This podcast is brought to you by the award-winning prop firm, Fidel Cret.
And it's for entertainment purposes only. Even.
That going back in the contest in 2020, when as time went on, I'm like,
why am I wasting my time with other things other than the pound yen?
Like you can trade just that.
Or I could trade 5, 10, 15 versions of that.
So I'm diversifying in a way,
but I'm diversifying on something that actually moves. You know,
it's no different than stock market if you want stuff to move, you know,
how about looking at something called Tesla, perhaps, right?
And all of that research is better than buy and hold on any way you look at it.
Anyone who likes buy and hold, just do a little research. You find that,
and it's some sort of trend following. Beats it by three to one,
depending on the research you're looking at.
If you're gonna be a trend follower, put it on something that trends, Hmm, and,
and I didn't know why I was messing around with the Euro Cheff, for example,
when the pound ya was literally 20, 30, 50 times better.
And then my third one is, and it's the best back testing method ever invented.
And we're gonna reveal it here with just me and you. That is.
Episode 218, right folks?
We've got Scott Welsh back on the show for a third time now,
if you dunno who he is, he came second in the Forex Trading World Cup,
probably the hardest trading competition out there.
And he took it again last year. You're gonna find out how he went in, uh,
that cup as well as we dive deep, deep,
deep into what he does to come up with strategies to approach not just the cup,
but just trading in general. Now, there's information in here for you,
algo traders, you manual traders.
There's a ton of stuff in there for you guys as well. And, uh,
if you are looking, if you're a manual trader looking to get into algo trading,
then I want to tell you about three things that I've got going on there on my
Robot Builders Club. So the things expanded. We've got a $1 trial.
So if you want to check that out, go and click the links down below the video.
You'll clearly see it on the podcast description. Uh,
we've got a $1 trial on my robot lab live.
We've got the bootcamp where you can quickly for you're a self starter,
get going yourself. And then all, also we've got the Robot Builders Club,
the big main thing where you get the full on treatment. Uh,
we are doing weekly live calls. We're having a great time over there.
There's another thing as well where you can actually get funded, uh,
completely automatically.
So go and check all of that stuff out there over on trading Nu Links under the
video or podcast description right now.
Couple of other things that I wanna tell you about before we dive in.
I've got a video coming up where I try and make five grand in a week
using scalping software inspired by a Singaporean H f t prop firm.
So that's coming up. Be sure to check that out. Also on the live streams,
we've got a couple of guys going for it and you guys can take a part in this as
well. They're going to try and pass the 50 K funding funded challenge for,
for Dell Crest. Okay? So if they pass it,
they're actually gonna get a thousand bucks each.
If you guys wanna take part in that,
I'll put a link to the entry form below the video or podcast description here so
you guys can dive in there and take part in it as well.
You've gotta come on the live stream,
which is the kind of cool thing cuz everyone else gets to take part in it as
well. Alright folks, enough.
From from me, let's get on with this interview.
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Out more. Alright folks, here we are on Trading Up.
We've got a familiar face in the house. We've got Scott Welsh back on the show.
He's been on it a couple of times before. Last time you, uh,
you were had just placed second in the Forex trading World
Cup, and that was about two years ago almost to the date of this, uh, of yeah.
Of to today's date. So welcome back to the show, Scott.
I know it doesn't seem like that long. I I missed talking to you,
so I'm glad to be back. Yeah.
It doesn't seem that long. It doesn't. I I think that whole pandemic thing just,
just like shrunk time for everyone. Yeah. Um, so.
Had a good time warp.
Yeah. So, so you play second mm-hmm. , uh,
which is a phenomenal achievement for that four x trading World Cup.
You then I found out just before have had another crack at it in the past
like year for the next one. How did that go and what, what sort of, what,
what learnings did you take from that second attempt?
I don't know why this popped in my head,
but there's a scene from an old movie Glory with Denzel and a young Denzel
Washington,
and they're in the tent and the Civil War film and they're in a tent and people
are saying, you know, what'd you do? And they're,
these are down on the luck people, they're soldiers, you know,
coming from the country, whatever. And Denzel wa they said, what'd you do?
He goes, well, I ran for president. And everyone kind of said what? He goes,
didn't win though. , but you,
that's what that question reminds me. I did, I did run last year.
I did run it back last year, um, through March.
I think I was in the top five at one point, right? And then, uh,
just didn't happen. It just faded.
I stayed very flat lined the rest of the year, uh,
faded a little bit at the end, made money. But alas,
I did not get the top five. I was so sad. I cried for a month.
And, and did you, uh,
use the same strategies and stuff you'd used on the prior one when you played
second or was it different?
No, .
I had a brand new robot that I was so excited about. Um,
the testing on it was great. It had been doing, you know,
doing well right before, uh, 2022 started. Uh,
I had never in any of my systems used any sort of money management.
So meaning one trade, you're in it till the end, don't take any off,
don't scale any back. Don't, you know, don't lag in or leg in.
So this one actually, you know,
scaled out a little bit and it scaled out when you won and it scaled out when
you, a little bit when you lost.
And I was just so excited about it because it,
as you might expect, it eliminates drawdown or at least doesn't eliminate,
but it cuts it down quite a bit.
So the ones I use for the contests that I did well are
big stop losses and you just let it run and you can take bigger losses,
but you can also get huge wins. And of course when you start scaling out,
then you take a little bit here, you take a little bit here, yes,
your winds are smaller, but oh, a trade that turns around, you know,
now I made a little bit of money,
I was just excited about it and for three months it was doing okay. Uh,
but it turned out that was not the one to use in 2022 for whatever reason, uh,
bank of Japan started messing around with the pound yen,
so did the Bank of England for that matter and scaling out and not going for
big wins. Um, it didn't work that great cuz it turned twisty.
So I never really got a big win.
And I got a bunch of smaller little wins and I got pecked at a little bit and
ended up, so I would've done better with another strategy.
I actually might've contended . Yeah.
But I wanted to trade this so bad cuz I loved how it traded and it just didn't
do as well. I, I, I made a joke on my free newsletter or whatever.
I had 14 strategies at that point that I loved.
And the one I picked in the contest was 14 of my 14 .
Picked. Oh, right. Number four. I.
Picked the absolute worst one. So yes, I beat the stock market, I made money,
nothing to cry about,
but it was tough to see some of my other strategies do very well. And,
and then I picked the new one that, that that was just an.
Okay. Well, what we're gonna do today folks,
is we're actually gonna sort of dive into a lot of, uh,
what Scott does around picking these strategies, finding them.
He's got 14 of them, as you've heard. Uh,
now if you are not an algo trader and you are thinking, oh,
I'm gonna turn this off, don't turn it off,
because there will be a whole bunch of stuff in here that you'll actually
probably pick up and find that it's gonna be useful for your manual trading,
for your statistical stuff, analyzing what you do and all that sort of stuff.
So, um, even though we are gonna dive deep, it is gonna be very,
very useful and I promise you that much. So to start off with,
um, I've watched a few of your videos recently and seen, uh,
how you go about selecting a strategy that is something you're gonna possibly,
you know, move forward into the next phase.
Now you've got a unique method whereby you just
run it and if it works without any tweaking, you just gonna,
and it works across a number of different currency pairs,
you're gonna run with it. Right? Is this something that you keep, you still do?
I mean, is is this your sort of approach or can you explain your approach now?
Uh, it's pretty similar, yes. Uh,
there's only one minor change that I've made lately and I've written a lot about
it. Maybe even talked about it too, on, on the YouTube channel. Um,
but that's exa you're exactly right.
I like to find general principles that are timeless.
So you're looking at trend following, right?
Trend following's the most tested store. We,
we have trend following data going back 500 to 1200 years, right? ,
where if you buy something that goes up and and seems to work and all of that
research is better than buy and hold on any way you look at it. Uh,
anyone who likes buy and hold, just do a little research.
You'll find that and some sort of trend following beats up by three to one,
depending on the research you're looking at. Okay?
If I'd like to start with that trend following, I wanna follow trend somehow.
And what I'd like to do is once I go through a strategy
that follows trends that gets big targets,
I don't like to mess with it at all. I want that to trade for years,
literally for, for years and years and years.
And I used to then take those settings and put 'em across a bunch of different
currency pairs or even not currency pairs in the stocks or futures, you know,
the same concepts. And I wanted to see proof of concept generally speaking. Um,
but now recently I've gotten really tired of putting in a,
on a bunch of different currency pairs. Um, I,
my feeling is if you're gonna be a trend follower,
put it on something that trends Hmm. And,
and I didn't know why I was messing around with a Euro chef, for example,
when the pound yen was literally 20, 30, 50 times better .
So right now I don't look at other currency pairs. I mean barely.
I look at the Euro yen sometimes look at the Euro dollar,
but my whole life and all my money right now in fourex is one thing,
something that trends and that's the pound yen.
Right? So,
cuz I was gonna ask the question cuz four X is typically mean reverting, right?
So it, yeah, it doesn't typically trend because it's a current, you know,
their currencies now, right? So, so you've,
you've sort of distilled it down to just trading one market in the four x space.
Yeah, and I, I mean I've done, I've tested 'em all and you know, you can,
you can see the deep dive in the rabbit hole. You can go into,
you got at least 21 to 30 that are viable pairs to mess around with.
I mean, , you start testing 'em all and then, okay,
well I want this to work over there, but I want this to work over here.
And finally I just got tired. I'm like,
I'm even that going back in the contest in 2020. You know,
I I when as time went on, I'm like,
why am I wasting my time with other things other than the pound yen?
Like you can trade just that,
or I could trade 5, 10, 15 versions of that.
So I'm diversifying in a way,
but I'm diversifying on something that actually moves, you know,
it's no different than stock market if you want stuff to move, you know,
how about looking at something called Tesla perhaps, right? ,
why don't you put a trend following strategy on Tesla rather than something else
that just a, a dividend stock for example. Not there's anything wrong with that.
So that's a long way of saying, uh, I like, uh,
my strategy to work simply and be timeless,
but right now I'm focused just on the pound end. So.
Does that mean, cuz I, I mean in the video I saw you, you had like, you know,
15 or 20 odd pairs that you were, you were testing against and you know,
you'd found a strategy that worked across most of them and made money across
most of them across maybe 10 years or something like that. Mm-hmm.
. Now with that approach, approach,
how do you sort of bring that back to the pound yen?
Are you just looking for something that works on the pound yen now ver and
you've scrapped all the other pairs? Is that.
What's you you hit it Exactly. I used to run, um,
I got some software, um, that would run tests across many, many pairs.
And so I'd run an idea and I'd run our cost 20, oh, look at the results. Okay,
great. And then I did it again and again and again. Well,
guess what's happening? I think, you know, where we're going with this.
And every single test pound end was winning and not by a little
by a lot. I'm like, oh, look at this nice balanced portfolio of currency pairs.
But, you know, the reason I'm making money is really due to one thing. Um,
and so I just got, you know,
after years and years literally of testing all the pairs, you know,
we're talking about in the last, I don't know, 12, 14, 16 months,
maybe less than that. But I don't, I don't look anymore.
What I do now is take an idea and I run it across different timeframes of the
pound again, but it, it,
i I very rarely look at anything else now in four x testing.
So it's, it's very much sort of like saying you,
you've essentially said every four x market or virtually every four x market is
different and you are just gonna look at one market,
which has its own unique style and,
but you'll find the same patterns across the different timeframes for that
particular market. Is that, is that,
does that hold true in terms of like,
you do see the same pattern occurring and with, you know, you can,
if if you're testing on a four hour,
you can see the same result or a similar result on a one hour or a,
or an eight hour or something like that?
Well, it's interesting. Uh, I know exactly where you're going and I,
I don't think that's exactly what I do,
but the results are exactly what you say. Um, for example,
I tr I trade and test and,
and update results and all that stuff on 15 one hour,
four hour and daily.
I've got maybe 40 systems that, I mean,
I've really spent time on that. I track, I don't trade them all,
but I track 'em and I release that to members and so forth. And once a year,
you know, I update that, whatever. So I don't look for a pattern like say a,
a certain pattern on the 15 and then do the same pattern on the four hour,
for example.
But I will trade a breakout strategy that starts on the 15,
but goes for a massive profit target.
And I will take trade a breakout on the four hour.
That also goes for a massive profit target. So the,
and then after 20 years of testing,
they kind of end up the same even though it's not exactly the same pattern.
But it, it's surprising that if you're going,
if you're trying to follow the trend and going for big wins, uh,
you'll find some similarities that no matter where you start, you can,
it's just different ways to get to that big win,
whether you're breaking out on a four hour chart, 15 minute chart,
or daily chart.
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Above. Okay. And so, so you, you're like, when you,
when you're coming up with these, you know, cuz there's a big thing around,
you know, keeping your strategies robust,
especially around algo trading and not curve fitting, not over optimizing them.
Mm-hmm. , I mean the irony is like, you know,
how does this not sort of factor into anyone who's manual trading as well?
Because it should in theory. Uh, so how do you, um,
how do you sort of, when you are testing out a strategy concept,
be it a breakout or something,
what do you do to make sure you don't get a curve fit slash
non robust output?
And that's the question, right?
That's the big fear that I get emails on that all the time.
I'm worried and I'm worried, I'm worried traders are so worried we're,
we're such a worrisome bunch, right? . Yeah. Um,
here's how I combat it personally. Number one, you take a timeless concept,
that's always gonna be true. So if trends exist now,
I guess there could come a day where the pound end doesn't trend anymore. Okay?
I, I mean we've gone 20 years or more and it's still trending,
so whatever, when is Apple gonna stop trending? I mean, it's still trending, um,
since 2004. But anyway, um, so yes, we're,
if you take a timeless concept,
your chances of it working next year are pretty good because
for my system to stop working or at least producing profit,
not gonna win every trade, blah, blah, blah. But the pound,
ya would have to go into a range and then never leave, right? That,
and that would be a problem. Then I'd have to find something else to trends.
I don't know what would cause that. It's been an arrange lately.
The bake inan is really playing, uh,
doing some shenanigans and it stays in a range. But guess what,
what happens when it stays in a range, it breaks out. So number one,
start with a timeless concept. Number two is,
I don't ever take the best results I on, I I test for consistency.
I don't test for profit. So what I wanna see is I,
I wanna look at the 20 year back test and I wanna say I don't want five losing
years and then three massive years and I will turn down the most profit over and
over and over again as opposed to this worked in 2008,
this worked in 2009, this worked in 2016,
which was the cra crazy pound Brexit year, British pound Brexit year,
did a trade 2018, did a 20, 20 20. Now we have a, an anomaly.
And now 2022 with the bearish first bearish market that some people have ever
seen. And all I wanna see is some consistency.
I don't need it to make a million dollars. So that's my other one.
And then my third one is, and it's the best,
best te back testing method ever invented.
And we're gonna reveal it here with just me and you.
And that is test a strategy and then leave it alone and just watch it.
That's it. Just watch it trade for a year. I guarantee you'll find out,
oh well that's, that's turned ugly in a hurry. Or hey, you know,
it's holding up. I mean, I, I, when I write my newsletter, you know,
I will start talking about strategies that could be like six or eight years old
and they've just been sitting on my computer doing nothing.
And then I'll be embarrassed because they're just doing incredibly good .
And.
So, so you, so when you say that, you mean like,
so you'll basically test strategy go, okay, this one made money outta 20 years,
it made money at, at like 17 of them mm-hmm. . So,
and I don't care how much money it made,
but it just made money every year for 17 years.
I then checked that on a V P S and then hit play and just let it run
or.
A or a dedication. You can do it that way. Yeah.
And I trade it and I'm gonna try to trade more and more strategies live,
or I'm literally going through it,
updating it every month on a back tester.
Now people will freak out and say, oh, back testing's not real life. Well,
for me it always has been real life. I don't, I don't know why. Uh,
if you have 99% data and you don't have, uh,
a very complicated strategy, you know,
my tested results have always almost exactly my real life.
So I can either a, just let it run in the background,
like exactly like you said, which I do on trade station and I do on,
on MT four sometimes too. Um, but,
or I'm just constantly testing and constantly looking at it and how did it do
and how did it do? So yeah, either way, either one of those is,
is a great way to do it. And then just check back in on it. Six months,
one month. So.
You, okay, right. So when, so, so you might just,
so you developed a strategy say in, uh, in June,
and then you might go back and test it on the data from June till December
or Jan or January and go, okay, well that's six months.
How did it go over that six month period? Oh, it kept making money. Uh,
at at what point would you say, let's, now,
now I actually wanna put real, uh, capital behind it and stuff like that. So,
or will you have enough confidence that it would, would, uh, succeed going,
going even further forward?
Uh, this, I two answers to that num number one is, and,
and I've also written about it that, uh,
my new philosophy is building more and more. I used to be,
I wanna be very focused and I still am, uh, to a point,
but there was, uh, an entrepreneur, you know, a hundred millionaire, whatever,
talking about, you know, what strategies does he use to acquire clients?
And the answer was all of them. Like, do all the tactics, do all of them.
And that's where I'm heading every single good idea I want to be trading live.
Um, that's my goal. So my best right now, I have five of my best ideas.
I would love to get that as long as it's reasonable and start losing track of
stuff. I would like to start trading more and more and more and more. Um,
so that's one way just to check up on it. Um,
and then I don't remember my second answer, so there you go.
Okay. , um, the, the, uh, well,
another question I was gonna ask was like, what's, so if, if you're looking,
you're not looking at the one that makes the most money, what are,
what metrics are you looking at in terms of, you know,
funny strategy then going, okay.
Right, and what would get me to swift? Yeah, exactly. That was part too. Um,
well here's the thing. I've got on my site,
I'm tra I'm starting to track now all sorts of robots so people can play along.
Every month I go in and I go and I go to my desk, my data, which I trust,
and I update it every month. So we can all watch along together.
They can watch a strategy burn out, flame out right in front of their very eyes,
or they can watch something that's good, all right. And I give away,
many of them are free. I give away all the settings cuz you know,
we're all in this together. I want us to make money. Uh,
so I'm looking at these strategies and they just destroy, you know,
in the contest year I've got these, call 'em old school and they're bi,
they're at least eight years old, I think six to eight years old.
They're based on the old turtles. They're just breakout.
They're so simple and they're just break.
I haven't done a thing to 'em in years and they are just destroying for two
years straight now, still going. They're just, it's unbelievable.
So why am I not trading them? Well, they,
the drawdown historically is bigger than what I'm trading now.
So in my mind I'm like, I see you, I see you old school, I understand.
But the ones I have right now, their draw down is less,
it's gonna be less painful because when you're trading simple old strategies,
they're gonna draw down. You're gonna have a losing year. You know, I,
my tested portfolio right now doesn't have any losing years,
but it has barely winning years. So, you know, practically break even years,
but no actual red years.
So right now it would take my strategies to have a similar drawdown
to have a losing year, just like the old school or something along those lines.
Or maybe another few,
a year or two more of that old school type of robot doing well.
But until the drawdown is equal,
I'm not super tempted to switch.
But every day I feel like that's a dumb decision.
Every day I feel like I should be trading them.
Right. Okay. And and in terms of like, you know,
drawdown and keeping your drawdown manageable across let's say 14
strategies or whatever you're trading live with now, how do you do that?
What's your sort of methodology?
Well, here's the only, I,
I mean the only bad part of trading right now for me is
living in the United States. I lo love the United States.
United States is great in many, many ways, but guess what?
The United States does not allow you to trade more than one pound yen strategy
in the same account. So if I have five that I like,
I have to have five different VPSs, right? Or one VPs,
but five different charts. So I have five different instrument.
So if I go to 10, that's 10 different empty fours running.
And if I go go to 20, that's 20 different. So the draw down,
then I'd have to go, you know, one draw down here, draw down here,
draw down here. Like it's not in one account. So I would just basically say,
you know, they all started with 10,000. I'd say, oh, well, you know,
they're down, that one's down to 1000, that one's up 3000, that whatever. So,
and then, then I'd have to aggregate that all the way across. So it's,
it's more complicated than I wish it was. Um,
that's probably prevented me from trading 30, you know, right now.
But that's how I do it, honestly.
I just set up five and I just watch 'em and I add 'em up.
a And what about correlation in terms of like, you know,
with one peer being the sole focus?
I mean obviously if something happens with the jp, as you mentioned before,
and you know, the,
I think something happened yesterday with it where there was an an announcement
and the price just spiked rapidly in about a minute. Mm-hmm. ,
what, what happens? How do you sort of account for that?
It, and it's something I used to worry about all the time, ,
because you know why it's not very diversified, whatever. Um,
but this is, this is what I, and it is just a math,
it doesn't make sense to me necessarily,
but all five of my strategies are trend following in nature. Uh,
couple use indicators and some just use breakouts of some form or another,
right?
You would think that those would be so correlated and that the
drawdowns would exaggerate in bad times and would explode in good times.
And that's just trend following. And that would be fine.
But surprisingly enough,
cuz I guess they're just different enough and there are different timeframes,
so I have diversified across that. Uh, but they work together very well. Like,
they aren't correlated that much. You know, I'm looking,
I looked at the five earlier today and they're doing different things even
though they're all based on following trends and big targets.
So I have yet to see any problem with that,
but my mind says I should be having problems with that,
but the math doesn't say it and I haven't experienced it yet.
So I guess we'll have to meet again and I'll tell you.
That. Yeah. Yeah. So, so what about, uh, I mean,
sort of br brings me to think about timeframe. I mean,
have you got strategies running on different timeframes within the J P Y? Yeah.
Yeah. Um, 15,
which is weird because a 15 minute chart seems like that's a fast moving
noisy, but it's going for breakouts and just happens to be on a 15 minute chart.
So it's a little bit if you do it on an hour chart and maybe the robot looks at
it too late if you do it on a four hour chart, but I have four hours and,
and they, like I said, so, um, but yeah, there are different timeframes from 50,
uh, or 15, sorry, uh, 1, 2, 3, and then one hour chart.
I, well that might not be true. 15. Yeah,
15 and one hour, sorry. Yep. 15.
And one hour. So, so, so even though you test on four hour and daily,
most of your trades are, or strategies are based on 15 and one hour?
Yeah, and I'm mad about it because the four hour and dailies work great,
but the drawdowns are a little bit bigger, so I haven't chosen them yet.
Ah, okay. And, and what about, um, you mentioned indicators there.
So how many out of all your strategies are using indicators or,
and are they solely based on indicators or a bit of both?
What's the matrix or mix look like?
Yeah, two of them are strictly indicators. An indicator says this and I get in,
that's it. Uh, then three of 'em are based on breakouts.
If it g if it goes above the high, a previous high, then it gets in.
So three are indicator or two are indicator based on three are breakout based.
And are the,
are the indicator based ones better than the breakouts or does it matter?
I think about that all the time. . Um,
initially the breakout ones were better, what does better mean? Uh,
little bit more profit, little less drawdown. Um,
but the indicator ones since 2022 started, they've been great.
Great. Which I, I wouldn't have expected that either. Uh,
so right now indicators are doing, we're talking about right now, last three,
four months, indicators are doing better. Um,
but overall by the slimmest of margins, uh,
the price action breakouts are a little bit better when you look at profit and
drawn.
And, and when you, when you come up with like a, uh,
a theory or a concept like,
I'm gonna do this a breakout and this is what it's going to, you know,
this is how, how the strategy's gonna work. These are the rules. Um,
my stop loss is gonna go here, or I'm gonna get out when it goes here.
I'm gonna take profit at this point.
Do you build vari or variables into your robots so
that you can, you know, well maybe my stop loss needs to be, you know,
could be, let's say it's a hundred pips, could be 150 pips could be 200.
Would you test all those different variations or would you just say,
I'm going into this with a stop loss of, you know, 10 80 r or whatever it is.
Um, and then a take profit is gonna exit when it crosses the moving average.
Very simple kind of strategy, but that kind of thing. Or have you got, um,
or are you just, you know,
coming up with the theory and then testing out variations of the stop loss,
the entry, the take profit filters and that sort of thing?
Uh, I, the first time I came up with this, this was 2018, 2019,
that had led to what I'm training today. I've been trading it since then.
That time for you too. Um, it started with all sorts of, I mean,
I tested everything, you know, back then I thought more is better. Uh,
and I continued to think that.
And then when I tr first tested a breakout just breaking above the high, um,
it worked so well. , I mean, worked phenomenally, but yes, it,
the winning percentage again is not very high.
But as far as long-term profit and long-term viability, it was so great.
You know, I tested stop losses all the way from, you know,
from 50 pips up to a thousand pips. And, you know,
I would test profit targets too.
At first I didn't wanna use profit targets cuz trend followers don't want you
to. But in four x it's perfectly fine. Use a profit target.
So I do a small target, do big target. And what I've found is when you,
when you're using a trending instrument, pound yen,
or even if you test the Bitcoin etf, uh, hard to test for me anyway, to,
I don't have Bitcoin data for the whole thing, but, you know,
know or Apple or something like that, um, you kind of,
if you just put maybe three to one, four to one, I mean,
you can go down to two to one,
but if you generally have a big profit target that's bigger than your stop,
which is, I mean, that's as old as time. I mean,
how many times have we heard that? Then you don't have to be too specific.
A hundred pips 150 pips. 200 pips. Honestly,
if you're going for 300 or 400 pips on your target, it, it,
they're all pretty good. Like when I run a test for example, you know,
and you get results, I'll see profitability, I mean for 30 54,
like they're all profitable.
Like you can almost throw a dart and pick one and I end up just trying to pick
one with a drawdown that I like. But when you're gone for big profit targets,
using trend, following strategies, like you don't have to, it,
it's gotten rid of my pickiness to stay the least. Uh,
you don't have to be so precise.
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And what about like sample size of trades? I mean,
how many trades are you looking at over, let's say for example,
a year to give you confidence that, you know, this is,
this is gonna be something I I'd actually use? Uh,
I'm guessing like if you get one trade a year and you're doing a 20 year test,
you've got 20 trades, your confidence is gonna be quite low. So I mean,
what's your number?
What's my number? ? Uh, well honestly though,
we're gonna switch over and talk about stocks.
I would take 20 to to 50 trades for sure. You know,
trading a daily or a weekly system based on a trend following methodology that
made sense with a big profit target. A hundred percent,
I would take that easily. But in the four x market and generally in testing,
I love 500 trades. I love that. Uh, um,
generally my strategies show between 500 and 1200 trades lifetime.
So I'm perfectly fine with that.
I found that does translate into the real world. Um, but again,
if we're talking about a different instrument, I probably,
you could talk me into 20 to 50 trades on some things, right?
If they're long term.
Okay. So 500 is the, the magic number. And, and what about things like, uh,
time of day, day of the week?
Do you go into the detail around testing that and excluding days,
excluding hours, that sort of thing?
D uh, yeah,
done all of that to done all of that till my eyeballs got blurry.
Um,
there is something in the four x market about trading when the Americans
trade for some reason. Um,
so if the Americans are moving, what,
between like nine 30 and then they start petering out around 12, um,
there are systems that I've built just for the New York Open. Uh,
it seems that that's when people get excited about who knows what,
even though it's been going 24 hours a day and we've got London traders,
we've got Asia traders. I mean all of those are big traders. I get it.
But there's something about the chart that happens before noon eastern.
It's crazy.
But I also have systems that just trade whenever the signal comes and it doesn't
matter. Um, so I, I used to think,
I used to have a bias for maybe trying to trade when the Americans trade or
New York, but I, I don't anymore. I'm, I'm fine with a signal now,
especially if you're using an indicator just when that indicator fires,
that's fine with me.
Mm-hmm. . And, and would you like, I suppose,
go into it coming up with a system that is gonna trade the New York session
versus, uh,
coming up with a concept and then going, oh,
let's just see if it's works better in New York, London, Asia,
or that sort of thing?
Yeah,
I've tried all the different types of days for going for big targets and pre
noon works the best for me. Now again, that's,
it may not be true for someone else right now.
I'm not saying it's the right or wrong. Um, but yeah, I, I went into that. I,
I figured out that concept, you know, trading when the, when New York trades,
this was, you know, several years ago, maybe three, four years ago. And now I,
I look for it, I'm like, huh, this is, let's see.
But I found that especially if you're using a trend following instrument like
the pound yen, again, it, it doesn't matter. So yeah, I, I look for it,
but it's not mandatory anymore.
I've done a lot more testing lately and that's not based on the New York Open.
Uh, and it's also been good, uh,
especially when you get into four hour and daily.
You don't necessarily need to do that anymore.
Um, a and, and what about day of week? Are you like sort of seeing, you know,
if if Monday's bad, do I just turn off Monday on that particular strategy?
I used to care about that so much and I don't anymore. Uh,
I I just don't wanna miss a trend. So I'm in Monday to Sunday, you know,
or Sunday, I guess Sunday to Friday. It'd be a better way to put that. No, I, I,
I have excluded, I made a Countertrend strategy, um, years ago,
almost a decade ago that excluded a day. I think it was Tuesday. Uh,
but it, it got rid of a day of the week. I've said,
well Friday's terrible because that's for the weekend. And then Monday is,
it feels psychologically like Monday stinks,
but then you look at the numbers and Monday doesn't stink,
at least in my system. So no, I don't exclude anything.
I have done that though quite a bit, quite a bit, but I don't anymore. Right.
And and what about like order types? Are you sitting limit orders,
stop orders or just getting in at the market?
I would love more than anything to use lemon orders, , and,
but I just don't, I can't, I can't make the back testing show up in real life.
I've tried it,
I've built one or two and I would traded it live with a small size immediately
the tester took it and the real life didn't. So it's like,
I don't know what I'm gonna get. So if I could or if I,
or if I was a discretionary trader, I'd use limit orders. I love them to death,
but all of my robots now just get into the market.
Um, okay, so in at the market, right? So it, yeah. Limit orders in Penny. Well,
penny orders as a whole stop all limit. Uh, uh,
you've got that extra decision to make,
which I find is an issue where you've gotta go, when do I cancel the order?
Yeah, like what point do you cancel the order? Because it's like, well,
how long's the setup valid for?
So then you've got all these things you've gotta think about. It's, it's such,
such a, such a pain. Um, right. So,
so what about, I mean,
I dunno if we got the answer to this one around the metric that you like
the most to determine whether or not this is a strategy you'll go ahead with.
Have you got like something like profit factor or another kind of metric that
you use?
Profit Factor is great. Uh, perfectly fine to use that. Um, I've used,
if you have a lot of testing, I like Max Profit divided by Max Drawdown.
You get a number. I like that.
But that's not really relevant if you're looking at a shorter term like just
trading in the past couple years. Uh, cuz you never know.
I mean you'd have to have a lot of data to use that, which, you know,
I generally test long term. Uh, honestly, what I,
what I like is what is,
what are the yearly returns over the past 20 years?
And I just like to look at that. I'm very long term, uh,
at least in my thinking,
so I don't really care what today does or next month or even the next six
months, but I would like to have confidence that, you know,
at the end of every 12 month period I'm doing okay.
So that's my favorite actually. But profit factor a hundred percent is,
is excellent to use. I've found, you know,
in the 1.4 I've seen strategies work for a long time at 1.2,
1.3 on a profit factor. 1.4 is great,
higher is better as most people will tell you, but, uh,
stocks and stock strategies, you know, I've seen profit factors of eight,
you know, it's whatever and they're fine too. Uh, but generally speaking,
I'm just looking at the draw down distribution, that's my.
Favorite. Right. And and what about like, you know, you mentioned, you know,
yearly return. What would be a sort of,
I want it to beat this much per year to give me confidence that like, you know,
I'm gonna keep running this spot. What's the,
what's the minimum sort of yearly return you wanna see? All the minimum average,
I suppose?
Yeah, boy, ,
that's a tough one because I used to be so scared of everything
that, you know, I did like,
well I would look at my max drawdown first cuz I was so scared and like, oh,
you know, the max drawdown is $10,000,
so I better trade this on a $30,000 account. Cuz what if I draw down 10,
at least I'm safe that way. And then you make four pennies, you know,
you have to, you have to take on some risk. Yeah. Um,
I don't, I I I don't wanna say,
but I'm gonna say I would like to see the potential for a hundred percent year
in the testing. Now that's comes with a big drawdown. So please everybody,
please be careful. That means that I'm willing to accept a 50% drawdown or,
you know, an outrageous amount of drawdown,
which most people can't take 1% drawdown. Right? Um, but in my testing,
I would like to see the ability to double my money at least once.
Not every year, of course, not every year, but I'd like,
like to have the potential of having, oh, if I have a banner a year,
I'd love to see it double. So that's where I start. That doesn't, I can,
I can take the size down from there, but in my testing,
that's what I'd like to see.
And and do you have like a,
a strategy that's sort of been one that's performed the best for you over the
long term and and or is it just a portfolio of them?
The best, and we may have even talked about it, it's been years past.
The best strategy I've ever tested, uh, is called the Hornet.
And I spent 2,500 hours developing it as my first real attempt at it.
Um, that's still by far my favorite strategy.
And I do not trade it anymore because I can't trade it in the us. Um,
the spreads are just too wild. It's, it goes for a very small profit target.
And the 15 minute chart uses the R S I indicator. Um,
the win percentage is in the 70, 80% if,
if if if it traded like it tested with no slippage, right? Yeah.
Known five 5:00 PM Eastern where the it goes,
the spreads go to 2030 pips no Sunday night where I'm trying to get out and a
winner turns into a loser because the spreads are 20, 30 pips.
If it just traded the way it's supposed to trade,
I'm gonna get upset Cam . Um,
that's by far and it was a negative risk reward. You know, it's,
it's 14 pips and a 50 pip stop. Um,
but that has continued to work. It's not perfect,
but it's continued to work on my testing,
but I haven't traded it live in years because I just can't, like,
there's no way, uh, winners turn it like, oh, I got 15 pips.
No I did not a loser. I mean, I can't trust that. So yeah, that's my favorite.
Uh, my second favorite is what I do now.
Huge targets trend following any sort of breakout trend following or any sort of
indicator that goes for big targets. I love them and I'll,
I'm gonna love 'em for the rest of my life, I think.
And I suppose, does that mean that you can sort of, uh,
with the trend following stuff, you can avoid having to worry about Yeah, the,
the slippage and the, the spread and, and the cost of the,
the trade because you're in a trade for much longer if you're winning and it
just soaks up any, any kind of, you know,
discrepancy that the broker's putting on you?
Yeah, I, I said so many bad hours of worrying about spread. I had,
I had programmers that are the best programmers I could find,
help me and build in slippage and don't get out if the slippage is this and that
and I could not make it work. Nobody's fault. The market was just too wild.
Um, it didn't happen when I was at Trade Station. I don't know why, you know,
years ago, trade station at Forex doesn't anymore. You know,
I made a hundred percent over a hundred percent in a year with this robot and
trade station. Everything was fine. I had no tra problems.
As soon as I couldn't use trade stations broker, I don't know if it was gain, I,
I forget who it was, but since then, it's just not been feasible. Um, but yes,
going trend falling, I don't ever look at slippage ever. Yeah.
I mean it just doesn't come into play.
And, and if you had to sort of, you know, say you'd built, you had your theory,
you built your strategy, and you're now gonna go and test it.
What's your process around like start to finish,
here's the first thing I'm gonna do. Here's the next thing,
here's the next thing, here's the next thing to the point where you're, you,
you're either happy with, you know, the results or you're,
you've been it and what's the sort of, geez, I'm asking so many questions here.
What's sort of, um,
decision making factor around I'm gonna bin it versus I'm gonna keep it?
Well, I've got, you know, I'm a serial tester ,
I think you know exactly what I mean. I think you're along those same lines.
Yeah. I have so many now of different,
different versions of trend following different versions of all sorts of things.
I, i, sitting on my computer,
there's so many that right now I can just go back and cycle through
old ones over and over again. You know, like we talked about earlier.
And don't even have to come up with any ideas. You know,
I just let a strategy sit for five years and then come back and see how it's
doing. Like, oh, all right, well that worked for five years.
Maybe I should incorporate that.
I do so much of my learning based on what happened in the past and how I can
update that here. Um,
so my process to sit down for just get a new strategy is going to be an old
strategy. That's number one. That's the first thing I do,
is do something I did a bunch of years ago and forgot about or just have been
ignoring. Cuz I'm only one person and I'm dumb.
My second would be I'm very idea based now.
Whereas before I was much more on the data mi data mining side where I'm,
I don't know what I want, but I'm gonna start testing and I will find something,
I will find a pattern. Now it would be an idea, okay, I want to go for,
I wanna use this indicator, I want to go for three to one ratio.
And then I would say, well what if I added this filter? Or what if I used even,
you know, multiple time for, you know, that sort of thing.
But I would start right now, if I were to start one tomorrow, I'd think, okay,
find me something that trends,
gimme a big profit target now how do I want to enter,
well I want to enter this way. And then I just go and I,
I don't even test to the target. I would've an arbitrary target, you know,
400 pips and 200 pip stop for example, and then just go and then start tweaking.
Yeah, my, my testing has calmed down dramatically. I still do a ton,
but it's so much simpler now because I have the old things to build off of and
my, I'm very idea based now.
And so when you say start tweaking, what,
what kind of tweaking would you be doing?
Just would you be trying to get to that point where you see that double,
you know, double digit, oh, sorry, sorry, uh, account double in the, um,
a hundred percent growth, should I say right in the year in one of the tests,
right? Is that what you're looking for?
Yeah, well I'd like to see that and then, but I don't wanna see, you know,
I don't want, say it has a $10,000 a year and as a hypothetical $10,000 account,
well I don't wanna see a $10,000 or $12 dollars draw, you know,
something even more than my account. So I would look at that too. You know,
I'm not just looking at the winds. Yeah. I would look at, you know, are,
are there, are there any really big red years? Um, that's what I would look at.
I'd say, okay, so I start with 400, 200 and I do a breakout and you know,
on a new indicator ketner channel, I don't, something like that. Okay.
How does it work out? You know, okay, well on the pound yen,
which is where I look first, second, third, fourth, and fifth, you know,
maybe euro yen after that or even whatever, then I would say, okay,
how does it go? And I'd look at the 20 year back test and I'd say, oh well,
you know, that's, it's got a little bit of a drawdown in 2012.
So how about the stop loss season in 200? What if it's one 50?
And then I'd run it that way, you know, but it's, it's, it's,
it's more I'm looking at it, you know, I'm just curious,
but I don't really want to get away from the framework of big profit target,
big stop, so I don't stray too far, if that makes sense, dude, is that,
is that explainable or understandable?
Yeah, I think I understand that. And,
and at what point would you sort of discard or stop working on that particular
strategy? I, when when's it sort of, you know, run its course and you've gone,
well, I I can't get this thing to do anything now, so , I'm done. Yeah.
Yep. Too many losing years probably, you know, just the or,
or one, just massively losing years, you know,
I can even handle a small losing year, but I'm, I'm just thinking about, okay,
I, there's no way I could live through this.
There's no way I could live through a drawdown that big. You know,
you're gonna see drawdowns during the year, even in a winning year,
you're gonna see a month or two or three drawdowns,
but something that's just outrageously large. I'm like, you know,
I have other things that don't draw down that big. So you're outta here buddy.
Yeah. And, and and what about like, if somebody, uh, I suppose to, to wrap,
wrap up the show here cause I've asked a lot of questions. Um, if,
if somebody was gonna start down this road and wanted to like,
get into this stuff, uh, what would be your, you know,
recommended course of action?
Uh, uh, we, well we're talking about fourex or we done.
Oh, I'm talking about just, I suppose suppose looking to automate something and,
and find a, uh, an automated solution for what their,
their manual trading strategy or their manual trading ideas or just their ideas
in general. Um, they've got like,
they'd sort of know how the market works and they're thinking, well, I,
I can't actually execute on half of these things because I just don't have the
time. So I need, if I have a robot,
then I've got a robot doing the work for me and I can get that idea done and,
and see if it actually can just make money whilst I'm doing my n normal manual
trading. That kind of person who's like,
I want to delve in here and I dunno where to, you know, what,
what steps would I need to take?
Well, uh, couple things. Number one is highly, highly recommend robot trading.
I fell in love with robot trading in 2012 and never looked back. Uh,
I have branched out and,
and opened accounts for discretionary trading but that's just very recent.
You know,
I went a decade pretty much with not worrying about anything discretionary.
So definitely worth your while, number one. Number two is, how do I get started?
Well, you'd have to find, oh man, you'd have to find someone you trust.
I, I would go buy a robot. Of course, I sell robots,
so that's disingenuous to a point. But, you know, I post results on my site.
So find someplace like, or something like, you know,
what I'm trying to do and trying to be transparent and look at the results for
a month, two months, or even a year. Find something that, you know,
you can trust that someone's trying to do, honestly, honestly.
And not trying to trick you and make a sale, you know? Um, and then,
and then say, okay, well this was automated. Um, it's, it's done this.
Oh look, it, it does lose, but, oh, in the end it does, you know,
the big profit targets make up for it and then consider it with small trade
size, getting someone else's and trying it the other way though, if,
if that's still too scary, you can go on the big timeframes,
whether it's four X or anything else, go to a four. You know, there are,
I give away free strategies in my newsletter all the time that are based on four
hour and daily. They, you don't need a robot to trade 'em.
Like you can see 'em coming a mile away and it wouldn't be any trouble at all.
So take a robot, but it's so easy to trade cuz some of the rules, I,
I'm, I'm still shocked at how simple the rules can be.
Make money if you're trend following. And then just honestly, you, you know,
say, okay,
well I'm gonna trade a four hour chart live it trades once a week or maybe once
every other week. And then, okay, I did it myself.
Let's automate it for those two pa,
get someone that you trust and try it or take something long term that you can
handle easily and then just automate it from there.
Brilliant. Awesome. Well look ho, hopefully folks here, uh,
got a ton of value out of this. I know I did. Um,
and can apply some of this either to your manual trading or if you are an
Autotrader, then you can apply it to that.
Or if you've even looking in getting into it, you know what to do now. So, um,
Scott, what's the best way for the traders to get hold of you?
Scott welsh strategies.com please come and I do have a YouTube channel.
That's Scott Welsh Strategies. So yeah, either way, free stuff on both. So, uh,
you can go either place.
Yeah guys, go and check that out. And we also did, uh, record,
I mean you've been on the show a couple of times already,
so you can go and check those previous interviews out if you want to learn a bit
more about Scott and what he's done.
And I think that we even did a video last time where you broke,
we came up with a strategy and I think you even did a challenge as well.
You did one on the bank.
I think challenge. Yeah, yeah, you did all sorts.
Of stuff. Yeah. So look, a big thing you to Scott sharing with us today,
everything we've discussed here,
along with all those links are on the show notes to find them,
simply search for Scott in the search box on trading net.com. Until next time,
wish all my, uh, listeners trading happiness and success.
Alright folks, interview Dun and dusted with Scott Welsh. Now do remember,
if you are looking to automate anything that you do,
either coming up with ideas and just making them into strategies or just even
send me automated stuff,
then I do recommend checking out my Robot builders club. Now, as I said,
there's a few other things in there. A $1 trial of the Robot lab live. There's,
uh, the boot camp, which is a lot cheaper than Robot Builders Club,
and then Robot Builders Club as well.
So worthwhile checking out those on trading net.com. Other things,
we've got that video coming up where I try and make photo grand in a week.
And the last, but not least,
if you are wanting to come on the trading that live Streams is an opportunity to
do it, taking part in a Fidel Crest challenge.
So all you need to do is go on there, uh,
register underneath the video or in the podcast description,
tell me about yourself, about your your channel,
show me a little video and we could get you here on the Trading Nut channel in
the future. Alright folks, enough from me.
Thank you for watching and we'll see you in the next episode or video.