JoeT's Gold Trading System

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Re: JoeT's Gold Trading System

Postby Joe T » Mon Aug 09, 2010 11:22 am

Step 5: Set up Short Sale Entry Points
I have a section set aside for this in the spreadsheet. In cell G29 I have “Shorts” entered as a title. In G36, I pull in cell H18 (the all-time high).

In G35, I have the formula: =G36*0.99. Copy that formula up to G30.

In G37 I have the formula: =G36/0.99. Copy that formula down as needed.

Column H sets the take-profit levels, with a similar strategy as laid out with the buys, just in the opposite direction:
In cell H31, I have the formula: =G31-(G31-G30)*0.25
In cell H32, I have the formula: =G32-(G32-G31)*0.25-(G31-H31)
Copy the formula in H32 down as needed.

As of today, my spreadsheet has the following short-sell and take-profit schedule:
$1191.02 n/a
$1203.05 $1200.04
$1215.20 $1209.16
$1227.48 $1218.36
$1239.88 $1227.66
$1252.40 $1237.05
$1265.05 $1246.54
$1277.83 $1256.13
$1290.74 $1265.81
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Joe T
 
Posts: 186
Joined: Thu Jul 02, 2009 10:26 am

Re: JoeT's Gold Trading System

Postby Joe T » Mon Aug 23, 2010 1:05 pm

Step 6: Set your price safety level
This is where money management comes in. How risky do you want to be? With higher risk comes the possibility of a higher reward. However, higher risk also increases the odds that you will blow your account. Everything’s a balance.

One micro-lot represents one ounce of gold. You can eliminate leverage altogether by setting aside capital equal to the price of gold and buying one micro-lot. If you do this, it’s basically the equivalent of buying a gold coin, except that you can liquidate in the Forex market more easily than you can liquidate your physical gold. (There may be other advantages to physically holding gold, but that’s a completely different discussion from a trading strategy for the purpose of making money.) This is the absolute least risky way of doing it, because it guarantees that you will never run out of capital unless gold is someday worth $0. But you realistically wouldn’t expect that, and so you don’t need to go that far.

The next most conservative route to take is to assess the absolute lowest potential price that the most bearish person on gold would give you. There are a few ways we can look at price and try to determine some of these points for ourselves.

Historically, gold price was suppressed due to currency pegs, but since the 1970s know the free market values associated with it. From 1970 to 1981 we saw a dramatic run-up in price, and then we saw things settle back down. The lowest nominal market price since that all shook out occurred in 1999, at $252.80. If you assume 3% annual inflation since that period of time, we’re looking at a price point of about $350. This low point in gold price came about as a result of extended economic growth, and was 20 years in the making.

Since there is no reasonable expectation, given the state of the world and economy, that price would plunge down to $350 tomorrow (or within the next year), there are a few other ways we can probably evaluate a current safe zone for our current trading period. One thing we can look at is the last time we saw a historical run-up in gold price. In 1980, price hit $850/oz. The low point in 1981 reached $391.25. That is a decline of 54% from the high. We could look at the current high-point of $1265.05 and calculate that the low could hit $582 in the next year or two if a similar thing occurs. (I don’t think it will, because the current run-up looks different from that one. But you never know.)

We can also look at recent resistance to see where it may fall. If I pull up a daily chart, resistance levels from the last couple years show the following levels: $679 (10/2008); $699 (11/2008); $741 (12/2008); $801 (1/2009); $864 (4/2009); $904 (7/2009); $925 (8/2009); $984 (9/2009); $1026 (10/2009); $1044 (2/2010); $1084 (3/2010); $1156 (7/2010).

We can also look at the 50% retrace level from low points to the maximum. From the 1999 low of $252.80 to the maximum, a 50% retrace is $759. Other potential 50% retraces might be the run from $679.55 (10/2008) to $1265.05, or $972.30. Or, from $864.50, with a retrace to $1,064.78. Most recently, from $1,044.05, with a retrace level to $1,154.55.

We can also look at trend line support. Trend lines as of today look to have support levels at levels between $1170 and $1175.

So, there are a number of ways you can look at this. The entire point of establishing your target is to understand what it means. It means that if you buy according to plan, your entire account will go to zero if gold reaches that price. Therefore, you want to select a price that is low enough so that you are fairly comfortable that this will not happen. Or at the very least, if you take an aggressive approach, you fully understand the chance you are taking, and have nobody else to blame if the market goes lower than your safe target.

I offer no recommendations to anyone on this selection, because it is a matter of personal risk preference. I will simply tell you what I have done and why. In saying this, I fully understood from the beginning that I was taking certain risks, and will accept all the consequences of my decision.

When I started, I traded this very aggressively, in that my zero-account price was almost $1000. I started with only $2300 in capital, and my own judgment was that once gold got over $1000 in the prevailing economic climate, there was little short-term risk in it falling below $1000. I knew that I didn’t want this to be my long-term target, but I wanted to build up some capital. As I took profits, I lowered my target. I did this more quickly the first couple months to preserve capital.

Then, for a few months, I lowered my target by $5/month, until I got down to $950. I was able to absorb much of this by using profits to lower my target without dramatically changing the aggressiveness of the approach.

I had a decision to make when gold soared to new highs. Because new highs reset my buy-in points, there are more such points to consider. This means that I either need to (a) maintain my current zero-balance target level and reduce lot sizes, or (b) maintain my current lot sizes and increase the target level. I chose at this point to keep the zero-balance target where it was, so I became more conservative with the trading approach.

Once I reached $950, and considering the price level of gold and all the different resistance, 50%, and trend line points between current price and that zero-balance level, I am now continuing to lower that target, but much more slowly. I use realized profits to adjust the target, will not lower it more than 0.5% in any given month, and will further adjust it upward slightly at the end of the month to increase the lot sizes ever so slowly.

I currently have a targeted zero-balance price of $943.78. Depending on how you view history, this is either fairly safe or pretty risky. It is risky in that price was below this level as recently as 08/27/2009. It is safe from the perspective of most recent-year 50% retrace points. It is risky in that the inflation-adjusted lowest gold price in the open-market era is about $350. It is safe if you look at current economic indicators on a global basis, and the fact that it’s below that really nice round numbers of $1000 and $950. It is safe in the respect that the last 5 major support levels need to be pierced to reach it, but it’s risky in that there are other support levels beneath it established within the last couple years. It is safe in that we’ve had a very clear and solid linear trend line that is established over $200 above this level. It is risky in that trend lines can become resistance levels if pierced. Each person has to weigh the pros and cons and select a comfort level accordingly.

The implication of setting your safe target is that, for a given amount of capital, your plan of trading is limited to lot sizes at buy points so that you do not run out of funds prior to hitting that level. This means you are continually looking at your plan and the impact of your plan based on your target zero-account price. We’ll get to setting that up so it can be evaluated properly. It doesn’t take long to do, and only needs adjusting as you take profits, and thus add capital.

For now, you simply need to do the following on your spreadsheet:
In F15 type “Target Price @ Zero Balance:”
In F16 type “Current Balance:”
In H 15 enter your target zero-balance gold price, after thinking everything through and assessing your risk tolerance.
In H16 type in your beginning capital. Your capital will be adjusted as you realize gains and losses. (Capital does not account for unrealized losses, because the spreadsheet already calculates those. So you are not entering equity, but instead your balance.)

Note: Depending on your platform, you may actually realize losses due to First-in-first-out requirements, but don’t fret about that. It will make tracking things a bit more difficult, but it gets you to the same spot. My MT4 platform displays trades the way I prefer – as if I’m trading in and out of the same position in isolation. But my actual account actually sells the oldest positions first, and all my transactions are grouped, averaged and presented as a singular entry price, so I may show a realized gain/loss on MT4 for a given trade that I closed while it shows the other way on my account. That’s not a problem at all, because it means a different position did or will show a higher profit when it closed. You should use the capital balance on MT4, and not from your account statement, because this reflects your actual trading patterns. It does make reconciling the two more annoying, but it’s nothing that can’t be dealt with.

The discussion above relates to long positions. Since I short gold at higher prices, then I also determine a zero-balance target on that as well. My current safe price on the upside is $1513.97, which includes three old shorts from a previous strategy that are well in the negative.
Joe T
 
Posts: 186
Joined: Thu Jul 02, 2009 10:26 am

Re: JoeT's Gold Trading System

Postby Joe T » Tue Mar 15, 2011 10:19 am

I received an e-mail regarding my god trading system, and was asked if I am still doing this.

The answer is yes, but with some adjustments, and without the short-trading. As I said above, this was an addition to try and take advantage of additional swings, but the core of the system was long.

The problem with this gold market is that it failed to generate the retraces necessary to get in long, and liquidate shorts. Lesson learned, which was a basic one that many traders before me have learned the hard way: when in a trend, don't go against the trend.

I now focus solely on retraces and entry for long positions.

I've also decided to simplify the approach so I really only need to check it once a day. i can watch it more than that if I like, but really only need to check in every 24 hours. Many days I do only check in once.


As opposed to constantly resetting multiple potential entries based on the maximum points, I just trail recent support points up to a maximum of 1% from the most recent high. If I get in, I set a take-profit equivalent to $30 per microlot traded, just in case something crazy happens during the day. Otherwise, no stop loss, and I check in the next day. if in profit, I take it and reset a buy-in point. If price has dropped at least another 1% I buy in at that point. If neither of those conditions is met, I set a buy-limit at 1% below. Doing it this way prevents me from overtrading (at most, I'm getting in at one entry a day) and if there's a huge drop, I usually get in after that mvoe, as opposed to try to catch it on the way down with multiple entry points.

So, the method looks a lot different from what I posted above, but it's actually quite the same, just not with as regular intervals as stated above.

Having said that, trading the above approach and going long would have done very well, and may even have done better than what I'm doing now. My main reason for switching to this simplified method is that I'm generally lazy and want absolute minimum effort. I literally spend minutes on Forex each day and that's it.

I'll update my journal with actual trades and account performance over the last months.


Realizing that I have only given a general overview of what I'm doing right at the moment, if anyone needs clarification just post a response or PM me.
Joe T
 
Posts: 186
Joined: Thu Jul 02, 2009 10:26 am

Re: JoeT's Gold Trading System

Postby Joe T » Fri Jun 03, 2011 2:13 pm

I have continued to trade this strategy with few, if any, additional changes. In fact, I have now been successfully trading other currency pairs using the same general approach (which is ultimately very simple). Once per day, I check all my charts and move limit orders or close orders as necessary. It takes less than half an hour. The rest of the day I don't worry about it at all, and if I check in at all it is generally out of curiosity to see what has transpired over the course of the day. You can see my journal for overall results. This strategy does not double an account ever two months or anything, but I've been rewarded now with average returns of 2.42% over the last 19 months. That includes a huge hit I took with a failed gold shorting strategy that I have since abandoned. If not for that debacle, I'd be doing much better.


To get into the currencies, I followed these general rules:

1) Look at Weekly charts. if the bars on the right side of the chart are higher than on the left side, it's an uptrend. If the bars are higher on the left side of the chart than the right, it's a downtrend. These are eligible for trade consideration. If prices are up and down with no clear trend, don't trade that currency. I don't fit trend lines or anything. Observation is enough. If it isn't obvious, don't trade it. Caveat: Weekly charts can go back far enough depending on how many bars you show that there could be peaks/valleys, and you do need to use some common sense. if prices plunged from 2001-2003, but there has been an uptrend since then, this qualifies as a "yes" on the trend.
2) For all the currencies that qualified in (1), look at the daily charts. If there is an opposing trend on the daily chart to the weekly, you probably want to stay away from this pair, unless it is only a slight trend in opposition. If the trend is corroborated, or even horizontal, you can trade this pair.
3) You can look at the 4 hour trend for further corroboration, but I don't weight it as high. I'll mainly use this for corroboration in the event that the daily trend was flat or in slight opposition. If the 4 hour trend confirms the weekly trend in this case, I'll trade the pair. But if the 4 hour trend is in opposition to a corroborated Weekly/Daily trend, I won't usually let that bother me.

To start watching a pair, I will set a limit order at the support/resistance point on the weekly trend that is the peak/minimum. Usually this is so far away that there is no reasonable hope of hitting it. That's fine. I do it to force me to review the chart every day and watch the pair and get used to its movements. The rest of the approach is admittedly simple and probably silly, but it's just what I do: Every morning, I move the limit to the next highest/lowest (depending on up or down trend) bar. I will do this until I can see my limit order touching that bar on the daily chart. Then I make these moves on a daily basis using the daily charts. I do this until I can see it on the 4 hour chart. Finally, I do this until I see it on the 1 Hour chart. All this takes a number of weeks, and teaches patience. The day will come where I finally have a limit order at a spot that executes. by that point i have become familiar with the strength of the trend, the tendency of the pullbacks, etc. (At least, that's the theory)

Once I have executed a trade, I have a simple standard, using my Gold strategy as a basis. Gold moves $1 per microlot. I set a take-profit level at $30 per microlot from my buy point, which on gold happens to be a $30 price move. I've done this based on what I consider to be an unusual, but occasionally occurring, price swing in one day that I want to profit from. A higher take profit risks a pullback and less profit. A lower take profit may unnecessarily limit profit potential. However, my rule of thumb on my daily evaluation is, if I've netted at least $5 profit per microlot, then I'll close. If not, I let it ride and check it again tomorrow. However, different pairs need different position sizes to replicate that. For example, an equivalent risk on Silver is about 9 microlots. In other words, buying 9 microlots on silver with a take profit at $3.33 above limit price acts the same, and the total spread on those 9 microlots is about the same as one microlot on gold, as well. It's just math. The same will be true of all currencies, and one just needs to figure out the appropriate position sizes that line up with a per microlot gold position. I haven't honestly done all that. On USD currency pairs, as long as it's around 1, I just use a take profit of .03 (or 3 on JPY currency pairs) per microlot and call it good. Some day I may study the fluctuations more and determine optimum take profit points per currency. For now i still use the $5 per microlot standard on those pairs. For silver, it would be a $0.56 per microlot standard to close a trade, but I'd be trading 9 positions for every one gold position.

That was a bit of a tangent... back to actual execution of trades:

Once a first position is entered, that execution date is used as a basis for chart evaluation until the next trade on that currency pair. What I mean is, suppose you're trading a downtrend. After you SELL, the price goes up some number of ticks. Ultimately, price reverses until you are in a position to close your trade. After closing, you will enter another limit order as follows: (1) determine the minimum price since your execution date. Divide by .99, then divide by .99 again. Note that value as X; (2) determine the maximum price since your execution date, Y; (3) Set your limit order at the maximum of X and Y. (4) As you monitor price daily, if a new low is hit, recalculate X. If X doesn't change, but you are above that, move limit order execution price by the next highest bar until you hit X. Never have a limit order less than the current X value.

Do the opposite for long positions. X = highest point since last execution x .99 x .99.

That pretty much sums it up.
Joe T
 
Posts: 186
Joined: Thu Jul 02, 2009 10:26 am

Re: JoeT's Gold Trading System

Postby Joe T » Tue Jun 28, 2011 5:53 pm

I have seen on Zero Hedge that metals will not legally be able to be traded via Forex in the U.S. due to Dodd-Frank. As you can imagine, this ticks me off. I didn't like these guys before as it was. Then they do this...

While I'm pretty bummed about that, I feel fortunate that I have taken the time over the last few months to try and find the best way to apply this to other currencies. The biggest challenge to me with other currency pairs is proper spacing of trades and position sizes for this style of trading. I pretty much locked in on the metals exactly what I could afford to do and what the risk was based on a lot of historical work. I've played the currency pairs much more conservatively on the position sizes and the spacing between execution points. This will likely be a work in progress for quite some time.

It will likely set me back on realized results, because I do not feel like I can be more aggressive at this point, whereas I had a comfort level with the balance between account protection and aggressiveness on the metals. I don't have that same comfort level on the currencly pairs, so I'm erring more on the side of account protection.

I hope to really hone in on the proper trading sizes and execution points over the next couple months. in the meantime, at least I've done enough work that I won't have to start from scratch when 7/15 comes around.

The method in the post above is what I am using for currencies.
Joe T
 
Posts: 186
Joined: Thu Jul 02, 2009 10:26 am

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