Pruning olive trees during the weekend
I have just finished my weekly risk management processes on my Grid Trend Multiplier Accounts that are 3700 pips up in 20 days and made a training video of one of the key methods: Forex Pruning
There are many ways of managing risk when trading the no stop, non-directional Grid Trend Multiplier, Random market system.
They are:-
- Careful currency selection
- Good grid size determination
- Lot sizing according your account size.
- Giving the system freedom to let the multiplier out trade potential losses.
- Using hedging principles that ensures that there is a buy and sell transaction to capitalize on any price action possible.
- And weekly Pruning
The video below deals with the highly important method of pruning. When pruning you eliminate potential negative deals without impacting profitability at all. So you are no worse off but your exposure to risk may have halved.
Please watch this video very carefully and raise any questions in the comments section of this website (please no emails).
Maximise the size of the video by clicking on the YouTube controls at the bottom left part of the video below.
Thank you Alex!
Excellent easy to understand video
GERALD
yep gat vid Alex clear to understand
Agree, excellent video Alex.
Derek Hayes
Hi Alex,
Balancing open trades and working with equity: smart thinking.
fixer
I just not fully understand but it seems to be very clever.
I had been wondering when there would be an “optimum time” to attend to those “orphan” trades that get left behind. This rationale sounds good.
Thanks for that,
Doug.
Dear Alex,
Thanks very much for the video on pruning and for your efforts in general.
It appears that before you can prune your tree that you actually need to let the ea build 24 against the trend positions and 1 with, as shown on the charts, from the top of the wave to the bottom. Then you prune when there has been a pull back to create a minimum of 12 positions on the other side. You cannot prune before since it is not possible to tell with certainty when the turn will come. If you prune too soon, before 12 opposite trades have occurred then you will not have 12 above and below the price as desired.
Am I on the right lines with this?
I do not like the title of the u tube film! Lazy trader in deed! It has taken me many years of effort off and on to be in the position to know your approach makes sense.
Regards
Jon.
Now that it is time to prune, how often should you do this daily, weekly?
We have automated the pruning process. In the meantime decide on the maximum number of open trade you are comfortable with in total taking both the buy and sell open trades into account. When this is exceeded close the deal with the most negative balance. IF YOU ARE A TESTER IGNORE PRUNING
weekly
Very interesting and thought provoking, I now wonder about achieving the same thing through 144 pip stop loss for your 12 trades on each side in this case if you find in future that 12 open trades are optimal but working on other markets to find average pullbacks and setting the pruning stop losses one or two trades outside those levels which would still let you follow the trend but stops would be far enough away to take advantage of the volatility cash ins during intraday ranges.
As JMace mentioned you would be pruning before balance is achieved but why not use statistics to your advantage in this case.
I trade the GBPJPY and notice pullbacks in a trend rarely exceed 1 cent so why waste margin beyond that when you could money manage the unused margin into more contracts, eg a quick calc shows 0.1 contract $550 in the red at 100 pips with the GTT/GTM which equates to an account size of $11000.00 per side if you are not risking more than 5%.
BUT this principle is a little different because it is not parallel risk as such because you are only laying down cash for the legs which produces the trades for free, the main risk to watch is probably margin calls, with some more statistical work we may find an optimal balance between drawdown and margin call in order to maximize use of account funds.
Some of my thinking is tainted by trading with a directional bias but I think my head is slowly getting around this “lazy” way of trading which my take a lot more thinking than a lazy trader is prepared to put in.
Is that the way you were thinking with the autoprune function Alex?
Yes it is a lazy way of trading – in fact any interference will be bad once you have established your settings. over management kills most trading systems
Auto prune is simple – have a maximum number of deals (both Buy and Sell) close the biggest negative when the maximum is exceeded – The EA will do that in future
Hey Alex, so are you still wanting 12 buys and 12 sells as far as the pruning goes, or are you looking at 24 max total open positions and just eliminating the biggest loser.
I thought of one more question as I think about mitigating risk. Would using the separate buy/sell accounts actually be a way of reducing risk? If the market is ranging you prob make money in both accounts….if it starts a strong trend…you get margin called in the one account but will end up close to doubling or more on the other account. If you double it…you are more or less at break even. Is there any merit to this thinking or is it all relative regardless of one or two accounts?
Pruning has 2 phases.
Phase one: No more than say 24 trades in total. If you have more and there is only 1 more (25) then prune the biggest one
Phase two: If you are able try to balance the 24 to be 12 on one side and 12 on the other if you are able to.
Phase 2 is not always possible – Phase 1 is the most important. Don’t try to do phase 2 if it is not possible.
24 trades is just an example – suggested range 20 to 30 open deals
NOT TOP BE DONE BY TESTERS
Pruning is done in 2 phases:
Phase 1: If there are 25 open trades and your maximum is 24 then prune the biggest one
Phase 2: If there are more than 25 open trades try to balance the number of buy and sell open trades as best you can
In future the EA will do the pruning automatically
NOT TO BE DONE BY TESTERS
24 is just an example – Any number between 20 and 30 could work
Not sure it that will work- suggest you test the 2 scenarios to see if it adds value. System not designed to be used that way