SCOTT WELSH TRADING BLOG

If You Only Had One Chart To Trade

If You Only Had One Chart To Trade

Nov. 13, 2013

The question that I often get asked (and the question that’s always on my mind) is:

“What chart would you trade if you could only trade one chart?”

First of all, I recommend trading more than one chart. As I will show in a later Systems Report, trading multiple charts increases profit and decreases drawdown.

However, someone just starting out might be overwhelmed trading a bunch of charts, which could lead to potentially disastrous mistakes. In addition, if you’re new to trading with Robots, watching multiple charts at first might be too much to handle, especially if something goes wrong (such as losing power or internet connection). Recreating a bunch of charts and/or getting out of live trades after losing power is a nerve-wracking experience to say the least.

So, if I had to settle on just one chart, how would I decide? To trade just one chart, I would need the following two characteristics:

  1. I would need leverage. A Robot that produces $250 per month is not going to pay my rent. For that reason, I would trade a currency chart. You get so much more bang for your buck in currencies because of the leverage. I have yet to test a good-looking stock chart that makes enough money to trade it exclusively.
  2. I would have to win a lot. I don’t know if I’d survive if I had to get up each day and look at a chart that lost all the time. That one big winner 3 times out of 10 would not make up for those 7 losers. Every time I got on a losing streak, I would freak the heck out. I need to see winner after winner if I’m just trading one chart. I don’t care if it’s more profitable to do it the other way or not. I can’t look at losers every day and keep trading.

I have many Robots that I trade with real money on my accounts and for the accounts I manage. Recently, though, I have been thinking about the concepts Rob Booker discussed in his Strategy: 10 eBook, and that motivated me to begin working on a high percentage chart that could possibly stand alone. I present that to you now.

Below is the Performance Report for the USDJPY. The Strategy used on this chart is trend-following in nature and only looks for very small wins. This USDJPY Robot tries to determine the short-term trend, waits for a pull-back, and then goes for a small, high-percentage trade.

Here are the highlights:

  1. The winning percentage is great (77.4%)
  2. The Annual Returns are all positive and pretty steady.
  3. The Equity Curve is phenomenal (often making new highs in Equity)
  4. This chart, on just a hypothetical $7-$10K account, yields $388 per month on average
  5. On a $100K account, that would be about $4,000 per month, which might be enough to allow some people to retire.

Here are the problems:

  1. The target is very small. This Robot is only looking for 11.4 pips on each trade. While that makes for a lot of winners, it puts a high premium on getting exactly that much. If, for whatever reason, I start only getting 9 pips per trade, all my numbers are thrown off. I CANNOT mess with this Robot; I have to let it do its thing. Otherwise my returns will suffer mightily.
  2. Slippage has to be right. As is the case in all my charts, Slippage is built in. I’ve tested it in live trading and spot-check it to make sure it is still correct. For Tradestation, 1.8 pips of Slippage is accurate for the USDJPY, and that is what’s been built in. If, for whatever reason, Slippage increases substantially, your returns will suffer.
  3. Monthly returns. This Robot loses some months, like any chart will. If you’re trading for your rent, you need to be prepared for losing months. Since 2003, this USDJPY Robot is profitable about 71% of all months. In other words, about 4 months per year will be negative. Can you take that? Can you plan for that?

This is a great-looking chart and is a worthy consideration for a one-chart portfolio. It could also be the first chart of a bigger portfolio. Either way, it’s a worthy candidate.

 

Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.