Sunday, August 30, 2015

Fibonacci numbers for traders and rabbits alike

The legend has it that Fibonacci came up with his numbers while observing how the population of rabbits grows due to their breeding (see the picture below). Even though this was centuries ago, I have this uneasy feeling that rabbits still don't get it. And I am quite sure that most traders don't get it either.

I have expressed my strong opinion about using Fibonacci levels for trading in the not so distant past. I did this on my site dedicated primarily to day trading futures, but this opinion applies to trading other instruments as well. I am not going to repeat myself here, so just check out my site for that if interested, which I think you should be. It's in this very article.

Now, what I really want to talk about in this post is how to obtain Fibonacci numbers (1, 1, 2, 3, 5, 8, 13, 34,  and so on) without rabbits. First, because it only confuses them, the rabbits, and second because you really don't need two rabbits (and of opposite sex) to derive Fibonacci numbers.

You only need one. Meaning number 1. Instead of two numbers (say 0, 1 or 1,1) that would form the start of the Fibonacci sequence to be obtained via the recursive formula, a(n)=a(n-1)+a(n-2). The formula in question, if applied correctly does produce all the known Fibonacci numbers. For instance, a(2)=a(1)+a(0)=1+0=1, a(3)=a(2)+a(1)=1+1=2, a(4)=a(3)+a(2)=2+1=3, etc.

But as I said, we can start just from 1. No need for another number, be it 0 or 1. Having 1 at our disposal, we will be pulling other Fibonacci numbers like rabbits out of a hat (pun intended).

How so? Well, take 1 and add the sum of all the previous numbers, including 1, to it. This sum is 1 in this case, so the next term we obtain this way is 1+1=2. We now have two terms, 1 and 2, and we can repeat the same procedure obtaining 2+(1+2)=5, as our sum is now 1+2. And since we now have three terms, 1, 2, 5, we can use them to obtain the next term: 5+(1+2+5)=13.

What we are getting is 1, 2, 5, 13, ...

Now, if you know the Fibonacci sequence, or saw a piece of it above, you may be feeling a bit uneasy because that really does not very much resemble one.

Well, only partially so. All these numbers are Fibonacci numbers, but it is also true that these numbers are not all Fibonacci numbers, not the complete sequence of them. It's only every other number from this famous sequence.

And that's fine, because if you really want to obtain the full Fibonacci sequence, you can do this quite easily using only the numbers you have obtained so far and all those that you can continue obtaining in the way outlined above.

You simply subtract the numbers obtained, so 2-1=1 and it goes between 1 and 2, then 5-2=3 and it goes between 2 and 5, and 13-5=8 that goes, obviously, between 5 and 13.

In other words, we can obtain the entire Fibonacci sequence starting just from a single number,  1.

But the sequence of every other Fibonacci number is even easier to obtain starting just from 1 and hence perhaps it is even more fundamental in some way.

Incidentally, I have not seen this kind of derivation before, although I am rather familiar with the Fibonacci literature, but perhaps someone else has come up with it before me, so I will abstain from claiming any priority. Not to mention that this is, at the very best,  just a piece of recreational mathematics.

Friday, August 28, 2015

16 or yet another day in the life of e-mini futures trader

Actually, that would be a KING e-mini futures trader.

There are two kinds of e-mini futures traders, in general. Those who make money and those who don't. The KING traders tend to be of the former variety.

It was yet another good day as you can tell from my last Twitter trading update (below), with many quickies (see the next tweet with some definitions for what the quickie is).

Thursday, August 27, 2015

Is there such a thing as safe e-mini futures trading?

That's a really good question to ask especially these days when the markets all over the world are feeling the consequences of China's stock market turmoil which started a few weeks ago and continues pretty much unabated.

It is a particularly good question to ask regarding more volatile trading instruments, and futures and Forex are certainly more volatile on average than stocks. They can also be more dangerous to trade than stocks because of their much higher leverages, which, in turn, is one of the factors behind their volatility.

Well, the honest answer to this question is that there is really no such thing as safe trading, no holy grail, in particular. But there are certainly safer and less safe options. 

George IV, which has been on the market since late 2007, is an e-mini futures trading system with a safe option. I introduced it early on and continued to adhere to it for the first two years when I was actively tracking it on my site. 

I resumed tracking this system on my site last year and continue doing so this year as well. Last year I was tracking the safe option only, this year, primarily to see the difference between the two, I decided to track a more aggressive option as well. I was doubtful, as you can find out from this year's performance tracking page, that the aggressive option would do better, but it kept doing pretty well and even slightly outperforming the safe option in the first half of 2015. 

But this month it has suffered relatively large losses, while the safe option avoided them. The safe option has performed so well during this month that it has just hit a new peak in its equity curve in YM, while in ES it is close to it. YM, being less volatile, turned out to be safer during these days, no surprise at all here.

The image below shows George IV's most recent equity curve for YM, mentioned above. 

George IV is now part of KING, an e-mini futures day trading methodology, which is much more powerful than this system, but which is best used in conjunction with it. But you can also buy it separately ($400 only) and then upgrade to KING (for an extra $1000). 

A better combo is hard to find on the market. No single e-mini futures trading methodology comes even close to the power of KING, as evidenced by the plenitude of consistent trading results spanning some 7 years, and not merely testimonials, though you can find such on my site as well. It's just that I personally would be more interested in the results rather than the testimonials and so I have chosen to specialize in the former.