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How I Gained a Years Worth of Wisdom Trading the 1 Minute Chart for 24 Hours Straight
Like time lapse photography of the building of the Eiffel Tower, the one minute chart is a thing of wonder. It allows you compress year’s worth of trading into a mere 24 hours and exposes the real dynamics behind how returns in markets are truly made.
Last week, I was teaching a course on one of my new strategies. The strategy was designed to catch big turning points on the four hour, daily and even weekly charts, but on a lark to I put my trading robot on a one minute chart just to see what would happen. The results were so interesting that I quickly did this with my other strategies in a variety of permutations and here are some of the ideas that I unearthed.
Everything is lumpy.
The great lie of finance is to convince investors that it can take the wildly chaotic and uneven lumpiness of real life and turn it into a steady and predictable stream of returns. Nothing can be further from the truth. Perfect 45 degree equity curves only exist in the fantasy of backtests. The reality is that equity almost rises and falls with stomach-churning bumpiness of a rollercoaster even on the most risk-controlled strategies. That’s because all strategies are basically thrown against the market regime. Sometimes they are in sync and sometimes they are out of sync and no amount of risk control will prevent a drawdown when styles clash. Just take a look at the two charts below and you quickly get an idea that like all things in life, trading is a streaky business.
2. Pain is easiest in small bites
When you are trading a daily or weekly chart, every trade can seem like a scene from Hamlet. You double and even triple guess yourself and torture yourself with every slow dripping tick of the chart., When you are doing 150 trades per day the stops are mostly a blur, as long as you control risk. My trade size on all these strategies was .5 lever or 10,000 units per every $20,000 equity. That’s right I was even trading at 1:1 leverage. This made it a lot easier to absorb losses even when they came three, four, five in a row. My worst drawdown was only 75 basis points from equity and just 2.5% from peak to trough. This allowed me to have the psychological strength to trade through the losses and made me realize that the only way to survive in the markets is either through time or size. If you are an investor you simply wait out the adverse price movements sometimes for decades at a time. If you are a trader you take tiny losses until the price action turns your way.
3. Robots are the future.
None of this would have been possible if I didn’t have a robot placing my trades. The robot took every signal, managed multiple entries and exits, dynamically adjusted all the stops and take profits and cleared inventory every time. Over the course of 24 hours it made more than 250 trades without an error – a feat that even the best human trader would be hard pressed to accomplish and most of us would fail miserably.
Next week I should have more than a thousand samples each and will return with my thoughts on what this experiment teaches us about the delicate balance between risk and reward.