In the last couple of postings on day trading I have been looking at the down side of day trading and a look at a popular system and why it fails. In this third and final posting I want to unpack an example of someone who has made a bucket load of money, how they did and why it works.

Introducing Mystic Genie

In November 2007 Mystic Genie made the following posting on forex factory:

It may sound impossible, but I turned 1k usd to more than 100k usd (126k to be precise) in a wk—I am attaching the statement from my real account (after removing the account no. et al.)–Caution to newbies, please do not trade this way—I call my this account ‘wild thing’ which boosts my overall return—I trade another account conservatively as per proper MM—Btw, I did the almost the same thing last mth as well turning 400 usd to 60k within 2 wks—with some experience in forex trading & a decent trading system, I believe, this feat achievable atleast few time a yr—after all, I am only risking 1k of my capital (rest is house money).

The forum participants at first refused to believe the outcome. Enough of them had failed to know that this guy probably isn’t the real deal. I doubted it myself as well. I mean Rob Booker didn’t even claim that. He didn’t claim 1K to 100K in a week, he only promised it in a year. But the fact that he did post his actual account statement, means we should just give him the benefit of the doubt and assume he did it.

In Mystic’s own words this is how he trades:

The strategy is very simple with some fine nuances which I’ll not be able to explain fully as I also use my intuition a lot. I use simple trend following strategy based on 4H, daily & wkly TF (PA as per James 16 thread)— I use 1H TF for entries & exits—I also apply candlestick pattern, laguerre (see Imransait’s thread) & Demark lines (Mouteki thread) for estimated target points—now I do not use any firm SLs—if the position goes a/g me (say by 100-150 pips in case of G/J), either I’ll bail out & reverse (if the reverse trend is strong)or will simply hedge to try to come out b/e (minor retracements)—at the same time I keep an eye on wkly COT report (see cateful’s thread) & equity markets (a big time for me as I am trading carry pairs) to assess market sentiment for that particular day—I avoid early US sessions (that’s when i usually sustain my losses & market is also little undecided) & try to figure out next market direction from late US session onwards, e.g., if you see dow is closing strongly, you can be assured that asian markets will open strongly & G/J will move by atleast 50-100 pips from late US session onwards—I prefer to trade in late asian & early european sessions (besides being free from my work usually, i somehow can feel those markets better)—this is the time I’ll try to increase my leverage to maximize my gains—I follow fib numbers to increase account size i.e., 1,2,3,5k—-I decide on lot size as I risk b/w 15-30% on each position—I trade manually btw, no preset orders for me—i’ll never forget the feeling of putting in 60 std lots in a mini account—lol. Last, but not the least, BEGINNERS, PLEASE DO NOT TRADE THIS WAY WITH YOUR HARD EARNED MONEY YOU CANNOT AFFORD TO LOSE, UNDERSTAND WHAT YOU ARE DOING & THE CONSEQUENCES (TRADE YOUR PLAN, PLAN YOUR TRADE).

To illustrate how his system works, Mystic Genie provides an example of his charts.

Review of the System

Ok – the attached provides an overview of how Mystic Trades,  but I want to try and pull it apart in more detail.

Broker and Trading Platform

Mystic’s trading statement is from FXCM, but the example charts he posts are MT4 charts.  So I guess he places trades on the  FX Trading station platform, but he seems to use MT4 for analyzing the markets .

Markets

Mystic traded a wide range of markets. As you can see below from the analysis below almost all of his profits and trades were onthe GBP/JPY. This does not mean his system isn’t effective on other pairs, it just means the for the week he traded most of the money to be made was on the GBP/JPY.

Time Frame

As described above Mystic mainly trades on a 1 hour chart for entries and exits, but he uses the four hour, daily and weekly chart to help identify the general trend direction.

Entries are generally made in the Asian session session, or early european session or late US session.  As a rule of thumb Mystic avoids the US session open.

Entries

In order to make an entry Mystic first builds an understanding of the general sentiment of the market, and then he looks for entry opportunities with these

To find the sentiment for the day, Mystic Genie For his entries and exits he is synthesizing information from several sources of information:

• using trend lines
• use COT report for assessing commitment of commercials in the market
• use the price action on the US Equity Markets to find the likely direction of the trend

Once Mystic has a sense of direction for his trades, he is looking to trade reversals based on:

• Trend Line Breakout trades using TD Lines; and
• Reversal Trades based on James16 Pinocchio Bars

Mystic will use a range of indicators to help confirm the entries including:

• the price is near a support / resistance line
• the market is overbought / oversold as indicated using the Laguerre indicator
• the price is near the top of a Keltner band

Exits

In terms of exiting trades, Mystic claims he uses:

• Profit Target: 50 – 100 pips per trade
• Time Based Stops: Mystic does no use these.

Mystic rarely trades with stops.  Instead he prefers to hedge his trades and open trades in the opposite direction.  In some cases Mystic also averages down and adds to loosing positions. If you analyze his trading history, you see that Mystic does a heck of a lot of this and continually adds to both winning and loosing positions quite heavily.

Position Sizing

This guy admits he is using insane amounts of leverage. He is placing 10 – 30% of his account in building up an open set of trades.  The main reason why he made such a great deal of money is he had a string of wins using high leverage. If he had of had a string of losses he would have burnt his account up in a handful of trades.

Closing Thoughts

“For many, the freely accepted challenge of the markets provide a high risk game of financial life and death. For some, the markets offer a profession, providing steady and above average income. For the very few, they are a mighty engine which can, with skill be used to create vast wealth” – Jake Bernstein

Mystic Genie demonstrated that it is possible to make outrageous sums of money. If you look at Mystic’s trading accounts posted on forex factory, he did just this. Like a card counter at the casino waiting for the card deck to be stacked in their favour before betting a large wad of cash, Mystic waited for a week when things were in his favour, funded a small account with money he was prepared to loose, and then placed on a lot of trades which he stacked the crap out of them by scaling into trades heavily.

It provides food for thought doesn’t it?

This entry was posted on Sunday, May 18th, 2008 at 4:04 pm and is filed under Day Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.