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Just thoughts

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1 Just thoughts on Sun Nov 29, 2009 2:50 pm

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This topic is for me to put my thoughts in a well documented way. Thoughts come every day and some of them are pretty good that I think I should document them for later usage.

Here are some thoughts...
As we can see in the small poll in Oanda forum: What return do you aim for?, most of traders expect to have a return higher than 100% a year. So let say how we can achieve that day by day month by month.
If we can achieve 6% per month consistently, we will have a return of 101% a year as in the below break down (using excel):

(input)Per month6%
(output)Per year101%
01000
110606%
21123.612%
31191.01619%
41262.47726%
51338.22634%
61418.51942%
71503.6350%
81593.84859%
91689.47969%
101790.84879%
111898.29990%
122012.196101%

One more break down step... If we can make 0.292% per day then we have 6% a month and 101% a year:

(input)Per day0.292%
(output)Per month6.00%
Per year101%
01000
11002.920.3%
21005.8490.6%
31008.7860.9%
41011.7311.2%
51014.6861.5%
61017.6481.8%
71020.622.1%
81023.62.4%
91026.5892.7%
101029.5873.0%
111032.5933.3%
121035.6083.6%
131038.6323.9%
141041.6654.2%
151044.7074.5%
161047.7574.8%
171050.8175.1%
181053.8855.4%
191056.9625.7%
201060.0496.0%


How difficult is 0.292% a day or a rounded number of 0.3% a day? I think it is very easy.
But we have to have 0.3% CONSISTENTLY. We can not have exact 0.3% every day. If we aim for 0.3% per day it will be like this 0.3%, 0.4%, 0.25%, 1%, -0.4%, 2%,... So we have to have a way to limit the variation of the return, still maintain the average return of 0.3% (or may be higher a little bit) to achieve 6% per month consistently.
What make a 0.3% gain?
Gain% = Pipvalue% x PipGain
We have many combination of this 2 numbers, for example:

Pipvalue%PipGainGain%
0.0600%50.30%
0.0300%100.30%
0.0200%150.30%
0.0150%200.30%
0.0120%250.30%
0.0100%300.30%
0.0075%400.30%
0.0067%450.30%
0.0060%500.30%
0.0050%600.30%
0.0043%700.30%
0.0038%800.30%
0.0030%1000.30%
0.0025%1200.30%
0.0020%1500.30%


What combination looks easier to achieve? I think we don't know for sure that "today I will gain xx pips" in advance. We know that the everage pip move per day for any pair, in my case that is Eur/Usd, ADPM = 150 pips (ADPM=Average Dailly Pip Move). I don't think I can take the whole 150 pip gain every day. May be 20 pip is a reasonable number. If so we need to have Pipvalue%= 0.015% at the moment we have the Pipgain= 20 pip.
Things will be like this: at begining of a day you think "it is going up" then you open a small long trade, say Pipvalue%= 0.002%, it is then having 2 cases: up up up, we need to open more long trades till we get 0.3%gain then use stop loss to protect the gain at this level; or we it goes against us, we have to let it run till it is exhausted, that is normally 150 to 200 pips then
So we can not pick an option, we wihave to "aim and adjust" while we are on the field. That makes me think that we should start with small size and average down to
We have to measure our NAV gain (per day) every day and

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