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Integrating Martingale strategy into something already overbought/sold
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Integrating Martingale strategy into something already overbought/sold

  #11 (permalink)
Market Wizard
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An approach you MAY want to consider is scale trading. Robert Weist put out the best book "You Can't Lose Trading Commodities" on it a number of years back. It is not Martingale, but it does add to losing positions. The general premise is that you buy when a physical commodity is low, in anticipation that the laws of supply and demand will eventually cause prices to rise. You profit from the eventual rise, and from oscillations along the way.

In theory, it is a great idea.

In actual practice, it is very easy to lose a lot of money. That's what happened to me.

It has to be treated as a very conservative approach. If you aim for 10-20% annual returns, and build your approach around that, you'll be OK. When I did it, in year 1 I got 100%+, and in year 2 I gave it all back plus. I was too aggressive.

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  #12 (permalink)
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What you are referring to is what my idea with this is premised on. Again, coffee historically has been much lower. But I think commodities have already taken a big beat down overall, so those kinds of secondary factors increase conviction to do something like this. I am actually not in a position where I can myself do this. I am looking at commodity brokerage firms or prop shops that allow this kind of positional trading, as I like the idea of, while maybe not to this extreme, at least positional trading on good setups. I think I would do better than I did before doing the more day trading deal with futures, but I like staking a position and letting it play out.

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  #13 (permalink)
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FreeMktFisherMN View Post
What you are referring to is what my idea with this is premised on. Again, coffee historically has been much lower. But I think commodities have already taken a big beat down overall, so those kinds of secondary factors increase conviction to do something like this. I am actually not in a position where I can myself do this. I am looking at commodity brokerage firms or prop shops that allow this kind of positional trading, as I like the idea of, while maybe not to this extreme, at least positional trading on good setups. I think I would do better than I did before doing the more day trading deal with futures, but I like staking a position and letting it play out.


Ok, so I am confused. What is your objective with this thread?


edit: I think you want to know if your concept is viable. On a general level, yes. I doubt, though, that any prop shop would fund you with such a general concept. You need a specific strategy, and probably real time results to prove it works.

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Last edited by kevinkdog; December 9th, 2013 at 11:27 AM. Reason: add'l info
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  #14 (permalink)
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nothing in particular, I guess. I've read some of the threads on here about martingale and it didn't seem like the idea of doing something at least along those lines on something already in an extreme position like coffee had come up specifically.

Specific to what I'm trying to do for a career in trading of some sort whether as a prop arcade type futures trader or a cmdty broker making recommendations, I definitely like looking for setups that can play out and that dare the market to do something even more extreme than it already has.

It's probably not going to fly if I were say a broker or to come into one of these discretionary prop shops and say I'd like to/I'd recommend doing a big time position in coffee with this (martingale-esque) setup, but still this kind of thinking and strategy development is how I think I will do well in trading as opposed to what has happened so far which is chopped up/flushed out only to see what I thought would happen eventually play out, but thanks to the leverage have to get the sequence right, too.

Right here I'd look scalp short nat gas, long coffee, and even something similar to the coffee idea, buy a 1x inverse sp500 ETF and literally target 1650 and stop loss at 2100. This is an ETF not ES, so taking heat not as big a deal. I'd think that would have a great probability of working out. It seems if one has held off shorting the ES on this huge run up over 5 years, now one can at least scalp short on any pops and, with a big stop loss, capture some gains. Even from 1640 to 1800 ES since the debt ceiling debate was kicked down the road, it didn't go straight up. From 1640 to 1760 to 1736 to 1770 to 1736 to now this range low 1800-1810 to 1780. Lots of retrace.

Pertaining to me that is what I am looking for, a place where I could put on different positions and let 'em play out. Not the same as having a daily pnl direct feedback, but maybe I should look more into wealth management/portfolio allocation, or the commodity brokerage. I think these more so mechanical, probabilistic setups work, especially when convergent with other fundamentals and TA such as extreme RSI, fib level,etc. The intraday stuff is tough sledding.

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  #15 (permalink)
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kevinkdog View Post
An approach you MAY want to consider is scale trading. Robert Weist put out the best book "You Can't Lose Trading Commodities" on it a number of years back. It is not Martingale, but it does add to losing positions. The general premise is that you buy when a physical commodity is low, in anticipation that the laws of supply and demand will eventually cause prices to rise. You profit from the eventual rise, and from oscillations along the way.

In theory, it is a great idea.

In actual practice, it is very easy to lose a lot of money. That's what happened to me.

It has to be treated as a very conservative approach. If you aim for 10-20% annual returns, and build your approach around that, you'll be OK. When I did it, in year 1 I got 100%+, and in year 2 I gave it all back plus. I was too aggressive.

Thanks for the pointer to the book. It was under $1 on Amazon, plus shipping. There are some other very affordable copies left.

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  #16 (permalink)
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GoSlow View Post
Thanks for the pointer to the book. It was under $1 on Amazon, plus shipping. There are some other very affordable copies left.

Just beware. It is easy to make a mess of scale trading. I sure did.

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  #17 (permalink)
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If one had the risk capital, I would think it'd be a highly probabilistic from numerous vantage points play to buy a 'sizable' amount of JO, or just KC directly, and look to make 2% or something like that before getting out, and just rinse/repeat. If it goes against, every 5-10 cents/lb add more in size. One can try to finesse it within the confines of the martingale, or just totally do the martingale doubling down.

The whole premise in my view is obviously the high odds, especially augmented by how coffee ALREADY is way down and one hasn't started trying to pick bottoms from say $2/lb, but also just daring something REALLY extreme to happen, which is what would have to happen for this not to work (and martingale works if one can stay in it capital-wise as far as eventually something goes one's way/retraces enough).

Fundamentals wise obviously coffee is still getting consumed, and commodities will break out of this down trend eventually, as global debasement of currencies keeps going on.

The same type of setup could be said to be on the table for crude, maybe buying in increasing increments every $5 or so it moves against one (assuming a long position). Waterfalls just don't happen often, although martingale players would have been fried on that 150 to 32 move not so long ago. And one way to play the martingale to increase chances is to look for a product that ALREADY has had some extreme moves happen in one direction, which coffee seems to fit given how far it has come down. This is more of a judgment thing, but when crude hit 60 or so on that waterfall, one just has to think about how low can the global energy benchmark really go? And if TSHTF having oil for preps is a good idea anyway to get off the grid, and oil is not about being a conduit to profit at that point, but survival.

I agree really only commodities are conducive to this. They have actual intrinsic value unlike dot com stocks of the 2000s, and factors like production/extraction costs. I still would limit such a play even if risk capital were available to something extremely oversold, and only be looking to go long. Elementary as it sounds, these things don't go to zero, whereas there is no floor on the dollar.

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  #18 (permalink)
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FreeMktFisherMN View Post
If one had the risk capital, I would think it'd be a highly probabilistic from numerous vantage points play to buy a 'sizable' amount of JO, or just KC directly, and look to make 2% or something like that before getting out, and just rinse/repeat. If it goes against, every 5-10 cents/lb add more in size. One can try to finesse it within the confines of the martingale, or just totally do the martingale doubling down.

The whole premise in my view is obviously the high odds, especially augmented by how coffee ALREADY is way down and one hasn't started trying to pick bottoms from say $2/lb, but also just daring something REALLY extreme to happen, which is what would have to happen for this not to work (and martingale works if one can stay in it capital-wise as far as eventually something goes one's way/retraces enough).

Fundamentals wise obviously coffee is still getting consumed, and commodities will break out of this down trend eventually, as global debasement of currencies keeps going on.

The same type of setup could be said to be on the table for crude, maybe buying in increasing increments every $5 or so it moves against one (assuming a long position). Waterfalls just don't happen often, although martingale players would have been fried on that 150 to 32 move not so long ago. And one way to play the martingale to increase chances is to look for a product that ALREADY has had some extreme moves happen in one direction, which coffee seems to fit given how far it has come down. This is more of a judgment thing, but when crude hit 60 or so on that waterfall, one just has to think about how low can the global energy benchmark really go? And if TSHTF having oil for preps is a good idea anyway to get off the grid, and oil is not about being a conduit to profit at that point, but survival.

I agree really only commodities are conducive to this. They have actual intrinsic value unlike dot com stocks of the 2000s, and factors like production/extraction costs. I still would limit such a play even if risk capital were available to something extremely oversold, and only be looking to go long. Elementary as it sounds, these things don't go to zero, whereas there is no floor on the dollar.

The concept is sound, but a couple things could make this approach fail. Some realistic and ridiculous things to consider:
  • What impact does the front/back month premium have on your idea? If you hold the front month, and if cash prices stay flat, you'll lose the premium everytime you roll, meaning you'll need a higher and higher retracement to make profit.
  • How low can coffee go, and for how long? Do you know the actual numbers? It might go lower, and stay there longer, than you can endure.
  • What if a new technique for growing coffee trees is found, one that dramatically lowers the cost of production?
  • What if the gov't suddenly imposed a price ceiling on coffee? It has happened before.
  • What if someone announces that coffee causes cancer, or heart disease? In the 70s, many thought coffee was on the way out. In the US, the coffee industry actually hired football star Bengal QB Ken Anderson to make coffee seem "hip." That could happen again.
  • What if a new coffee tree is found that can either survive cold better, or works on an annual schedule instead of bi-annual?
  • Will you like being in a trade that maybe lasts 1 year before you exit with profit, with 11 months of it being in drawdown? That could easily happen.

    My point is that an approach like you suggest is not as fait accompli as you think.



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  #19 (permalink)
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Definitely something like natural gas would have been rough on someone scaling in long as it fell, just looking at its chart history.

I think fundamentals really do apply here, and it's about looking for something already way beaten down as opposed to just jumping in when something is around where it's been averaging for quite some time. The zero bound certainly would apply here.

I think the key would be to either just trade it actually as a risk/reward setup, maybe with a big stop, and leave it at that, or just stay committed to the mechanical martingale and don't do anything arbitrary, unless it comes to maybe profit targets for determining exit, as obviously commissions factor in as well as time value itself.

I was 16 or so when crude fell off the cliff from 147 to 32, and obviously not aware of any of this stuff, but looking at it today, hindsight bias can't be ignored, but THE benchmark energy at that low a price? I wonder if people did get into CL near the lows with martingale in mind back then.

Taking physical delivery near that low would have been a sound idea, as even if the price kept falling if global liquidation of all the malinvestments were allowed to be exposed as opposed to being papered over with inflation to perpetuate the banking debt ponzi for who knows how much longer it'll last (few years max IMO), having some crude in hand would help one get to the other side.

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  #20 (permalink)
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FreeMktFisherMN View Post
Definitely something like natural gas would have been rough on someone scaling in long as it fell, just looking at its chart history.

I think fundamentals really do apply here, and it's about looking for something already way beaten down as opposed to just jumping in when something is around where it's been averaging for quite some time. The zero bound certainly would apply here.

I think the key would be to either just trade it actually as a risk/reward setup, maybe with a big stop, and leave it at that, or just stay committed to the mechanical martingale and don't do anything arbitrary, unless it comes to maybe profit targets for determining exit, as obviously commissions factor in as well as time value itself.

I was 16 or so when crude fell off the cliff from 147 to 32, and obviously not aware of any of this stuff, but looking at it today, hindsight bias can't be ignored, but THE benchmark energy at that low a price? I wonder if people did get into CL near the lows with martingale in mind back then.

Taking physical delivery near that low would have been a sound idea, as even if the price kept falling if global liquidation of all the malinvestments were allowed to be exposed as opposed to being papered over with inflation to perpetuate the banking debt ponzi for who knows how much longer it'll last (few years max IMO), having some crude in hand would help one get to the other side.


Hindsight bias can be a bi***. When crude was 32, many thought it would end up in the teens and stay there for a long time, as the world economy battling a crippling global depression. And that almost happened.

I'm just trying to warn you here: your approach is far from a slam dunk. I have the lighter pockets to prove it.

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