RondaRousey replies to: Diversified Trend Trading Approach

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{quote} Yes mate. You have two evils in which you can class every type of strategy….and this is how they respond to risk, You have either A) convergent or B) divergent conditions. This leads to up or down price movements at the granular level where price bounces between non-stationery equilibria and the only form of movement we as traders can turn into $. There are derivatives such as options of course using concepts such as straddles etc. for those who play the horizontal move…but in general….we are after either A or B. They are symmetrical…

Mr. C – You have covered a lot of good details and feel you are trying to bait me into having more and more conversations here and not let me go in peace LOL

So I ask myself how should I respond to such a fabulously eloquent post which you have put so much in-dept thought to respond to my inquiry. I understand how much time and effort goes in to writing quality posts so kudos for your service to FF members. I hope others are reading it with great patience and inquisitiveness. There is a reason why I chose your thread to part from FF.

First, let me start with my detoxification journey. There was a time in my life when I would quit being around my family just so I could spend hours reading books at Borders and Barnes Noble book store until they would throw me out at 11pm closing time. I have not bought a single book on trading in my life. I have read it all and the common theme among these high flying investors and fund managers I found is just one thing…. they got lucky once or twice and built upon their success in a exponential scale. They would not be what they are without the initial stroke of success (call it luck but to me it is always about “being at the right place at the right time”… they had the wisdom and drive towards success than the majority who simply gamble or focus on the right things). So stroke of success, becoming famous and tenacity to progress quickly towards OPM + performance fee + management fee seems like the magic formula for most of market wizards. I added them all into my DETOX list based on the principle that only I can guide my path towards success. No one can. So continuing with my “Principle of Detoxification” or “Removing all Toxic and manipulative elements from my thought processes”, stop losses were the first to go! SL fits the bill of top 10 reasons why drawdowns occur and you have nailed it in your post. 100% agree.

Next attack in my journey came to “Price is King” or the Infamous “Price Action Trading”. Result: I got rid of “price” from every aspect of my post trade analysis. I simply ignore what Price is doing from the very next tick upon entry. It opened the doors to tremendous possibilities. For the unknowing individual, it would appear as if VeeFX is on drugs, gone crazy, stupid narcissistic idiot who just wants people to hear him out, talking from his a*s most from the time etc etc. but once you remove the blinders (or put the blinders on price), the out-of-the-box thinking and approach to strategy development will result in creative thinking. Again, Detoxification from conventional wisdom was required for me to change the course of history that my journey has taken me. Conventional wisdom dictates focusing only on price, interpret price, what it is doing, what it has done in the past, what will it do in the future, prediction, forecasting and everything in-between. All that is utter nonsense for me hence I am now detoxed and completely immune to what price does across 28 pairs. It is only relevant to trading one pair one trade and in my research, such a trading strategy based on one pair and one chart has no long term merit. It will eventually fail in the matter of 3+ years. Hence the continuance of my journey towards detoxing my mindset.

Next Stop in my detox journey… “Trend is your friend until it isn’t !!!”. I have slept on this phrase for months thinking about it round the clock 24×7 (just as in thinking about markets when Zedd was singing at the BBMAs LOL). So here comes the kick in the gut from the perspective of VeeFX telling things (as a thrid person) instead of engaging in never-ending discussions… (part of my reason for departure from FF is to remain detox’d and avoid getting into endless arguments and debates… many just won’t get it !)

First question that came to my mind is… “Why does Trend have to be my friend?” then came the question “What the hell is a Trend?” or more importantly “How do you define a Trend? Forums is littered with such questions. Then came the question of “How can someone being my friend when I cannot even quantify it’s mere existence?”

Please bare with me as I take you guys though my journey to highlight why I consider my principle of “TIME IS EVERYTHING” within the core context of “Markets are Universal and Neutral”. As I said, coming here in this thread and sharing is all part of my (pre-planned) master plan to exit FF. You are the chosen one Mr C. LOL

So here’s my definition of “What is a Trend” without looking at charts or drawing levels or considering a point of reference or creating a pivot or fib or any such conventional tools. Remember, at this stage in my journey (early 2016), I have already ruled out “Price is king” so defining a trend based on price action is already ruled out. Think I am crazy? I bet you do LOL

Before I go into defining what a Trend is, I have to first agree on what Price really is. How do I define Price? What is my POV on Price itself?

VeeFX Definition of Price: Since I have ruled out Price Action and consider Price to be the biggest trickster, Price to me is simply a DOT in space/time continuum. A dot that keeps on moving up and down or at times not moving at all fictitiously representing a value of an asset/instrument. That’s all there is to “Price”.

VeeFX Definition of Trend: Movement of Price between Dot A and Dot B. If B is higher than A, we are in uptrend. If B is lower than A, we are in downtrend. The distance between A and B is the strength of trend. Pretty simple basic building blocks right? By this definition, Price is always Trending! Price is always Moving. The trade is always moving either towards profit or loss. The Account is always moving in profit or loss. This is only possible because Price is ALWAYS trending up or down. This is the only logical explanation of why we success or fail in trading resulting in

VeeFX Version of Newton’s Third Law of Motion: FOR EVERY ACTION,THERE IS A EQUAL AND OPPOSITE BINARY REACTION”

VeeFX Definition of Trend Strength: The difference between point A to point B. On a tick chart, it is difference between an uptick and downtick. On a M1 chart, it is the difference between closing price of two M1 candle. On a M5 chart, it is the difference between the closing price of two M5 candles and so on. The only thing that is different is the scale of price movement from point A to point B confirming the fractal nature of price movements. This is the only true and logical definition of trend strength !

Price History: Next step in my journey to detox is looking at historical price movements. Forum is littered with statements like “look what price did in the past” via screenshots of fancy looking charts and coming to conclusion about what price will do in the future. Complete Horse Shit! But how do I detox myself from this mindset? This was the next progression in my journey… 1) Price is useless 2) Market is always trending so obviously Price History is also useless. Boom!

Then came the time to tackle where the heck should I go from here. I have quantified the above. I know for sure this is the right path for me to take to the next level but where to go from here?

Next step is to detox myself with how price moves. Luckily I had very little struggle in this space because my discretionary style for over 5 years (2010-2015) was only focused on price movements or price behavior in relation to currency strength. I traded only using the movers-shakers indicator and only during scheduled releases and only when I could arrive on the scene from my busy work schedule to trade the markets. I already had some help in this space so here we go…

VeeFX Definition of Price Movements: For many years, I was of the opinion that price either bounces off and breaks away from a level. This opinion I did not want to detox because I was able to quantify it. Then came the Buy/Sell Hemisphere from CrucialPoint. Then came the “Markets are either Diverging from Mean(DFM) or Reverting to Mean (RTM)” from CrucialPoint which agreed with my philosophy of Breakout and Bounce as the only two actionable elements of price movements. Then comes Mr. C also validating my theory on Convergence and Divergence. Bingo! I am on the right track.

Conclusion: “Trend is my ONLY friend”. Price is either diverging from point A to point B or converging/reverting from point A to point B resulting in an uptrend or downtrend. Perfect scenario for “Trend is my best Friend”.

All good so far in theory. Next step: How the hell do I create a robust comprehensive strategy around this research?

Detoxification Journey continues… searching, testing and ruling out any or all strategies that would fit the above criteria. I could not find any. Felt great! I thought I am on to creating something new and unique and unconventional which has the potential to avoid curve fitting price or price history.

VeeFX enters the journey to learn how to code. First step was to create a framework that allowed me to rule out the conventional wisdom with facts and data by my side. After about a year or so in late 2016, it was a big hit. I was able to plug-n-play many strategies with ease to rule them out and discover many theories resulting in my open challenges I posted here on FF. I tried all sorts of price patterns, pin bars, FB, full bars, hammers and all the rest of fancy names given to price patterns. They all work some times and fail most of the time resulting in a 50/50 spread over a long period of time. Conclusion: Price Action is a “feel good” tool used by marketeers and system sellers and forum traders to communicate, collaborate and waste each others precious time.

Next step in my journey was to prove my own principles that I mentioned above. This lead to the question of variability of what affect market and/or what inherently creates these ranging/trending market conditions and I was utterly shocked to explore the amount of magnitude and scale involved. Further research and some extremely complex coding, I was able to determine the magnitude of the variability of elements that affect market conditions. I was running recursive loops 20-40 layers deep to dig into the bowels of price movements just to confirm if divergence and reversion are the only two legitimate moves that are happening universally across all trading instruments. These scripts would run for days on just one month worth of OHLC data across 32 custom timeframes. The result was 85million variables affecting the moving of closing price to move from Point A to Point B in just ONE month !

Next Step: How to derive Simplicity from Complexity? At this stage (mid/late 2016), I was behaving like a mad scientist in search for answers as I had stopped trading in 2015 after turning breakeven acting like a monkey pressing buttons and jumping up and down on price movements keeping in mind thinking I have to find answers before I turn 50 yrs old or quit trading. I was up against my own self-imposed clock and I was torturing myself every month just to stay self-disciplined and focused.

Now I enter the research towards “Markets are Universal and Neutral” which I always believed in but could not quantify. Allow me to dive into that briefly without disclosing too much as my entire Universal Time Action Strategy is developed around this foundation of price and time to create a market neutral strategy but first I had to tackle and detox myself from “Market Condition specific” strategies.

While looking into this, I came up with a new VeeFX rule. “Any strategy that is dependent on a specific market condition is prone to failure in the long run”
This was a natural progression as part of my journey based on my discoveries developed and proven via quantified approaches. A dot in space/time continuum bear no limits or boundaries. Boxing price into a square or rectangle is only a feel good approach to devising strategies. With 85Million variables a month across 28 pairs, how is it ever possible to consider price respecting high or lows of daily/weekly/session etc. It is just not possible and quantifiable. This research resulted in…

MARKETS ARE NEUTRAL. They can be manipulated but it cannot be controlled or boxed and for this reason VeeFX: MARKET ARE NEVER BOUND-IN-RANGE

Conclusion: Any strategy that works only in a specific market condition is bound to fail over a long period of time. Range bound fails in trending environment. Trend following fails in rangebound environment. Avoid news is the common theme on forums. All these criteria-enforced strategies will eventually fail the test of time. This is what my quantified research was screaming at me.

What comes next? Natural progression dictates me to delve into universality of markets. What happens in Market ALL the time. What markets HAS to do to survive? What define it? What it HAS To do to allow traders to complete the handshake between buying and selling and then come to the conclusion of “Markets are Universal”. Don’t want to go too deep into this so I will stop here as it related to market-making function which also has to survive till the end of time. All I can say is… Trade WITH the market maker and not against it. Do what Market Makers are forced to do and don’t go against their core function. It makes sense to go this route as Markets has to survive with the end of time and so does a strategy has to last till the end of time. It sounds sensible and logical approach.

So Markets are Universal and Neutral. Now what? I am still behaving like a mad scientist. My son is questioning what the f*ck am I doing alone in my room for hours and days. I am living a life of a complete isolationist detached from the worldly matters, detached from my primary profession and everything in-between still unable to devise a comprehensive strategy.

Focus turns back to the variability that affects market conditions. Dealing with 85Million was just too much to handle. I have to derive simplicity from complexity. All past researchers have gone past this route. I am no genius. I have to follow them. Allowing my complex recursive script back to use and utilizing data science, I get back to work…. reducing the number of variabilities down to 450K for each M1 Candle Close. As Mr. C said in another thread. M1 is the universal time(frame) that is used to build all other timeframes including the H1 universal candle that looks the same across all timezones on the planet. I view M1 closing price to be far more important than H1 candle. I can easily tie M1 candle to UTC instead of GMT. I can eliminate the impact of daylight savings time by using M1 candle close. I can eliminate the inconsistencies with session times or news time that does not start at the top of the H1 candle. It is the only universal component I need to structure my entries. It is the only thing that is required to make my entries universal and independent of price. It is the only component I need to determine market condition. It is the only component I need to determine if price is converging/reverting or price is diverging. It is the only component I need to determine if price is going to bounce or breakout. It is the only universal component I need to capture all the variabilities that could affect my portfolio. Phew!
Conclusion: M1 Candle Closing Price is the universal Dot in time/space continuum and NOT the H1 candle ! (I ignore Ticks as well)

So now I know Market is universal and Neutral. Now I know Universal entries is the only quantified way to make a strategy agnostic to market condition without given any regard to whether market is trending or ranging or bouncing or breaking out or whatever. It has now become a CONSTANT for my strategy to revolve around it.

Now what, Consistency? The most important element of any strategy development is to ensure the approach is consistent. Universal entries came to my rescue. It became the final ingredient I was searching so desperately. It became my vehicle to ride on till the end of time. It gave me the required assurances to proceed to developing my automation resulting in the creation of “Universal Time Action Strategy”.

With that said, there are Three Universal approaches to trading ALL market conditions in either Long, Short or Both Directions:

  1. Divergence From Mean (Trend Following/Breakouts)
  2. Reversion to Mean (CounterTrend/Reversal/Bounces)
  3. Divergence+Reversion (Breakouts+Pullbacks/Continuation in the direction of overall trend)

Quiz for the curious mind: How to determine overbought and oversold market conditions with just one dot in time/space continuum?

Doing the above allows me to leverage Universal Entries into a Market Neutral Strategy.

But wait, we have not addressed trading styles! Which trading style is good and applicable to my research… let’s delve into that as well. Am I a Scalper or a Day trader or swing trader or a position trader or anything inbetween? Should I add to losers, should I increase position size? etc etc

Following the VeeFX approach to detoxification… Everything has to happen for a reason. It has to be quantified or it is ruled out via detoxification process.

Using Universal Entries to support Market Neutral theory, I could not depend on Price for exits. That would be retarded. Besides, my quantified research tells me there is a decay of edge upon entry right after the next tick. My research also tells me there is no long term edge in price anomaly. Price is non-existent after a position is entered so I could not rely on price to make my exists universal. I am back to the drawing board! Back to behaving like a mad scientist again!
Wife is ready to throw me out, kids are not talking, I am starring at the wall, sitting in my car for hours etc etc. 🙁

How do I make my exits work like my entries…. in a universally acceptable manner that will always work round the clock without any intervention, without letting drawdowns out of control, balancing the risk to reward exposure at all times. Better to give myself pain now and sleep peacefully for the rest of my life if I were to put my hard earned money to use in this approach. This is mid 2017 and 2.5 years have past by now and I have still not risked a single dime. Every month goes past and I am giving up the things I like. Soda, Fries, Alcohol, Oranges, shaving (when I am not on travel), sleeping in cars, sleeping on floors torturing myself as days and weeks go part with burning desire to succeed going higher and higher with every sacrifice. Is this all worth it? Is there really an edge that exists in the market to make consistent profits from? As this stage, I still did not have any idea what will consistently work until I tackle DRAWDOWNS. Up until this point, I knew exactly how much capital I needed to risk 1.5% per position. I knew exactly how many 1000s of positions I need to float to come out winning all the time but without giving any regard to drawdowns. So now I have a strategy I know will succeed 99% of the time but without giving any regard to drawdowns. Unrealistic and unpractical right? How do I turn my research project into a practical strategy to squeeze tremendous amount of wealth from this market? Back to putting my research hat on… desperately seeking answers and asking questions here on FF how to limit drawdown. Then comes Mr. STT responding to one of my inquiries and bingo. A light bulb moment once again in my journey! I was frankly reading to throw in the toward and quit trading by 12/31/2017 even after going thru all this pain.

Before tackling Drawdown, I now have over 40+ exit strategies to slice and dice profits from the market. Equal number of loss-taking strategies to prevent drawdowns. I already had a universal approach to exits. I have done everything I could to tackle the variabilities that affect my strategy. Drawdown was the last piece of the puzzle which turned my strategy into trading style agnostic !!! Hopefully smooth sailing from now on but time will tell if I succeed or not. After all, it is based on Time so Time is the only dependency for me to rely on. At the end, as CrucialPoint said “Get It Done With Focus” is the only path to success.

I missed some more detoxifications during my journey to find universal exits… I will mention here to connect the dots for those who are not completely puzzled with the journey.

Detoxing from the conventional Risk:Reward mantra: My research tells me that focusing on RR per position is the death sentence to your accounts. The only thing that should matter is “Are you making money at the end of the day/week/month/year or whatever your accounting period is without putting your initial capital deposit at risk.

Detoxing from the conventional Average Wins/Losses mantra: Same reason as above. It does not matter!

Detoxing from Consecutive Wins/Losses mantra: Same reason as above. It does not matter!

Detoxing from Realized PnL accounting: It does not matter how much profits or losses you have realized in your accounting period if you have open positions floating in your account. They are all irrelevant until you do a Close All position and do the final accounting. If “professionals” are sharing Realized Profit/Losses or if you are conducting Trading statistics analysis with floating PnL, it is a failed approach. Your strategy will never see the light of success in the long run. Remove all the variabilities from your analysis for the sake of consistency!

Detoxing from industry standard based performance and risk measurements: I will tackle this only after 3 yrs of proven performance. It is too early to dive into Sharpe ratio and all such things. I view them only as distractions. As I have said numerous times, ROMAD or Return over Max Drawdown is the only robust measure of performance for retail traders above and beyond their account deposits. If you have chosen to go Professional and trade OPM, then by all means focus on these trading stats. I personally view them as obstacles similar to putting indicators on charts.

Detoxification from charts: I do not see charts before entries and after exists… only on weekends and only for confirmation if I see something that did not work as expected and unaligned with my core principles. Charts are the biggest cause of optical illusions. It seems to be the common thread across why 99% fail.

Detoxification from Indicators: I do not use any indicator. Not even RSI or ATR or ADR or Session. Refer to my Quiz… How do you determine ranges with just a dot in time/space continuum without using price as a measure in any of these indicators?

Detoxification from High and Lows (Wicks): This one is important. The dot in space/time continuum only focuses on Closing Price. I ignore all wicks on all timeframes on all charts. Wicks are in-decisive zones prone to manipulations. Every quantified research proved to me that Wicks ought to be ignored. The moment you introduce Wicks, you are introducing inconsistency into your strategy. This is completely different from conventional wisdom and hence falling under detoxification (Sorry PipEasy!)

Detoxification from Supply/Demand/Support/Resistance/Fakeouts/etc theories: These are all chart based ‘stories’ in the mind of the trader. I ignore them all. They do not exist in any shape or form in my strategy.

And finally my POV on Diversification (pasting here for reference from this post to tie it all in one place…

VEEFX’s Comprehensive Solution to Portfolio Diversification via Universal Time Action Strategy

(you probably won’t find this in any book)

Time Diversification – via sessions, time of day, time of week, session open, session close, red news, noisy sessions, holidays etc
Price Diversification – via spacing across positions to capture overbought, oversold and equilibrium conditions
Price Behavior Diversification – Price will either Diverge or Converge resulting in Diversion from Mean or Reversion to Mean resulting in either a Breakout or a Bounce. There is no other action involved. If you think there is one, you have been starring at charts for too long!
Duration Diversification – Over 85 Million variables that could affect price at each M1 Candle in any given Month. Approx 450K variables could affect price at the Open of next one minute candle in any given 24 hour cycle. Diversified Duration is accomplished via MTF and over 60+ custom timeframes spanning all timezones around the world
Economic Diversification – Trade all Developed and Emerging Economies. I trade 28 pairs but the principles could be expanded to all economies
Asset Class Diversification – Trade Metals, Commodities and Indexes across market as they are all representative of GLOBAL MONEY FLOWS
Emotion/Sentiment Diversification – Trade ALL red news and they represent the only form to real market sentiment… Capital Flows from Bonds/Treasuries to Risky Assets, Yield curve differential, Fed balance sheet, current accounts, retail/corporate sentiment, embargo and sanctions, import/export imbalance, etc everything going thru the currency markets.
Directional Diversification – Trade Long Only, Short Only and Both Long/Short Neutral direction to spread directional bias
Exposure Diversification – Trade only currencies when the corresponding banks are open. Give enough space between positions curb overcrowding within each pair and within each currency via active position management
Correlation Diversification – Watch for enforced mathematical correlations. Diversify during noise, go head on during fat tails
Outcome Diversification – via Growth and Income. Don’t just focus on Income or Growth, I take Income when Market is not moving via 20 times the trading costs and let profit run in active sessions to exploit fat tails as much as possible for Growth
Market Manipulation Diversification – via Law of Large Numbers and Law of Averages. Trade Small and Trade Often to spread the risk of Market Maker working against us. Don’t use stoploss or limit orders. It is not your role to feed liquidity to the market. Implement intelligent Risk Management controls and measures to protect the account from unrecoverable drawdowns.
Market Condition Diversification – via trading ranging markets, trending markets, stalled markets and everything in-between based on what Market HAS to do in order for it to survive. Follow the Market Making moves and don’t go against it. No amount of analysis can beat market makers.
Trading Style Diversification – via scalping, swing, intra-day and intra-week trading styles. I do it all in one account by letting my portfolio guide me through my universal exits
Broker Technology Diversification – spread accounts across multiple brokers to avoid all eggs in one basket using a single internet connection, power supply etc. Use both desktop and mobile platforms.
Market Closure Diversification – Avoid at all costs. Avoid weekend carryover of positions. We have no control over it so don’t do it. Close positions if the instrument stops trading over night (outside of stocks). Most verbal interventions (by design) take place when markets are closed in order to have a bigger impact to price moves within the inner circles of big boys.
Health Diversification – Trading is an extremely unhealthy endeavor. Strike a good balance to ensure you have a live outside of trading. Stare at chart only when need be. I have not looked at charts for over 2 hours unless I have a position on it that I am about to close. My charts are line charts now with foreground same as background so zero visual analysis by design. My EA takes all my commands from my mobile device giving me the freedom to move around and travel.
Association/Bias Diversification – via trade small and trade often. Don’t get married to a trade. It is just a blip with no meaning to my overall portfolio. Don’t let any one trade lose your sleep over it. All my trades are 1.5% risk on 400:1 for accounts under $1K in size
Markets are Universal and Neutral – This is the only mindset that does not require diversification. This topic is immensely deep so won’t get into this here. Thanks to PipEasy, I finally understand the true meaning of markets via his one PM on approaching the market as a data scientist back in 2010.

Fixed %Risk and Variable Position Sizing Diversification: I think my approach is quite unique to my overall strategy and integral part of how I keep my risk % fixed and still introduce extreme aggressive approach to explosive growth, enable quicker drawdown recovery and put my ‘limited’ margin to the max overdrive. It is a far superior risk/MM model imo and feel this could you help you guys in your respective journey. I use a contact 1.5% risk across all positions with a twist as I do not base any position sizing on account balance or account equity. That’s conventional wisdom. I base it on a unique framework (idena came from stt‘s post on drawdown) which keeps track of what I call “Account Threshold” which is a value I maintain in real time based on account equity and balance curve differential, Peak Equity, Trough equity, Equity at weekly and monthly open. This allows me to get

  1. super aggressive (accelerate via stepping on gas!) when equity explodes in my favor breaking the barrier of account threshold
  2. super risk averse (apply engine brakes!) during drawdown via drawdown management function
  3. Run on idle when there is just nothing going on in the currency markets by running my “windingdown” function to reduce exposure (as part of my exposure management function) and generate “income” via scalpng

So ask me how my % risk is fixed at 1.5% and why my position size decreases every time I add new positions to my portfolio on the same pair or any other pair where the signal is generated and yet keeping my next equity risk at a level from which I can rapidly recover during drawdown from high watermark? This risk management model allows me to run up used margin all the way up to 95% and still have no fear of triggering a liquidation via margin call.

And with that I wrap up my journey of sharing how a comprehensive trading strategy should be developed. What I have shared in my deleted and un-deleted posts here and elsewhere on ForexFactory remains a copyright-protected material free to use by everyone as along as they use my name in reference as the original author of the Universal Time Action – A unique approach to Universal and Market Neutral Strategy by VeeFX

I have received significant amount of useful information from FF and this is just one tiny way to give it all back to those who are willing to put in the effort.

Similar to CrucialPoint, I have no other online profile on social media outside of ForexFactory.com. As my signature says, this is my first and last social media experiment. I have no accounts on LinkedIn, FaceBook, Twitter, Instagram, YouTube Channels, Telegraph channels, Blogs or any other forums. I was on skype once and no longer use it. I am Mr. nobody and I just prefer to keep it that way.

Time has come for me to remain detoxified in my journey and exit my participation from Forums. Trying to keep my promise of Get It Done With Focus.. G(F) I took at the beginning of this year.

Trading is not for everyone. It is a negative Sum Game! It is perfectly okay to call it quits before you rob your family of precious time and financial future.

Know Thy Self !

Adios

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