Trading Strategy of the Week: Just Forex Trades
Any results mentioned or shown are based on simulated or hypothetical performance that have certain limitations. See bottom of this post for full disclosure and important warnings. Past results are not necessarily indicative of future results. Most people lose money when trading. These results are based on statistics that were current as of June 8, 2016, when this profile and article were edited.
This is our interview with Collective2 Trade Manager Jay McGivney discussing his strategy “Just Forex Trades.” You can view summary statistics, including hypothetical monthly returns and subscription costs, inside Collective2.
Jay McGivney violates every rule in the forex rulebook.
On disregarding conventional wisdom
My strategy is called Just Forex Trades. As you can tell from the name, I don’t spend a lot of time on “branding” or “marketing.” Instead, I focus on trading. Just trading. Just forex.
When it comes to trading, I try to violate every rule in the book. Yes, I tryto. Why is that? Is it because I’m an old gray-haired curmudgeon? Well, I am, but that’s not why I violate the rules.
Look, if the well-known rules are so great, then everyone should already be a millionaire. Yet, oddly, very few traders are! So that leads me to believe that the commonplace rules which everyone knows to be true…aren’t.
So what are the rules I refuse to follow? First, I never use stop losses. Second, I completely disregard trend analysis. The trend isn’t your friend. And third, I sometimes increase position sizes on losing trades. Yeah, yeah, I’ve heard all the complaints before: ‘You’re just doubling down! Jay’s strategy is just a Martingale strategy.’
Well, I’m not. And it’s not.
Like an overstretched spring, ready to snap
Let me put it this way. Let’s say that you analyze a currency pair, and you determine that the relationship between two currencies is ‘stretched’ like a spring, and that macro-economic pressures will force the currencies to snap back into place. Now, let’s say you have a high degree of certainty that this is the case. But what if — despite all your certainty — two months later, this hasn’t happened — and, instead, the spring has continued to stretch even more!
What should an intelligent person make of this?
If you believe the conventional trading wisdom, you should humble yourself before the trading gods, recognize the heresy of your ways, and take your loss like a man.
Here’s what I say to that. “Pthlshhhh.” [Editor’s note: Exhales and makes noise with his tongue.]
There’s a fine line between strength of conviction and mental illness. So you want to be careful and question your original assumptions. Always.
Seriously, if you originally believed that currencies were like springs, and were overstretched, and were going to snap back into place… and then the springs stretched even more, then — by god — you should be even more certain that your prediction will come true, with a vengeance! That’s why I sometimes hold on to positions that seem like losers, and sometimes will add more to the position.
Of course there’s a fine line between strength of conviction and mental illness. So you want to be careful and question your original assumptions. Always. I’m not advocating that you ignore reality and throw good money after bad. What I am advocating is that — contra conventional wisdom — it is sometimes — not always — but sometimes — acceptable to increase position size during a drawdown.
Writing my own rulebook
It’s not enough to be contrary, just for the sake of being controversial or interesting. The reason I threw out conventional wisdom when it comes to trading is because I have my own set of… well, I hesitate to call it wisdom… that’s pompous… no, let’s call it principles. I have my own set of trading principles.
These principles are my ‘secret sauce’ so I won’t go into a lot of detail about them. Instead, I’ll summarize them:
- 1) Exhaustive momentum is not sustainable.
- 2) Forex currencies are range bound.
- 3) Prices fall faster than they rise.
Based on these three principles, you can observe the following in my Collective2 track record:
- I trade only short.
- I do not employ initial stops. Instead, I try to control risk with rules on correlation, margin reserve, and position size.
- A majority of my trades are completed within one to three days, but with some lasting considerably longer. Most trading is done between 8 AM to 7 PM Eastern.
I was born and raised in the Chicago area. I am a graduate of the DePaul University’s School of Commerce. As you can see from my photo, I am a bonafide ‘grey hair.’
I’ve always been a trader, but trading became my full-time job in the 1990s. I have always traded every asset class — stocks, options, futures, and, of course, forex.
In the past two decades of my career, not much has changed. The game is still about seeking above-average returns after placing a series of trades. Sure, nowadays you have computerized high-frequency trading, and an explosion in the number of tools available to traders, and a globalization of the markets. But, despite all these high-tech trappings, the game is still the same one I played twenty years ago: trying to find net profitability.
Even after all these years, I still feel passionate about trading. I love trying to find profit opportunities. It’s a great achievement when you can beat the pros. My approach is aggressive — no doubt about it — and there’s a lot of risk inherent in my approach. Obviously this is not for everyone. It’s really designed for those who are focused on appreciation rather than preservation. But for those with appropriate risk-tolerance, I think my approach can be one piece of a portfolio puzzle.
What he thinks about Collective2
What can I say? It’s a great platform. It’s great on a couple of levels.
For strategy developers, it’s a way to prove your value in a verifiable, trusted way.
For investors, it’s a way to find strategies that are compatible with your risk tolerance and profit objectives.
And I just love, love, love its radical transparency. Everything is just out there for people to see, and to study.
Past results are not necessarily indicative of future results.
These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical 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 these being shown.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Material assumptions and methods used when calculating results
The following are material assumptions used when calculating any hypothetical monthly results that appear on our web site.
- Profits are reinvested. We assume profits (when there are profits) are reinvested in the trading strategy.
- Starting investment size. For any trading strategy on our site, hypothetical results are based on the assumption that you invested the starting amount shown on the strategy’s performance chart. In some cases, nominal dollar amounts on the equity chart have been re-scaled downward to make current go-forward trading sizes more manageable. In these cases, it may not have been possible to trade the strategy historically at the equity levels shown on the chart, and a higher minimum capital was required in the past.
- All fees are included. When calculating cumulative returns, we try to estimate and include all the fees a typical trader incurs when AutoTrading using AutoTrade technology. This includes the subscription cost of the strategy, plus any per-trade AutoTrade fees, plus estimated broker commissions if any.
- “Max Drawdown” Calculation Method. We calculate the Max Drawdown statistic as follows. Our computer software looks at the equity chart of the system in question and finds the largest percentage amount that the equity chart ever declines from a local “peak” to a subsequent point in time (thus this is formally called “Maximum Peak to Valley Drawdown.”) While this is useful information when evaluating trading systems, you should keep in mind that past performance does not guarantee future results. Therefore, future drawdowns may be larger than the historical maximum drawdowns you see here.
Trading is risky
There is a substantial risk of loss in futures and forex trading. Online trading of stocks and options is extremely risky. Assume you will lose money. Don’t trade with money you cannot afford to lose.