our favor over 50.01%.
Be The House, Not The Lucky Gambler
When a Trader is to rely and bet the majority of their trading capital on one pair in a small, reduced time trend event, they are gambling. This is how almost all newer Forex Traders trade. A Trader who only trades like this is highly susceptible to unforeseen news events, unexplained price action, and price action that is occurring outside of our internal perceived – normal historical volatility*.
[*see movie Margin Call]
The difference between success and failure tends to be reduced to whether or not we are able to survive these situations of price action outside of the norm that we did not foresee. We increase our chance of long term survival when we decrease the impact these outside of the norm situations have on our account health.
Likewise, a Casino imposes table limits to achieve this same long term survival by lowering the impact a few lucky (outside of the norm) players can have.
Statistical Edges Hold More True as the Sample Size Increases
We all know that overall, ‘The Trend is Your Friend’. This can only hold true over 50% of the time across a long period of time. Or alternatively, across a large sample.
Extreme diversification + variance using reduced percentage capital per across many small transactions with take profits ranging 2-2000 pips allows the favorable odds to eventually play out in our favor. It gives the favorable probabilities of applied strategies room to breathe. It puts the odds in our favor that “The Trend Really is Our Friend”.
Use GEICO and Walmart as Enterprise Models
Strategically Vary Profit Margins and Diversify the Product Line to Reduce Risk
If you feel the spread your broker is charging for low volume pairs such as CADJPY, GBPCHF, or USDMXN is too great, you may want to do calculations using Realized Volatility OR switch Brokers OR increase your Take Profit amounts – to reduce that perceived or unperceived increase in overhead.
Keeping track of actual volatility as a means to evaluate Brokers’s overhead spread costs in general is useful. Keeping track of actual volatility as a means to evaluate trading any particular pair is a necessity. How can it be decided that a spread in a particular pair is unreasonable unless we have this data?
CME began to issue a new product called ‘FX VolContracts’. The data can now be obtained through these historical charts of VolX products. Most FX Brokers also provide volatility data through their websites when logged in to your account.
While the legitimately increased spread costs associated with lower volume pairs does prove that diversification is not entirely a free lunch, why should we care if a spread is 8.3+ pips on a portion of our pairs traded? Trading from a possible selection of 30-80 pairs/products allows us to reduce overall risk and thus think like a Hedge Fund. This allows us to trade relaxed and make all decisions based on Logic and Probabilities.
It allows us to capture extended gains across all products traded. Extended gains that are just not possible via leveraging up in only a few pairs. The susceptibility to anomalous price action devastating an account is far too great when trading only from a small pool of pairs. In reality, the susceptibility to just plain ol’ normal market behaviors is far too great with this style of trading.
This reality then is what forces most Retail Traders into Intraday-Only Trading. Having 30% to 80% of the account’s trading capital on the line in only one or two pairs when drifting off to sleep is never an option … Ever. So, it is then concluded that trading Intraday from a M5 M15 M30 chart is the one and only option if one is to make a career out of this FX Market.
This Intraday-Only method is a flawed ultimate conclusion. This is not the only option. 20 pips per day is not the only attainable possibility. In fact, reduced daily goals like these are seldom ever attainable … consistently, long term.
Extended gains of 200 pips to 2000 pips are all around us. 200 pip to 2000 pip gains are everywhere. They are happening all the time across multiple pairs and all sorts of CFDs and Commodities.
Embrace Margin Variability
WalMart not only embraces profit margin variability, they also capitalize on it. Net Revenue as a whole is non-variable and consistently stable at fiscal end because all categories are producing profit, albeit with varying degrees of profit margin percentage.
So then since we are proposing extended gains of 200 pips to 2000 pips can be the norm, why should we care that the spread in GBPZAR is 8.3 pips and our net margins are squeezed a bit in that one particular product?
Including GBPZAR in the mix, along with 50-90 other Exotics, Crosses, and CFDs, allows us to capture extended gains across the entire product line as a whole because anomaly risk is reduced. Inclusion of GBPZAR and other exotics provides us with Diversity. Then, the act of creating entries and exits in these additional products manually – inherently provides us with Variance.
Insurance Allows Extended Gains
Insurance is seldom entirely free. But, the protection from disaster while owning Car, Life, Home, Boat, and Health insurance allows us to relax and marvel at this life without the constant fear of “the other shoe dropping”. The elimination of fear in our daily trading allows us to make logical decisions based solely on probability at all times without constantly worrying about hard moves going against when we drift off to sleep, or log off for the weekend.
For GEICO, it is a fight for as many additional insured as possible. Each additional insured reduces the risk cost of the existing insured. In turn, this then increases Net Margins ACROSS THE ENTIRE GROUP OF INSURED. Although new acquisition costs may be extremely high due to running thousands of commercials per day (paying 10+ pip spreads), this cost is minimal compared to the benefits of overall risk reduction which then allows for expansion into new products which then ultimately leads to expansion of TOTAL NET REVENUE.
When adding additional pairs initially only for risk-reduction purposes, eventually we will discover that a predictable percentage of these FX Exotics with 10+ pip spreads will often catch extended megatrends in our favor.
So while initially in the short term we may have only justified anomalous risk reduction benefits, in the longer term with enough data points we can begin to seek actual trading profits.
Over time with enough of these positive events capturing extended gains, we begin to question why there was ever hesitation in the first place.
In other words after riding a 3 month long megatrend in both EURUSD and GBPZAR, the roughly 500 pip and 800 pip gains respectively in these pairs essentially expose the irrelevancy of the increased spread costs. The increased spread cost of GBPZAR is now an insignificant percentage teetering on a rounding error difference.
After more and more of these same similar outcomes over many years, this positively reinforcing data gathered will allow us to pencil in this certain percentage being able to deliver these extended gains for us as the result of predictable and eventual megatrends.
Spread Cost Discounted
So does this mean we can slash the effective spread of these 10+ pip exotics by 20%? 30%? 50%? Based solely on predictable gains over the course of many trading years? I say yes. But the actual percentage of course depends on the data. And the more data points the better.
Ok so then how much percentage reduction is anomalous risk reduction for the entire group worth? 10%? 20%?
There is definitely measurable benefit that then theoretically could be used to lower the effective entry cost. That is, to help in determining whether or not to add a certain lower volume instruments into the mix or not.
Spread Cost Dwarfed
So while adding lower volume and exotic pairs with true increased transaction costs due to higher spreads (not as the result of actual higher volatility) may appear to only simply reduce our net margins per …. this is not the full picture.
In reality, these added 5 pip to 10 pip spread costs are dwarfed by the additional net margins gained ACROSS ALL OPEN POSITIONS due to the now added ability to hold onto all other existing positions much longer and capture many more pips than without the added higher cost pairs.
Anomalous risk threshold is increased while percentage capital used per pair is reduced accordingly.
Exploit ’Built-in Commission’ Cost Structure
Unless physical time to complete the trade operation is constrained or other unique circumstances that may expressly demand it – why would we only buy a single 300,000 unit, as an example, with only (1) Take Profit level when instead we could buy (30) MINI lots with (30) variable entry levels and (30) variable Take Profit levels for the exact same cost?
Because your ‘Scalping’ or other M1 or M5 style of trading does not allow the ability for you to manage (30) open MINI lots with (30) Take Profits?
Then why are you trying to Scalp?
Why not hold positions overnight and through the weekends? EURUSD has just moved 700+ pips in 18 days.
Scalping huge lot sizes all at once going ‘All In’ and ‘All Out’ might make sense if we were Day Trading Stocks and paying a flat commission for each trade regardless of number of units within that trade.
But this is not the Stock Market and the vast majority of us are not paying per trade commissions. So then why don’t we take advantage of the endless advantages this type of ‘No Per Trade Commission’ allows us in this Retail FX Spot Market?
Position Trading GBPJPY H4 or D1 Example
Unless we are fortune tellers and can predict how long the current favorable trend will last, an argument could be made after applying statistics and probability analysis to build a Wall of Take Profit Levels exponentially increasing ranging from 2 pips to 2000 pips – instead of just a few TPs maybe at 40 pips and then 120 pips.
These TP placements are shown directly below in the Money Lots illustration and in many of the Sept 23, 2011 outstanding positions screen shots farther below with the dashed blue lines representing entry levels and the dashed green lines< representing take profit levels.
Of course this then means it would require utilizing many smaller units as opposed to the more popular method of only a few, large units. The latter is by far the more popular and chosen method by new FX Traders.
As illustrated in those screen shots below, while overall TPs are strategically placed at exponentially-increasing levels, the ‘exponential’ part often will not begin until after the first major support or resistance level.
Within this area, from the point of final entry unit until the first major support or resistance level, these TPs are mostly equidistant from each other. This of course is mainly because the bulk of TPs are usually placed in this area. On average probably around 51% to 85% of TPs are placed here. Having to set equidistant is mostly a physical space restraint and inability to maneuver and arrange multiple TPs in an exponential grid without having to switch periodicities or zoom the chart.
I do not necessarily feel there is a substantial statistical advantage lost by not placing this subset of TPs in an exponential manner. Again, the certain situations that are not allowing exponential placement are in fact providing ‘Exit Variance’ as an unrealized benefit.
In other words with correlated pairs such as EURUSD + USDCHF, I may worry about more preciseness with one, and worry less with the other. Since trading nearly ever pair offered means that all my positions are correlated, this equates to worrying about precise exponential placement in about half of my positions. Then, worrying less in the other half. This is what is meant by ‘Exit Variance’.
Why Are 51% to 85% of Take Profits Placed in this Area?
It is speculated there is about a 51% to 80% chance of that first major support or resistance level being tested. This speculation has generally been proven true over many years across a large sample size. Obviously much depends on each individual situation including:
Some may choose instead to use Trailing Stops. Some may choose to use a hybrid of both at the same time. A ‘Wall of Trailing Stops’, or rather creating multiple distances of Trailing Stops is also possible and advised to help diversify the exit.
We want to put the odds that our take profits + trailing stops will be cleared before our stop losses in our favor. All the while still allowing ourselves huge upside potential for our 5%-15% Money Lots to run if we just so happen to be in a Parabolic move that we are yet to be aware of or realize.
Money Lots Help Prevent Chasin’ Pips
There is no worse scenario than having all your Take Profits cleared out too early … only to re-enter again at these same levels because the retracement never came.
The retracement usually now comes after you finally decided to re-enter.
But now your former great average entry level is gone.
You therefore no longer have the same loss threshold as before.
You are now forced to cut your losses when that hard, formerly-anticipated, within-reason retracement now goes against you. You are out-of-the-money and completely out of sync.
To prevent this nightmare situation that can devastate account health if frequent, it helps to have extra Money Lot Take Profit Levels that seldom get hit unless you finally decide the trend has switched and you close out manually. These lots are a 5%-15% portion of your Take Profits set far away as shown below
These Money Lot Take Profits should coincide with your BEST entry level lots. I never worry too much about where the majority of my TPs that are associated with various entry levels are accordingly placed. However I do worry about the Money Lots, and make sure my best 5% to 15% entry levels coincide in order with my furthest away TPs. Yes, this can be an issue for US Traders using ‘First In, First Out’ Brokers. (move your trading account offshore now)
These Money Lots allow you to at least feel that you are participating in a Parabolic move even if those remaining lots are only 5% of what your total position once was. It is amazing what positive side effects this then can have on overall trading, and an overall mind-set.
These extra lots can also act as Defenders of your hugely in-the-money Average Position and a Mental Defender of the overall trend that you decided to be in in the first place. Having these assets will allow you more confidence and the patience to wait for that inevitable hard retracement to now re-enter and add-to that existing in-the-money position.top
Personal Configuration Now in 2014-2015
These personal configurations are given because Users ask for them. They are not provided because I believe ‘my way’ is the only right way. In fact, this goes against all these words on these pages and I disagree with it.
Configure your tool and utilize it how best you see fit. Configure it the way that best fits into your strategies, methods, intended use, and hardware availability.
2 instances per chart of 5NITRO+ are calculating 100+ symbols across a variety of markets across all virtual desktops (Nvidia Nview desktop) across four monitors. About 60? of these are FX. Not all 100+ symbols are on each desktop because each Broker has different offerings. But I have duplicate showings on each separate virtual desktop, so I do not know the total number of unique symbols without counting. This also changes often because my on screen CFD assortment changes often. If I displayed the entire pool of CFDs from AvaTrade at all times, I would need more monitors so as to keep them all on the single Ava virtual desktop. Or, I would need to reduce all chart sizes, which I do not want to do.
The default -extended- and new option -reduced- Time Outlook settings are used in tandem in Full Display Mode on each chart. For a period of time when 5NITRO+ was first released, I had about 5 or 6 meters in Compact Mode displaying a combination of different Time Frame settings and both Time Outlook settings. But have since settled on this tandem Full Mode configuration with dual Time Outlooks. Each chart also has all four (4) 200 period moving averages and all four (4) 500 period moving averages. Major support & resistance levels are noted with thick horizontal lines if they are not already readily apparent.
The larger drag and drop trading monitor with full size chart and Market Watch window displayed in its standard left side position only displays the 2 instances of 5NITRO+. I pull other technical data from their smaller counterpart D1 charts on the other monitors. This drag and drop large monitor is primarily H4 but I often flip through most periodicities before making a decision. Or, flip lower to make certain trade operations easier that were not already made easy with the smaller H4 time frame’s level of zoom. For example, creating large blocks of Limit or Stop orders in grid fashion or exponentially increasing grid fashion, including Take Profits.
Nvidia’s Nview virtual desktop manager allows multiple Brokers to be stacked. Entire desktops are switched with a click. This can reduce number of monitors required and improve organization, separation, and then ultimately clarity. AMDs virtual desktop manager is named Hydravision. There are some non-GPU based applications for Windows. Some are free, some are premium with trials – Dexpot, VirtuaWin, Yod’m 3D, Virtual Dimension, nSpaces, Finestra, Tri-Desk-A-Top, mDesktop, Xilisoft, Screen-It (only 2 virtual workspaces), goScreen, Mosaico, and Actual Windows Manager.
Also directly from Microsoft’s Sysinternals is an application named Microsoft Desktops v2.0 for Windows 7. New Windows 10 will finally include a virtual desktop manager tool natively called Task View
One of these Brokers on its own unique Nvidia virtual desktop is used for Weekly Mean Reversion only, which currently has trades opened as far back as 2012. Another Broker on another separate virtual desktop, for example, is used for only Intraday trading from M5 M15 and M30 charts when low risk opportunities present themselves or when I am deathly bored.
The low risk Intraday opportunities include economic news such as NFP every month. Or, predictable bounces from intermediate support or resistance levels which I might consider the lowest risk plays available in trading. Are these Intraday or 1-5 day bounces reliable and fruitful if the farm is bet on each event? No. But like every other method or strategy, as tried to be explained ad nauseum on this site, they can prove beneficial over a sustained period of time if the sample size is increased and percentage capital risked per event is proper.
Maintaining multiple Brokers and multiple virtual desktops allows for methods to retain separation. It keeps my Intraday or Mean Reversion strategies from polluting or messing with my main method of Position Trading using the Daily chart and Daily time realm (including H1 H4 D1 W1) for technical guidance and triggers.
Another large 2560 x 1600 monitor is used for trade operations by dragging and dropping the symbol from the market watch window. This is the main display. I have come to really love this drag & drop method. In the past situated charts would be maximized on their associated display to perform trade operations such as adjusting take profits. Doing so would then hide all of its correlated pair groupings beneath. Often the same pair chart would be repeatedly maximized, restored, maximized, restored – to gain correlated information to make a particular decision.
I know, this was just ridiculous. I did it this way for years until someone clued me in on ‘Dragging and Dropping’ from Market Watch.
The total of 100+ symbols, of which many FX pairs and Equity Indices such as S&P500 and NIKKEI are duplicated across Brokers and associated stacked desktops, are grouped in correlations in different sections of each monitor. So within a quick glance across my displays, I know exactly what is happening across all global markets. Not because I am analyzing each candlestick chart and then aggregating them into correlations with my brain, but because the 5NITRO+ color saturations + brightness provide instant information. Instant relativity.top
Diversity + Variance
Succeeding with 5NITRO+ is not about exactness or perfection. Succeeding in trading these markets is not about exactness or perfection. The byproduct of un-exactness is variance. We need controlled variance in every trade operation we perform, to be able to survive and succeed … Long Term.
Just like Long Term evolution and survival of all living things on planet Earth.
In fact, it is a lesson straight from Mother Nature’s Handbook. As billions of years worth of evolution in this Galaxy has shown, Mutations that ultimately help create variance are also an integral part of long term survival and adaptation. Sometimes, it is the mistakes we make while manually trading that will end up providing positive results. Imperfection can sometimes help to reduce negative impact from unexpected price action anomalies.
That is, hypothetically, if evolution does exist. I am not stating as fact that our universe or planet Earth is billions of years old. I do not know this to be true, but was taught this in a Science class offered by the State. So, this innocent analogy is given based on hypotheticals only and is not intended to offend any religious beliefs. Sorry.
Diversified Entry + Exit Examples
These examples were created in 2011 of the original NITRO+. 5NITRO+ examples will be created when I find time. However, it does not necessarily matter which meter version is on the chart. What does matter are the entry + take profit levels in relation to support and resistance and the total quantity of each.
- - - -Blue Dashed Lines- - - - Indicate Entry Levels.
- - - -Green Dashed Lines- - - - Indicate Take Profit Levels.
There is no indication for Take Profits that have been already cleared. Large area of space between Entry Levels and Take Profit Levels generally indicates a large chunk of TPs were already hit and cleared… such as shown in the first screen shot of EURHUF.
The objective here is to provide an example of where I personally look to place take profits in relation to major and minor support and resistance levels. Also, in relation to major consolidation and anchor regions. These screenshots are also showing the 200SMMA / 500EMA where I personally look to begin thinking about establishing positions. This 200SMMA / 500EMA also then turns around and acts as my general stop loss and occasional stop and reverse.
We are often asked some form of:
“Should I set my Take Profit at 6 pips or 10 pips or 20 pips?”
“And then what about my Stop Loss, 2 pips or 6 pips or 10 pips?
This question throws me for a loop.
I am unsure why nearby support & resistance levels and anchor regions and popular moving averages would not always dictate exiting levels including stop losses. So, these screenshots have been provided as a way to answer that common question.
Is using support & resistance and anchor regions and popular moving averages the correct exiting method for everyone? I do not know. Maybe for some traders the correct method is the illogical and inexplicably-popular way of just setting each and every trade’s take profit to 20 pips – regardless of where support or resistance levels are?
VIDEOS – 14 Hours of Live Trading and 71 Completed Trades
More Examples of Multiple, Varied Take Profits
Can Apply Towards Multiple Time Frames: Although I do not personally agree with this type of short term trading (albeit over 14 hours as shown) unless only around 15% or less of total yearly trade volume measured in dollar amount, this is similar to the chosen time realm for nearly all users and potential buyers. So again, it was created for them ‘As an Example’ to reduce email overhead costs.
Though, the same general methods and tactics can be applied to all time frames. Such as for example, diversification of entries and exits through splitting these (7) Standard Lots into (70) MINI Lots as shown. In addition, the placement of Take Profits in relation to varying degrees of support and resistance levels along with using correlated as additional guidance. More examples of this Take Profit placement and management are shown in the 30+ screenshots in the section directly above.
Meaning: Forget what time frame is being traded in the video. Forget the pip amounts. What is important are the decisions around the N+ meter output in combination with everything else shown. The trade management is what is important as it relates to the meter output along with all other technical data available to us on that chart. The tactics and methods can be just as easily applied to an M1 chart or D1 chart … as it is this M30 chart.
This is not to say blind success is ‘possible’. Or that this video can serve as a blueprint or be easily duplicated. This price action is inherently unique by default and not likely to occur the same ever again. This is not a video game. When price action does diverge a little bit from what is show in this video, how will you react? What will you do?
In Other Words: ‘Perceived Success’ in video far more the result of my own personal methods and position management techniques based on my own personal experience and years of daily screen time … rather than NITRO+ specifically or solely.
‘Perceived Success’ Clarification: As the screenshot of GBPUSD below clearly shows, success is in the eyes of the beholder. Many may view both the video and the screenshot to conclude the trading was actually an epic fail.
*NITRO+ and 5NITRO+ are not Forex Robots. They are not like FAP Turbo in any way. They are not EAs. NITRO+ is a Manual Trading Indicator Tool. The trades in the video are being entered manually and are being exited through Take Profit (TP) levels that were entered at the time of entry. The blue Take Profit lines/levels are actively managed directly on the chart with our own iDrag. iDrag is not included with your download. Large arrows on the chart clarifying the direction of the trend and when a market buy order is completed are for illustrative purposes only.
What Happened Next to GBPUSD After the Video Ended?
GBPUSD 30M resumed its climb upward by a large margin.
Trends strong enough to breach 90% will often eventually continue in that same direction even more. This statistic holds true by a greater margin as the time frame increases.
The price level that triggered the NITRO+ 50% Alert, turned around and acted as support along with the 200SMMA.
The Take Profits of 2 pips through 67 pips that were hit and cleared in the video, shown in the picture above as -_-red dashes_– along with the additional exits from trades placed after the video was produced, in hindsight appear to have been prematurely closed.