Variable Fractional Percent (VFP) method

Listen, I am going to reveal trading secret again! 😆

I have been working on position sizing and risk management stuffs recently. I am trying to optimize the return of my trading, since I see consistency in my trading recently. So, instead of increase setups or trading opportunities, I am thinking of stick to the old trick, but increase position size etc. However, this is not a easy subject.

I come across Variable Fractional Percent (VFP) from chaffcombe’s site.
He is a full time currency trader, who is more into automated trading. Here is what I found from his explanation of Variable Fractional Percent (VFP)

Firstly you need to know your daily Net Asset Value (NAV) gain or loss in percent.

Start trading at a conservative 5% FFP (or whatever suits you). But instead of using a Fixed Fractional percent, you use a range say 2%-25%. Move up and down the scale by adding or subtracting half of your last daily NAV percentage.

For example start at 5% FFP

Next day profit on trades = 1.5%
Therefore your next FFP = 5 + (1.5 * 0.5 ) = 5.75%

Say you then lose 3%
Next FFP = 5.75 + (-3 * 0.5) = 4.25%

Obviously use ranges and a daily factor (here 50%) that suits you, but you’ll find this method really rewards good methods, and lightens up very quickly on bad.

The idea that catches my attention is that, the method utilizes part of your previous day’s trading profit to determine the position size of your next trade. The put you in the condition that when you are on a roll, you are able to profit as much as possible, while during drawdown, the system is reducing your position size accordingly.

The prerequisite of this management method is to have a consistent trading system. It doesn’t turn a losing system to a profitable system, but it maximizes the return of a profitable system and reduce the damage from a losing system.

I buy the idea, and running it in my trading now. Seriously, this is a trading secret.

Cheetah teaches trading

To wrap up the year, here is an interesting video. Watch it, see if you are able to link it to your trading.

She won’t charge, unless she gets really close

Year end review?

monkeythinking1.jpgThis is the last trading week for year 2007. It is unlikely for me to trade, since I am rushing to finish some work and preparing to head to Sydney this coming weekend for my Christmas break.

Well, if you do not achieve your trading target or your trading ‘dreams’ for 2007, it is too late to make it happens now. Yes, I know miracle does happen, you might hit a jackpot for the coming 4 trading days, but…after all, it is still a miracle. We meet miracle by chance, we don’t plan to have miracle. Got it?

Instead of struggling to hit your 2007 target at this stage, maybe we should do a review of our real trading problems.

Answer the questions below, carefully and frankly. You will realize some of your mistakes and make a note for the coming year.

  • How much time have you spent on searching for the secret trading strategies in forums or blogs?
  • How much time have you spent on studying markets, developing your own trading strategies and style?
  • How much time have you spent on trading forums (e.g Elitetrader, forexfactory etc) or chart room such as wallstreak (sorry ,ugly) to listen to other people’s opinion (most of time ,nonsense)?
  • How much time have you spent for yourself, thinking deeply, which trading instrument/style/timeframe/market etc that really suits yourself?
  • How many times have you been changing your trading strategies? From dummy to fibonacci, then to breakout or even scalping?
  • How long was the last time you stick to your trading plan?
  • How many times have you been delaying writing or recording your trading journal?
  • Are you spending way too much time in something called ‘trading psychology’ things? It is important, but are you spending WAY too much time on it?

There are still a lot of questions for you to answer, but I guess these should have shown you something. Please be frank to yourself.

The most valuable thing I have learned from the past couple of years is, trading is really a lonely and individualist business. You have to work out by yourself to figure out what’s working for you and what’s not. Sorry to say that you have to design your own strategies and plan. Chat rooms and forums are really for entertainment. Purely entertainment. There is nothing called discussion in trading, most of time, there are just bullshit sharing. It is good to visit forums and chat rooms, for the sake of laughing. :-). The best place to learn about the trading and the market, is the market itself. These are my opinion and experience. Take it or leave it.

One of my favorite posts in blogsphere is ‘Chasing Success’ written by Trader-x. It is a good read and good reminder. Make sure you check it out.

most people jump from indicator to indicator, time frame to time frame, method to method. They will use something for a few days, hit a bump, and move on to something different all together. One day the holy grail is a XX period moving average, the next day it is MACD or an oscillator. One day it is a 30-minute chart, the next day it is a 5-minute chart. One day it is buying the break of the first inside bar, the next day it is a pullback from the high.

I call this “chasing success”. The bottom line is the person does not spend enough time on any one method to really understand and execute it properly. They bounce around, and before they know it a lot of time has passed and they are still struggling.

If you pick something and stick to it, you get good at it. Once you get good at it – once you perfect it, THEN you can add something else to your arsenal.

45 ways to avoid losing money trading Forex

caution.gifI found this article from a from a forum. It is interesting. Though I do not agree with everything he says, there are some good points.

According to the forum poster, this list was composed by Jimmy Young, who is a retired proven professional Bank Forex trader with over 20 years of hands-on forex trading experience.

Pretty long list, but nice read.

1) Knowledge Deficiency – Most new FOREX traders don’t take the time to learn what drives currency rates (primarily fundamentals).

2) Overtrading – Trading often with tight stops and tiny profit targets will only make the broker rich. The desire to “just” make a few hundred dollars a day by locking in tiny profits whenever possible is a losing strategy.

3) Over leveraged – Leverage is a two way street. The brokers want you to use high leverage because that means more spread income because your position size determines the amount of spread income; the bigger the position the more spread income the broker earns.

4) Relying on Others – Real traders play a lone hand; they make their own decisions and don’t rely on others to make their trading decisions for them; there is no halfway; either trade for yourself or have someone else trade for you.

5) Stop Losses – Putting tight stop losses with retail brokers is a recipe for disaster. When you put on a trade commit to a reasonable stop loss limit that allows your trade a fair chance to develop.

6) Demo Accounts – Broker demo accounts are a shill game of sorts; they’re not as time sensitive as real accounts and therefore give the impression that time sensitive trading systems, such as short-term moving average crossovers can be consistently profitably traded; once you start dealing with real money, reality is quick to set in.

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