James Windsor - Holy Grail Trading System.pdf

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The Holy Grail Trading System

James Windsor

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means, including scanning, photocopying, or otherwise without prior written permission of the

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Table of Contents

Introduction

It Begins

The Birth of 'Grail'

The Diary

The Spread Betting Liars!

Month 1: October 2005

Month 2: November 2005

Month 3: December 2005

Month 4: January 2006

Month 5: February 2006

Month 6: March 2006

Month 7: April 2006

Month 8: May 2006

Month 9: June 2006

Month 10: July 2006

Month 11: August 2006

Month 12: September 2006

Month 13: October 2006

Month 14: November 2006

Month 15: December 2006

Month 16: January 2007

Month 17: February 2007

The Last Post

Final Notes

Appendix 1: The Grail System

Appendix 2 - Trading Sheets

October 2005

November 2005

December 2005

January 2006

February 2006

March 2006

April 2006

May 2006

June 2006

July 2006

August 2006

September 2006

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October 2006

November 2006

December 2006

January 2007

Resources

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Introduction

There are many great stories in the history of trading that have significance.

George Soros making a billion dollars betting against the Bank of England in 1992 which

caused the UK to pull out of the Exchange Rate Mechanism.

The rise and fall of Long Term Capital Management (LTCM), what was thought to be the best

trading house on the planet.

The fall of Lehman Brothers during 2008 where what was once the 4th largest investment bank

in the US.

JP Morgan also faced a £4billion loss in 2012 but managed to stay alive.

There are dozens more true stories like this with many being turned into major motion pictures.

Scholars and statisticians have studied these cases to find out what went wrong and what

lessons can be learned.

This book isn't about a story with that magnitude. It covers one true story that you most likely

have not heard of. That's because it didn't involve public money or have a major impact on the

world.

Pension funds did not fall and the federal bank never had to intervene. Alan Greenspan never

knew about this tale.

That’s because it's the story of ordinary people that wanted to earn money by trading the

financial markets and had a fairly large target. If you are an ordinary retail trader then this

book is one which you really should read because you will identify with it personally.

It's the story behind a team, an experiment and a trading system called 'Grail'.

Many ordinary traders just like you watched this story unfold in 2005 - 2007. It gave them

hope that trading was a way for them to escape the drudgery that engulfs most people in our

capitalist society; a way to beat the system.

Retail traders try system after system, one chart pattern after another, the latest indicator and

auto trading robot all in the hope of finding the one that makes them millionaires. This was one

that almost made it into the history books.

It fulfilled all the dreams of those traders. It was 100% mechanical, was 100% automatic

through computer trading and it worked over a long time period.

The original blog on which this story is based is still online, time stamped for all to see but

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what you won’t see is the story behind the unfolding posts.

That story along with each post from that blog is revealed in this book for all to see. Month by

month; post by post and trade by trade. You will be reading the views of the main player in

this game looking back on what happened and commenting on what went wrong.

You will also discover the exact system that was used and how deceptively simple it was.

You have the opportunity to try the system for yourself and possibly find a way forward with

it.

The story is a double edged sword. The system did make money and shedloads of it but was

only saved by withdrawing from it in the nick of time.

This book actually reveals the details that we have kept a very closely guarded secret for 10

years. You will find out at the end of the book exactly what the system is, its parameters and

the changes we made. Don't skip to that section though until you have read it all. You won't

see the true power of simplicity until you understand the whole story.

I hope that you enjoy the book, but most of all hope that you will learn some lessons. If you

manage to make the system work the way that we made it work, then all the best to you but

please do let me know.

Let’s turn the clock back and begin...

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It Begins

"We'll make how much!!?"

I can remember those words from one of the team that was working on this project. As we

pulled together the final results from our system testing it was music to all of our ears and

exactly what we wanted to hear.

We were a team of wannabe millionaire traders that were searching for the 'Holy Grail'; a

trading system the delivered consistent results month in, month out over a long period.

It all started in 2003 inside an Internet chat room on a website called moneytec.com. Part of

the website was a live chat room where inexperienced day traders exchanged ideas and trades

as they went through their daily quest for riches.

We were all inexperienced traders at the time, trying to find a way forward in this jungle that

is the foreign exchange currency market. We all wanted the easy money, earning thousands a

month so we could all retire to the sun. It's the dream of most people that enter this arena,

attracted by flashy websites extolling countless opportunities for making money and tales of

multi-millionaire traders.

The Internet is awash with pictures of someone lazing in a deckchair on the beach with the sea

just a few feet away shimmering in the sun. The person in the deckchair has a laptop on a

small table to their right and a straw hat on their head. A cool drink catches the sunlight and

makes the lens flare on the photograph.

The reality of choosing to trade the markets is something quite different. It consists of someone

hunched over a desk staring at several screens till their eyes hurt and the pungent odour of

curry farts lying in the air from yesterday’s takeaway. Welcome to the real world of a retail

trader.

Please allow me to introduce you to the team in our story. The names of all participants have

been changed to protect the identity and privacy of the people involved.

Firstly there was me. I was known as 'Soultrader' on the forums and chat rooms and was an

Internet entrepreneur. At the time I ran an Internet business utilizing eBay, QXLAuctions and

several websites through which I'd peddle software, games and e-books. In some circles I was

a trading guru, in others I would later be seen as a charlatan having sold a few trading systems

to wannabe traders; once a saleman always a salesman. Truth is that some found it hard to

follow water down a plughole let alone simple trading instructions.

I first entered the world of trading when a guy that had written a book on it bought a product

from me. I had also seen a recent BBC TV programme showing this bunch of happy people on

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a train sipping champagne. The programme covered how they were making money by 'Spread

Betting' on the financial markets. Whilst on a short train journey one of the people on the train

had made over £1000 from point A to point B all in the space of around an hour.

I started selling the ebook I had read for the author as I was pretty good at marketing things and

of course I read it. Having finished the book I don't think any self respecting entrepreneur could

have done so without deciding to 'have a dabble' and so I did.

It was a decision that would change my life.

I began by trading the Dow Jones index and the occasional FTSE 100 trade and it's whilst

doing that I met the second member of our future team.

Kev was based in New York and was a trading dynamo. Born to affluent Jewish parents he

had his eyes set on Wall Street as a career. His parents were both professionals in law and

very successful too. Kev had a lot to measure up to.

Kev entered the markets in traditional American style, with a whoop whoop and lots of noise.

Aged only 22 when we first encountered each other he was the perfect age and had the right

level of aggression and testosterone to either do well in the game; or to crash and burn

quickly. Youth is a double edged sword in this world where fortunes are made on the toss of a

coin.

Eventually we both moved into the currency markets. At this time in its history the 'Forex'

(FOReign EXchange) market had beautiful trends that went on for weeks at a time. It was

attractive to trend traders like us and eventually we made a complete move into this new arena.

Most of the people in the chat room were Forex traders. Some of them already had strong

followings. 'Bunnygirl' was a forty something welsh lady that just loved to share her 'Bunny

Cross' strategy, a simple moving average crossover with a twist. Over time we would become

both friends and occasionally adversaries. In those days I was very arrogant and was lacking

the real skill that a trader needed; that being humility in the face of the markets.

Bunnygirl did join our group for a while but she was happy to trade in her own way, doing a

bit here and a bit there so the connection gradually weakened over time. Thinking back it must

have been an uncomfortable place for her to be when there were so many strong personalities

together wanting to make millions.

Angel was a trader living in Australia. Based in Adelade this true lady was a professional in

the health field and her reasons for trading were to prop up her future pension in addition to

her dream of living in Nice in the South of France. Angel was to become a pivotal contributor

in the future when we began testing and tweaking our trading system.

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Martin was based in the UK in Leeds. Martin is a great guy and remains my main trading

partner today. It was his initial system that our new system was to be based on.

Martin was extremely analytical. Previous to entering the markets he had made over two

million in the casinos by studying roulette and working out a system to beat it. Add some

electronic wizardry and he could walk into any casino anywhere in the world and make money

on the spin of a wheel.

Martin's skill was number crunching and chart study. If you needed a system back testing he

would go through a whole year of one minute charts and come up with all the figures you

needed. Drawdown, win / loss ratio, percentage gains, everything. Truth be known, the guy is

a genius but he'd blush if you said that and reply with "I just look at the numbers"

He was also a master at chess, having played with some of the best players in the world in his

younger days.

The final major contributor was a guy called Tony. He came from London and had a

background in computer programming. He was a programming genius. In his early days he

was the person that designed and made the old 'squawk boxes' in the trading rooms of London.

(Before the Internet speed increases of the new millenium squawk boxes were the primary

method of communication in the trading houses of the world).

Tony loved programming. At one point he had what he called an automatic arbitrage scraper,

a program that compared the prices of two brokers and when there was a mismatch he would

trade the difference. He was banned from Oanda and several other brokers for having the

ability to execute trades in milliseconds. During news trades his trades would be in just split

seconds before the broker could react, and he could exit exactly at the top of a move before the

price turned.

One such robot he created just aimed to take 1-2 pips per trade when an arbitrage opportunity

presented itself. At one point in a single week he took a $500 account to $56,000. The broker

banned him and confiscated the account before he could get any money out. Tony was the

person behind the automation of our trading methods.

There were others involved including Whispy, Fluty and a couple of others that were along for

the ride. The core of the team was me, Martin, Angel and Tony.

The team was formed, the time was right...

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The Birth of 'Grail'

After a while we tired of the incessant chatter of the Moneytec chat room and decided to go it

alone. We needed a chat room with good quality audio and the ability to share screenshots.

At this time the choice was very limited but we were willing to pay for it so we signed up to a

service called ivocalize. It costs us all about $10 a month each for the service but the quality

was superb.

Of course these days there are much better services but it allowed us to share together and

speak together over the Internet - quite a rarity in 2004! Broadband had just come onto the

scene and was still unreliable.

We began by trading together in our usual way and we shared the various methods we used to

trade. Martin would analyse all the systems and crank his brain around the figures and then

share them with the group.

We bought, begged and borrowed literally hundreds of systems to test; most of them either lost

or were slightly above zero returns when studied properly. We were looking for something

that worked time and time again and had done for longer that a year.

Martin himself was actually trading a very simple system that the rest of us pooh poohed and

ignored. He took a certain trade at a certain time of day at a certain price and always took

profits at a certain level. It turned out to be around 70% efficient and it meant that he didn't

have strings of losses and if he did the losses were small.

Around 6 months into the room I started thinking about his system of trading and considering

the logic behind it. The thing was that we were all basically trend traders apart from Martin.

He just took his money off the table when the trade was winning and to us as trend traders that

was madness.

Often the trades he was in would go on for the rest of the day. From our perspective he was

leaving massive amounts of money on the table on those trending days.

So I started to think, how this system could be improved. Then we all got involved. We

purchased around five years of tick by tick data and the team gave suggestions as to how the

system could be improved. With each suggestion we would run tests using Metatrader 4 as the

backtesting software with the data we had purchased.

The system started to look good and we simplified it down until the backtest was showing

several years of good trading and then it was over to Martin to hand test the data that the

software had produced. Unless you've done hand testing yourself then you really have no idea

of the time and effort involved in this which is why we did not hand test every idea until it

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passed a computer test.

Martin worked day and night sat staring at a one minute chart going through it's motions at 10X

speed, making notes, filling in the numbers, plotting the trades. The first test took him around

10 days just to cover the last six months of trading. At this point he would report to us what

the results were and how closely they matched the simulation ran by software.

He would then go back to testing by hand and eventually we had around 18 months of hand

tested data for this system. The results had shown that the computer simulation using the data

we had bought was around 96% accurate. From this point on we knew we could rely on the

software to give us results with some element of authority.

To cut a long story short the system looked to be sound. The test showed that the system would

return an average of 20% per month and had survived over three years with a maximum

drawdown of around 35%. In the three year backtest the system had only produced a single

month with a loss.

The next thing was to actually trade it live.

I, Martin Angel and Whispy began trading the system with a £10,000 bank from 1st October

2005. By this time all apart from Whispy had been traders for a good few years.

The system was born. We christened it 'Grail' and I began to keep a diary online for us all to

share and for other traders to watch our experiment. The site was called '1000 Days to a

Million' and that's where much of this book comes from. I really have no idea why I chose the

title '1000 days' particularly when the target was two years! You will have to forgive me for

that one.

The following chapters are all taken direct from this diary along with my commentary as to

what was happening at the time and, with the wisdom of hindsight, where things began to

unravel.

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The Diary

Here we go then, our first few diary posts. You will no doubt notice the arrogance of a 'young'

trader (young as in experience and sadly not years)

Looking back and reading this post I am hit by the amount of confidence I had in this system.

That's what real hand tick by tick backtesting gives you. I wonder now if that confidence was

one of the mistakes we made or if without it the system might not have done as well as it was

destined to. .....

***************

September 25th 2005

Welcome to The Holy Grail Trading System!

What’s this all about?

‘Grail’ is a Forex investment strategy which we have found has almost no chance whatever of

losing based on a month by month basis. Note here that I said 'almost' as there has been one

losing month in the last 3 years.

It’s important to note here that the quest for a holy grail trading system has been every trader’s

pursuit since man began to trade the markets. The famous 'holy grail' would be a 100%

winning system with that analogy and as this does have losers then we cant add the tag 'holy' to

it :)

We don't class this as a trading system - we class it as an investment strategy and mentally

there is a difference. An investment is not something that you watch every 5 minutes on a chart

and an investment is not something that you expect large returns from immediately, day by day

or week by week as you would in a trading system.

This kind of strategy is not played by many in the Forex game as to be honest; it’s boring and

you have to have discipline of steel and determination to see it through to a conclusion. It's not

'get rich quick' its more 'get rich slow'

Grail returns can only be measured on a monthly and preferably 6 monthly basis.

Why this diary?

Our aim with this blog is to open a real money account on 1st October 2005 with £10,000 of

capital and turn it into £1,000,000 within 2 years using a method of compounding the equity

throughout that time.

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This site will be our yardstick to measure the effectiveness of the investment and to compare it

with the best hedge funds and investment vehicles available on the market today.

Following the publishing of our initial targets below we will publish on here screenshots of

the live account. Obviously account numbers and actual trade entry levels will be blanked out

but you will be able to see the account rise and fall during any given month by watching the

equity which will be shown in is entirety.

We feel that we may hit hurdles along the way - for example the burning desire to take out

some profit before the account comes to its fruition or maybe the temptation to add to the

account if it falls short of its monthly target. We don't want that to happen but it will be

interesting to see how we handle that.

There are also other problems we may come across. For example, as we live in the UK we

will be using spread betting companies to trade with and the one we have identified (capital

spreads) currently have a limit of £100 per pip allowed to be traded. This could be a serious

problem that hampers our progress in our compounding and we may find we have to open more

accounts or even switch altogether to a 'proper' Forex broker to continue (FYI £100 per pip is

roughly equivalent to 18 standard lots with a single lot being $100k)

it will be very interesting to see the responses we get from our spread betting company and we

will log our experiences here as we go through.

How do you know this will work?

The system has actually been traded for around 18 months with a different configuration to

great success. Our new parameters have been only forward tested for 3 months but does concur

with our 3 year backtest which was hand checked for accuracy and found to be within 3-4% of

actual results.

The backtest revealed that £10,000 invested in May 2003 would today be worth more than £2

million. The drawdowns were acceptable and so we are confident in its pedigree.

However it is worth noting that past performance can never be relied on for future actions and

this is why we are risking an initial pot of £10,000 and not loading it to the hilt with everything

we have.

Who is 'we'

There are two of us doing this both at the same time and with the same entries. The other

parties will remain anon.

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rarely felt that level about anything in my life since!

This next post was interesting too, particularly noting my attitude to a 10:1 leverage -

something I now consider to be excessive on all but the 'sure thing' trades.

****************

Friday September 30th 2005

Ok, Monday the 3rd of October marks the first day of The Million Pound Grail Experiment.

Below is a screenshot from my Capital Spreads account - I have five broker accounts in total

but from Monday this particular account will be used for this experiment alone.

As you can see the screenshot does mask some information. Obviously the account number but

also any information that could compromise the system integrity. There are only a handful of

people that know of this system and its going to stay that way.

So, where I hit the stop level you will find blanks before and after, where I hit a take profit

level you will also see blanks and as I publish the account once a month you will only see

information that does not threaten the integrity of the system.

So, to business. You will see below that I had to add a couple of hundred quid to the account

to bring it up to the 10k starting total - at least from that you can tell it's not a demo account.

Like any trade you ever take - the hardest part of the trade is right at the beginning and I'm sure

that month one will be like that. The account is to be played with a leverage of 10:1 with a

twist - the twist is the bit that might be a little scary to begin with so it will be interesting to

see how it goes. I have no problems in playing the system - I have traded it for the last four

months live and I am 100% confident in it - the new compounding though has not been tried

before except backtesting it.

The backtest looked good but then it was only 6 months of a test rather than the usual 3 years

we like to do. All backtests that we do are checked by hand. Also interesting to note that the

length of this 2 year experiment is almost as long as the backtest performed on the system

itself!

The updates will not be that regular but I guess I might have some comments to make as we go

through the first month. If you don't want to read them then just check out the last day of the

month when the account status will be revealed.

With that I hope you wish me well as we enter what is traditionally the best trending months of

the year. By now most of the muppets have gone broke and are back to demo and the real

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traders start to build their winter nest egg.

Good luck for October 2005, and roll on October 07 and my million quid :)

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So with the aim of forming a relationship I picked up the phone and got the MD.

I'm a bit of a blunt guy and after the initial introductions I asked my first question which was

"how many million pound accounts do you hold" he said he couldn't give specifics but when I

said I'm not after their names - just how many, he told me there was several.

I asked how large his biggest account holder was and he told me that he had a couple of

punters with accounts in excess of 7 million.

I then addressed the £100 a pip limit. It turns out the £100 a pip limit is a 'per trade' limit and

you can open as many trades as you wish.

I asked what the reaction would be at being suddenly presented with a trade of £700 a pip and

he said it would certainly raise some eyebrows and may be difficult to fill without notice.

However he also told me of one client who regularly trades at upwards of £1000 a pip without

issue.

We then spoke at length about the security of the company and safeguards that were in place.

He told me that by law in the UK they have to place all client funds and winning positions into

a fund which is untouchable by them - he told me that each day the company had to report on

the size of this fund, the customer holding and current winning positions to the FSA (Financial

Services Authority) and that they were unable by law to use any part of that account to cover

losses.

I have since verified this with the FSA.

After a long conversation of around 30-45 mins the general gist is that once up to £200 a pip I

should be contacting for a personal trader and telephone my orders in giving some warning to

them to help them out.

They make money by getting a better fill at market than they offer the punters and of course

from the spread - they will generally get 1 or 2 pips better fill than we do.

Personally I don't have a problem with this and he even said that at decent levels of trade we

will be able to negotiate for a better rate of say a 2 pip spread thanks to the volume we will be

trading.

I mentioned that the system I trade could well result in occasional winning days of £300,000

and asked if this would cause a problem to the liquidity of the business if there were a few of

us doing it. He told me that if we were to take 300k in a day that they would be looking to

make 310k on the trade and that the fund holding of the business could easily swallow that kind

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Month 1: October 2005

So the big experiment was under way. The first month was a steep learning curve. To begin

with we had losers. Clearly we expected this but as we were playing now with what we

thought were significant amounts of money then we had a few goosebumps.

At the end of the month as promised here was my report to my blog. I'm sorry that I don't have

the original screenshots of the account without the blacked out bits to show you. If I had them

then I would.

***************

Monday October 31st 2005

Ok, month one over then and performance is within expected parameters.

Full screenshots of the live account are below - any information that could identify any system

parameters have been removed. And there are 3 pictures as it does not all fit onto one screen.

Even though we had full confidence in the system, the first half of the month was a little hairy

to say the least - slight doubts begin to surface when your first few days produce nothing but

losers. It’s also very easy that when a position is looking to continue in a winning trade to

leave it open overnight.

However we stuck to our rules which by the way are totally without discretion and we came

out on top.

Ive had one problem with the broker this month that slipped me by one pip whilst they didn't

slip my partners - this was rectified on the account as you will see from the statement. Ive also

had some referral money paid into the account which is 2X£50 payments for recommending a

friend which has to be taken into the final balance - bloody hell I thought, could make a killing

just by doing that all day!!

Good thing is that the friend also gets £50 so all is fair :)

Just the results left then - some may look at these and scoff, fine, scoff away - but remember

from little acorns come big oak trees :)

see ya all at the end of November.

Results of the first month, bear in mind our first target is 17k by end of December.

· Opening balance:£10,000

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· Closing Balance: £ 12,486

· P/L: £2,486

· % Gain on account: 24.8%

· Lowest account value: £ 8,630

· Highest account value: £13,326

· Maximum Drawdown: £1,370 = 13.7%

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was eating into original capital. However true to form on the very next day the method gave

what we expected it to do and came in ok.

The month is not to target though. To make the million we must hit an average of 22% per

month. This should average out as we go through the next 18 months. In our tests we had

months which increased equity as much as 60% and the next 18 months should give some

months much higher than others.

Onto the figures then - check back New Years Eve to see if we reached our December target of

17k equity

· Opening balance:£12,486

· Closing Balance: £ 13,767

· P/L: £1281

· % Gain on account: 10.2%

· Lowest account value: £ 9,882

· Highest account value: £14,502

· Maximum Drawdown: £4,620 = 31.8%

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Month 3: December 2005

And so we came to the first quarter of using the system. This was our first real yardstick and

filled us with confidence in the trading method. We now had three winning months under our

belt, something that 96% of retail traders never manage even to this day.

We implemented a new staking plan this month which would turn out to be one of the reasons

we failed. Note the optimistic arrogance of such a move.

What we implemented was a stake increase through drawdowns. So when we lost we would

increase the stake by a percentage.

At this time we began to have fun by every day talking about what we could have bought with

the days winnings. We were talking in the region of large screen TV's and things of that ilk.

"Today I've won enough to buy a 36" TV (pretty expensive at the time) again adding to our

arrogance.

Again we add another tweak to the system. More leverage.......

*****************

December 30th 2005

Heres the first big one then. December was our first milestone on the way to our Million.

The yardstick for December that we set at the beginning was £17,000. We reached that the first

time on the 28th December and then had a down day and closed the year on a plus. The final

balance is shown on the report below and is to target so time for a good celebration this new

years weekend.

You'll notice there are two reports this month - the monthly as usual and the quarterly report.

The gain on the account has been just as expected and we are on target.

Emotions this month started to play in. One day of the month we thought we knew better than

the system and could outperform it - we closed the position early at the point where it

invariably went in the winning direction.

We then spent two hours trying to get back in at our original entry - we got it in the end and as

it happened it was a losing day but that’s not whats important - we should never have

questioned the system and just played it as is.

Needless to say since that day we have stuck to it religiously and will continue to do so.

The problem I think is boredom - when you find something that works well you try and try to

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Month 4: January 2006

The New Year started with a bang, but not the kind of bang we were looking for. The new

staking plan meant that our risk was increasing every day in drawdown. We were initially

playing with a 10:1 leverage and increasing the stake also had an effect on that leverage by

compounding it. Ie, as the account went down then the stakes went up. Not a wise thing to do,

not wise at all.

This also meant that the drawdown got bigger than expected. Read on....

******************

January 30th 2006

Hi all, thanks for dropping by on the million pound experiment.

If you don't know what this is all about then please read the very first post from this blog -

should be either at the bottom of this page or from the links at the side.

Well, January has been heartbreaking to say the least - A good start to the month put us onto a

new high of the equity curve to over £18k and since then we have been in drawdown.

The drawdown is worse the last one we had in November and again this is the part that is

heartbreaking.

Let me tell you the reason for grail. Grail is 100% mechanical that requires no user input

throughout the trading day. To me this is trading nirvana. After more that four years as a trader

you get to a point where it bores the pants off you hour after hour and you start to look for

something that can take away this tedious existence in front of 5 screens all day. To me that is

what grail is.

Grail is not, (nor was it designed to be) a 100% winning trading strategy. To me the holy grail

of trading is a system you don't have to think about or have decisions to make as to when to

close or enter etc.

The trouble is, as many of you will know, that the first ten minutes of any trade is the hardest to

keep your cool, which is where we are at in grail. The first six months is like the first ten

minutes of a daytrade.

As a trader you will know that once in the money with a good stop in place covering some

profits it’s a breeze to hold a position. well in the case of grail - the first 100% is the hardest

and once the initial capital of 10k has doubled to 20k in safe position (ie 28k as 28K minus

max expected drawdown of 40% = 20k) we cannot feel safe.

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Month 11: August 2006

Close to a year from inception the system produced its third large drawdown. In hindsight we

should have took notice of this as an increasing number of those drawdowns were signs of

what was to come. All of these drawdowns you'll notice actually break the backtest

parameters and we make no mention of that.

This is now two losing months in the first year too - the backtest you may remember only had a

single losing month in the entire three years.....

*******************

31st August 2006

it’s been a poor month and is the second losing month since inception. Not a massive losing

month but annoying that it came just as we got back onto target. For the 24 months

This month has prompted me to look at the way we trade the system and next month I may be

making another change as to how I trade it - basically I may be trading less but making more.

Anyway, by the 10th August we were into a new high on the account of 77k which put us

within a whisker of being back on track and then we entered this drawdown period. We are

currently at a drawdown of 33%.

Ive actually got to a point where I look forward to drawdowns as I know that the lift out of

them will be swift. I also know that the deeper the drawdown the more agressive the lift out of

it.

Anyway, next month is a big one for the report as it will mark the first anniversary of the

account and will herald our first annual report for Grail.

If there are any changes in schedule to be made it will be next month so until then, I will leave

you with the monthly report.

· Opening balance:£50,556

· Closing Balance: £ 42,078

· Cash in holding account: £10,000

· Account Valuation total Last Month £60,556

· Account Valuation total £52,078

· P/L: -£8478

· %Gain on account: -14.00%

· Lowest account value: £ 51,590

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· Highest account value: £77,762

· Maximum Drawdown: £26,172 = 33.6%peak to valley (ouch!)

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Month 12: September 2006

One year into the project and we were still buoyant (who wouldnt be?) Throughout this time

we had changed the system from the original substantially. We had increased the leverage, we

had implemented time based closing rules, we had begun to 'double leverage' the initial 10k.

Something else interesting happened this month with regards to brokers. I had a phone call

from IG Index. They wanted to take me and Martin out for lunch as a treat. I smelled a rat

here, I mean how often do brokers do that!

We decided to take the invite and called them. We could choose any venue we wanted

anywhere at all and they would travel from London to take us for lunch and a beer. We chose

a golf club local to me and went along intruigued.

So we sat and chatted for a while and then the obvious question was raised. “why did you

want to see us?” The answer was that we were doing well and they were trying to find out how

we were doing it. They were convinced that we had found a way to beat their spread. I’m

guessing that they thought we had some sort of arbitration strategy and could get in before they

moved or they thought we had insider information or something.

We told them nothing apart from we had a system that we followed to the letter.

At some point in the afternoon we raised the point that it must cost a fortune taking out people

that win money from them. The guys told us that hardly anyone had consistent success the way

that we were. The figures he quoted us werethat out of around 40,000 retail traders using his

desk that 99% of them fail to produce a profit over more than one month.

This confirmed to us the figures that are banded around the internet forums, and of course

confirms that most of the traders on those forums are full of shit!

Let’s look at the month then and indeed the first anniversary of the project. It is interesting to

note from the comments below that I could 'feel' a change in the market. This change was to

show itself as the very beginnings of the credit crunch. Many say that this started in 2008 but

in reality the end of 2006 was the beginning of the end.

We were now starting to try and find ways of avoiding the drawdowns. We were looking at

'abstaining' strategies that considered when we were at new highs wether we should stop

trading until we were say 20% in drawdown and then start again. We never did figure that one

out though.

*****************

30th September 2006

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Well, we made it.

Grail is one year old this weekend as is the blog.

This months report therefore is a special one as it will show the entire annual result.

Before you go below and read that report though I want to cover some of the highs and the

lows of the year I have just lived through.

Here's an interesting question though - how many of you reading this were trading Forex last

year and are still trading Forex now? - Chances are its not many and I'd love you to make some

comments this month - Happy birthday messages are welcome too :)

I guess it's pretty amazing that the project lasted a full 12 months. But I do have to tell you that

although the system is just about the same as it was 12 months ago, it has undergone some

changes throughout that time.

Highs and lows of the year:

1) The 'New Car' scenario (High)

during the year the Grail team needed a way to measure how successful we were being on a

daily basis. We opted for the "how much of a car have we won today" - it started off with a

full set of tyres on a day that we cleared say £400.

The first high was when we won the equiv of a Kia Picanto in one day - around £4500.

The real high on this came when in a single day we made more than our initial £10,000 stake.

The last time I broke the record it was £17,460 - the equivalent of a reasonable BMW

2) the stop change day (High)

One day after some significant testing and research we decided to change our initial stop limit.

We actually made our initial stop larger. Two days later as we watched our trade go against us

- it went past our old stop.... went within 2 pips of our new stop ... turned around and ended the

day on a 100+ pip winner.

3. The 0.1 pip stopout (Low)

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Month 13: October 2006

So, have you managed to put this book down once yet? :-)

We are getting closer to the end of the grail experiment now. Every time we went into

drawdown the leverage was getting out of hand. A further 10k of the account was removed to

the 'income' account as you will read below so that's now 20k out of the account that was being

traded twice on the same trades.

The volatility in this month should really have made us stop and think about what was

happening in the markets. It was turning into whipsaws every day. Our trades were in for

short durations.

The fact that it made profit was more down to luck than the system.....

****************

31st October 2006

Okee Dokee then - Month 13, or is it year two month one? - Whatever!

October was pretty dull for the first half still crawling back from the last Drawdown but that

certainly changed during the second half.

Looks like the market started to expand and there is nothing Grail likes better.

I know it was a tough month for many. I know for a fact a lot of traders lost a lot of money. I

was talking to a colleague and imagined most traders running around like headless chickens -

changing systems, changing entry parameters etc.

We just sat there patiently waiting. We had made no money for almost 3 months but we got to a

point where we weren't losing any either - just went up a bit then down a bit. We didn't change

anything and just waited - in markets like that the grail trader is best positioned for the strike.

The strike came in the last 2 weeks of October and for the month we have had a stunning result

as you will see below.

You will also notice that the account is another £10,000 short of its actual size. That’s because

of the income account.

Each of the grail crew operates two accounts - the main grail account (you see my own every

month on here) and a second account which we refer to as the income account.

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saw that we made the change immediately.

Still, that's what's good about our team, always testing everything!

Ok, onto the month results for November.

All figures include the £20,000 in the holding account (see previous posts for details)

· Opening balance: £88,328

· Closing Balance: £ 100,502

· P/L £ £12174

· %Gain: 13.78%

· Lowest account value: £67,960

· Highest account value: £100,502

· Maximum Drawdown: £20,368 = 23.05%peak to valley

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Month 15: December 2006

December was supposed to be a good month for me. I took the wife to New York to spend

Hanuka with Kev and his family (no, I'm not Jewish but he is) we flew first class, stayed in

The Westin Times Square and planned 10 days of pure indulgence.

I guess it was fated that during the desire for indulgence that our system failed.

I did enjoy New York. It was great to finally meet Kev and we did the Macy’s Xmas windo

thing and the bloomingdale ice rink. What was not so much fun was being hunched over my

laptop online with my trading partners at 3am whilst the wife caught some sleep. It's not

something I ever want to repeat again in my life.

Battered and demoralised I wrote the following diary entry. Its human nature I guess that I

would still at this point defend the system. After all we believed in it so much. I now take to

telling lies in the post about the expected drawdown. I can tell you that our tests showed a

maximum drawdown of 35% on our standard leveraging.

I'll cover more in the next chapter, but for now read this sad post.....

**********************

29th December 2006

Bit of a double edged sword on this post.

Firstly to report results which are rather shitty, and second to suspend / close the blog,

possibly forever. Reasons to follow.

First of all let’s talk turkey about the results.

The month was terrible - in fact the worst that we have experienced in the 14 months trading it,

however not the worst on record from our tests.

We suffered this month a 48% drawdown. We suffered this drawdown at a point when iIwas

supposed to be enjoying a holiday in New York - it was -30% when I left the UK and -45%

when I got back. Needless to say due to things beyond my control, much of my holiday was

totally ruined.

The month of December ended up at -45% on the account - from £100,502 down to £55,000

The system still works and is within parameters but the money management, which at the end

of the day is the bit that creates the severity of drawdown, was at fault and has since been

rectified.

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We were running the account at 100% efficiency - which meant that at a max drawdown there

would just be enough in the account to sustain it. What I didn't take into account was the

psychological pressure of actually getting close to reaching this level and seeing the account

decimated.

Even after five years of trading the market can still humble you, and this drawdown certainly

has. So if you are reading this and you're a trader - don't ever think you have this thing licked

until you are sat in your superyacht with the obligatory Russian hooker eating a mouthful of

pork sausage.

It’s also uncovered some other rather unsavory elements of life that I won’t discuss on here,

those reading this know what i'm referring to and I don't know whether to apologise profusely

or call the lawyers - one of those morals Vs money type events. Today I reckon the lawyers,

yesterday I thought forgive and forget - you know the kind of pickle I mean? One thing is for

sure it won't go away by pretending it doesn't exist so fun fun fun the first week in Jan one way

or the other. The ball is in someone else's court at the moment so we will see which way it

lands by the 5th Jan.

Back to trading metaphors now ... The new Rocky film has a great scene where balboa is

telling his son what makes a winner. Something along the lines of "it ain't how hard you can hit

- it's how hard a hit you can take and still remain moving forward" - well, never a truer word

was spoken.

Ive took a large 'hit' on my account and I've rode the punch. I'm bouncing back and still moving

forward. I ain't saying that i'm a Balboa but i'm sure as hell not through yet.

So, to this point I hope that you've enjoyed the journey and it's with sadness that I am to close

this blog.

Grail goes on and will I am sure go from strength to strength with the lessons we have learned.

However I am bringing this blog to an end. It may be temporary or it may end up being

permanent. The chances are that I will update the blog at sometime in the future just to let you

know that it's still ploughing on, however it will not be regular and may never happen so just

check back every 3 months or so.

There are a few reasons for my decision, some of which I cannot talk about at the moment,

however the main one is that because of the blog I am getting emotionally involved when the

system has a losing month. The fact that it's in a drawdown at the end of a month shouldn't

matter because it peaks and troughs no matter what the date is - the fact it's at the end of the

month is immaterial.

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Getting emotionally involved in the trading of a mechanical system is not good - you start to

analyse every facet of the trades and it can drive you nuts - it almost did in New York and I

can't have that.

It is more important to me to make the project a reality and produce the money for my and my

team’s future than it is to tell you about it and massage my ego. So i'm afraid the blog has to go.

It's been fun and all that and thank's for the ego massage (Rub & Tug??).

For now, please everyone enjoy the rest of the holiday break and here's to a prosperous 2007

:) Thanks for reading.

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Month 16: January 2007

Following the Christmas break and licking our wounds I returned to the blog. I'm hurt and

wounded but even then come back with an 'attitude' of a 'rogue trader'

There are thousands like this in the markets. One look at the forums on Forex Factory will

reveal to you the gung-ho traits of traders in general.

The fact of the matter was that once we made the decision to scale back on grail leverage there

were twelve straight days of wins. That would have taken the account back to new highs.

Clearly this bolstered my opinion that the system didn't fail and that it was our entire fault.

It was our fault of course, but not for dropping the system, for the mistakes we made earlier on

and for not seeing what was happening. In this next post I even have the audacity to start

talking about 65% drawdowns being 'ok'. That means to get back on top you have to do more

than double your account size. How much risk do you have to take to do that? The answer is A

LOT.

I talk of a 'very clever money management strategy" when in fact it wasn’t.

You should also note that I start to refer to drawdown in terms of pips won / lost. Pips don't

matter a jot. The amount of money you place on each pip does.

Regarding the 'legal reason' mentioned please ignore it; I've only left it in because I refer to it

later on. It was regarding an investor in the managed account which also traded grail.

Battered and bruised I wrote this rather stinging post...

**********************

14th January 2007

Hi all, just thought I would drop in a comment here about my blog and the talk going around the

web

I don't normally bother commenting but Ive seen so many visitors come from sites such as

forextsd and moneytec that you are obviously interested. There have been some comments in

some forums that need to be addressed

Firstly let me tell you a few facts.

1. I dont have a problem with a 50% drawdown- in fact I’m happy providing the system does

not touch 65%.

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2. The bigger the drawdown the better the system works - that’s because of a very clever

money management strategy which I cannot reveal.

3. At the moment, due to a legal reason, I cannot explain exactly why this last drawdown

caused a problem. One thing is for sure it was not the depth of the drawdown - the 50% thing

is quite acceptable (though yes, it is painful and I would prefer not to have it!).

Sometime in the near future I will be posting to the blog exactly why it was a problem and

what lessons we learned and the actions taken.

Since Christmas Eve the system had 12 winning days on the trot - the drawdown was 415 pips

and the recovery 515 pips in 2 weeks.

The project to make 1 million from £10k is still a reality and is still alive - the timescale has

changed but then this is a long journey and one worth taking - when a pilot in London boards

his plane to go to New York he is off course 90% of the time. Making corrections as he goes

along and doing the same things over and over again, making small changes here and there,

eventually he reaches his destination.

What I would say to you is don't write this off yet. Many people are talking about the grail

experiment and are saying it's over and done - nothing could be further from the truth and all

will be revealed as soon as I can.

So knock that smirk off your face right now! (lol)

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Month 17: February 2007

January came and went, we made a decent return but it was not on the account size we had

before the crash. We tried to keep the thing going and February there would be a few more

months trading 'grail' before we pulled the plug.

I went on the blog and posted this penultimate message which explains what was in my mind at

the time. At the time I still believed in the system. Truth is that had we continued and got

through the December drawdown without change then March and April would have killed us

for good and left nothing behind.

In this post the realisation of the real mistake starts to hit home.

******************

28th Feb 2007

Ok, time to reveal what happened at Christmas then. I will tell you what happened but will not

touch on the legal stuff - sit back, relax and have a giggle at my expense....

You see over a year ago we devised this system we now trade called Grail.

Our backtests (of 3 years) showed us what the method would do and what we should expect.

How often we would have drawdowns, how much we should make month by month and what

sort of equity curve we should have.

So we began trading it - this story is embedded in the pages of this site and if you want to look

at the whole journey then please have a look around and you may get into the same feelings we

did.

Month by month we made money. Sure we had a losing month here and there and we had

drawdowns - but the whole experience of trading the method with real money was very much

as expected. In fact it was almost exactly as expected.

Our journey went from initial excitement of starting off, to a nice steady feeling of expectation.

Of course all this time we were not just sat here watching charts - all the time we were testing

and verifying what our previous tests had given us.

Months and months of tests, all saying the same thing. Whenever we had a new drawdown we

just looked at our tests to see if this was anything new and, as it clearly was not new, we just

kept on sailing on. Day by day.

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£80,000 when in reality it was at £60,000 with the other £20,000 in the income account but

still available.

The income account generated over £40,000 in winnings during the first twelve months that

were taken and spent on living and nice holidays etc.

The account went into drawdown just as the main account did, and pulled back to new profits,

just as the main account did. Exactly as expected and all was happy in la-la land.

So, now you have pictures of people enjoying life, making money hand over fist and having fun

- the traders dream. After all, what could go wrong?

The aim with Grail was to make 1000% per year - 10k to 100K in year 1 and then 100K to

1000K in year 2 - 10k to 1 million as the title says.

In November 2006, just one month later than expected we hit £100,000 for the main account

(£80,000 +£20,000 'safe money') Fantastic! The plan was on track.

Think about what we had done here. We had taken an account, worked out how much money

was safe and had effectively run this account at 100% efficiency. - The method did exactly

what it was supposed to do - when it did a drawdown it always came back. ....always.

This still did not change in December - it did come back. However what did come in

December was something that we knew could come along any day - but that we had not

mentally prepared for.

During our 'pre' grail testing we did see a rather nasty drawdown of 525 pips. At best that is a

40% drawdown on a leveraged account and with our money management we knew we could

ride it out. - At least we knew we could technically.

Of course by this time it didn't matter - we were untouchable - this has worked for months and

months. Sure, we had seen nasty drawdowns but every time we did it re-enforced the fact that

the system was stable

December came and so did our monster drawdown - it did not just come along; it swooped

down upon us in a matter of days. On November 30th we were at account highs, and by

December 6th, just 4 trading days later we were already 26% down.

On the 12th I was flying to New York nursing a drawdown of 38%.

We had been at this level of drawdown before. What was new was the length of time it took to

happen. Usually this depth of drawdown took a good 2 weeks to get there and here we were

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just seven days from our six figure high with £40,000 less.

But now get this - the account is a 'virtual' £60,000 - just £40k in the account with £20k

elsewhere right? - Nope, because the income account was in an even deeper drawdown. The

leverage on income was higher than the main account you see.

You can imagine the way I felt in NYC. I had a system that I believed in so much which had

still not reached its worst drawdown from the past. And I had a team of people with just as

much money on the line as me. Oh yes, I had a ball in NYC Not!

By the 22nd of December, the date of my return to the UK the account was a whopping 48%

drawn down.

This was represented by a £48k virtual balance which was not there - the extra £20,000 had

gone from the income account which was hovering at the £10,000 level - the amount I

originally put in it and the main account was at £28,000.

From a combined account high on November 30th 2006 of £110,000 I had £38,000 left.

Nice close for Christmas was that.

It’s important to note at this point that the system STILL had not failed. In fact it could go for

another 100 pips to beat the previous drawdown from our tests in 2003.

Many of you may be thinking at this point that the system had failed. But it had not. We had

failed the system.

What had failed was the way we had managed the account to 100% efficiency. We had worked

out that 25% of the account would be safe and then went on to make that safe money unsafe.

Basically in our greed what we did was create a fantastic system, but one that if it ever did fail

would leave the account totally empty. That's 100% efficiency. Brilliant in theory, devastating

in reality. Certainly not my finest hour and i'm sure many of you are enjoying the mental

pictures of me squirming under a drawdown. Just remember though that at least I’ve got to this

position :)

So here we are with a realisation that we are deep shit and if we do see the mother of all

drawdowns, we are fubar with nothing.

Well, nothing is a bit of an overstatement, we did take like £40k out of it and we still had £38k

left so not bad for a 10k start.

BUT, it was decision time. It was Christmas and we closed at the bottom of our biggest ever

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drawdown with the thin Xmas trading days to look forward to. Brilliant (not).

The mistake was clear. It was the fact that we took it for granted that the system would not fail

us and in fact it didn't - we failed the system. Taking the money out and then trading that money

the same way was very foolish and the realisation of what we had done was very humbling to

say the least and still is.

We had a choice - continue with the current stakes and risk that in three trading days we are

dead in the water. Or lick our wounds; take the hit and live to trade another day.

Over Christmas we decided on the latter. We drew a line under December 27th and reset the

clock. Whatever our balance was at the close of business that day was the new starting point.

Our money management would be reset to flat and the money left would be pooled into one

singular new grail as opposed to income and main growth.

And that's what we did. Of course what happened was bound to happen - the next 12 straight

days were winners. If we would have stuck with the stakes we were at then within those 12

days we would have seen new equity highs of over £120,000. But there are lots of shoulda

woulda coulda tales in this game. Shit happens and we sat in it big style.

We learned a very hard lesson and had to eat some humble pie as I’m chewing on now to you

lot. The lesson is that we never ever take any part of the account for granted - had that extra

20K still been in the account we would have weathered the storm. It wasn't and we didn't.

Since this time we had a 61% month for January and have just had a poor February at -12% but

we move into March with a renewed outlook.

I have also changed my broker strategy. My account is now spread over several brokers rather

than just one and whenever I need money, which to be honest aint often, I will dip into it.

After xmas I started trading again with around £38,000 and the last high of the account since

then was in the mid $70k's - I took £3,000 for some living expenses (well, a nice shiny new toy

actually) and it now leaves me starting March 2007 at around £60,000. It's been a storming

start to the year so far so let's hope it continues.

So, that's my story of what happened at Christmas - the season of goodwill :) I hope you've

enjoyed the story and that you may learn from it.

This is the true story of what almost brought me to my knees as a trader - I've been trading now

for almost 5 years so if you are new in this game or if you are not then the lesson is there -

never but never take anything for granted.

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Those who know me know that i'm not good at humility and don't take well to making myself

look a twat. It's not been easy for me to tell you this story and would have been easier just to

close the blog and never return.

However I think that there are many out there who could easily make this same mistake and if I

can stop them doing this then maybe one day they will thank me and tip their hat to the

Soultrader and his team.

Finally, and to give this story a tagline for you to remember - Always remember the trader's

golden rule - under every silver lining - there's a fucking huge thick black cloud waiting to

pour down on you. Make sure you carry an umbrella in your head.

This is the last post of this blog - The aim continues to make the million, but for now it will

remain private

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The Last Post

Here is the final post from the blog. It was 6 months on from the major crash and even now it

was still painful.

In this post you will see the screenshots from our backtesting of grail. You'll see why we had

such belief in the system. This was my explanation of what went wrong.

*****************

17th July 2007

I must say it's nice for you to pop along here now and again to see if anything is happening. I

have news for you and a lesson to be learned, but you might not like it. I certainly didn't.

This message is aimed at those people who spend hours on top of hours back testing their

system whether by hand or by a computer model. So in other words any trader ever trying to

make a trading system.

The lesson is that most likely your system has a missing element - read this post thoroughly and

you'll find out what it is.

The system we knew as Grail is no longer in use. It is no longer productive. That does not

mean that it will never work again, but that it no longer gives the right return for the amount of

risk taken.

In December last year (2006) grail had a drawdown of around 50%. Bear in mind that at its

height the system had made 1000% in a year and had taken 10k into 100k - a significant

achievement I'm sure you will all agree.

The December drawdown was a crushing blow. I was in New York at the time having a

holiday and it totally spoilt that! Of course the day that we as a team decided to reduce the

stakes was the day the system decided to turn around. We changed from £118 per pip to £50.

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Thereafter followed a 17 day winning streak. To the point that had we remained on our

original staking plan, new account highs would have been made on day 14. Amazing eh.

So think about this, OK, you reduced stake and the system did exactly what you thought it

would do. It returned to form. We did not do what many would and go back to large stakes; we

took the hit and moved on from our current position.

December though should have rang warning bells. The fact that the drawdown was so severe

and sudden - within 18 trading days from a new high at the end of November we were almost

on our knees. Clearly the system was prodding us in the ribs saying "oi, take notice twat" we

didn't.

We continued to trade the system - January did amazing numbers but then that was it.

Feb lost, March lost, April lost and this time it was a drawdown of almost 60% from the

November highs. When we finally gave up the ghost and ceased trading Grail I had around 38k

left having lost the January gains.

When you think about it, the system was a success. It made 38k from 10k and in addition to this

we traded it on another account and took over 40k in 'wages' from 10k of that initial winnings.

So not bad.

We are still tracking the system and it's lost and lost and lost - if we would have continued it

would without a doubt have blown the account totally. The bottom of the drawdown was 1082

pips, met a couple of weeks ago.

So what went wrong and what can we learn from this to move on. More importantly how can it

help you?

The Testing

When we first devised the system and tested it we hand tested almost three years of data. -

That was around 600 trades. Would you consider that adequate? Remember machine and

HAND tested?

It sounds like plenty of testing doesn't it and believe me it was hard work. We changed this,

changed that, aware all of the time that we must not curve fit. Checking each trade manually on

a one minute, tick by tick chart.

Our final test prior to live ran from May 1st 2003 to September 1st 2005 (remember we started

trading it in October 2005)

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Below is a snapshot of the equity curve of the test - good eh?

Well, we thought it was!

In fact we thought it good enough through our months of testing and refining that we began

trading it.

Live Trading

One year in and all is well. The system performed not just close but EXACTLY how we

expected it to, hitting 1000% within just 4 weeks of the anticipated date of October 31 2006.

Imagine the elation knowing that all you have to do is repeat what you've already done for a

year, for the next year and you would be sat on a cool million. At this point we were all 100%

committed to this in the 100% belief that this system works. We even had investment funds

now trading the system. Millions were being traded with it.

The test data now had an extra year of trades but this time REALtrades and not test trades. The

test was now over 800 trades with 20% of them done in the real market.

Have a look at this chart - the test matched reality exactly - this was May 03 to November 06

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The Fall

We know the story from here, just go back a few posts and you'll see what happened. The

system failed. But why did it fail and what did we do wrong and not include?

Ceasing to trade the system was one of the hardest decisions I have ever made as a trader. It

didn't mean just my dreams evaporating, but those of my team, my wife and the capital of my

investors. Not an easy decision and one that still makes me shudder to this day.

As a team and as human beings we went through what I can only explain was a grieving

process. We just didn't know what to do or where to turn. We had got so used to mechanical

trading that our discretionary skills has dried up and withered so we had no backup plan.

You may laugh at this but this grieving process is only just coming to an end and was one of the

most painful times in my life. Ive always been successful in whatever I've done and when I've

set a goal I've reached it. This time I did not.

The reason I have the strength to continue this blog is because I am now back on the road and

once again trading very well but I learned so much from the experience, in fact some will

laugh, but I'm a changed person because of it.

Before we move on, allow me to share with you the equity curve that the test returns when ran

today over a shorter period to show closer. The high peak you can see is November 2006 - the

second lower peak is January ran with lower staking and you can see what happens from there

- direct evidence I suppose that trends exist in every part of trading including equity curves!

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The Analysis

So, let’s look at what went wrong.

Those of you who backtest systems wont like this. Most think that a few months or just a year

is long enough to test. It isn't.

Our test, even almost 4 years of it with 800 trades of which 20% were real - was not enough.

Why? Because our test did not include all market conditions.

When the grief set in we started to dissect the system and find out what went wrong, why the

system failed and what we could have done to mitigate.

After a lot of talk and soul searching we looked at the date we used to test - it was fine but

when we looked at a monthly chart, it was strikingly obvious.

Here is the chart.

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Left to right, the first line is the start of our testing period, May 2003. The market is fine and

normal. 2003 was not a great year in the test though acceptable and you can see why it did not

fair so well as the first five months of the test were up and down but still had nice ranges.

The second line on the chart represents October 2005 - when we started trading the system. So

those bits of data between the first two lines are our test period - not a lot really is it? Does it

really look like it has all market conditions in it? No, it's a nice trending market most of the

time.

So line 3 is November 2006 - the peak of our grail accounts when we hit 100k and 1000% on

account - a nice trending 14 months I think you will agree.

Now look what happens between November 06 (line 3) and April 07 (line 4).

Four Doji bars in a row. A severe sign of a constricting, indecisive market if ever I saw it.

No trends, just spikes up and spikes down - the daily action mimicked this spikes up then

down, spikes down then up.

Grail was an intraday trend following system. During this time there were no trends, just a hell

of a lot of reversals.

During this time those in the forums were developing systems such as Firebird and grid trading

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systems - they did really well during this time because they were mean reversion systems -

they traded counter trend to moves looking to profit on the retraces - and there were plenty of

them. A system similar in nature to Grail such as Hans 123 was also suffering and also died

during this time.

The Firebird guys tested like a few months and thought that covered all market conditions

because they had lots of trades a day- clearly they were only testing these monthly doji bars

and when the market did start to trend for as little as a few days they got burned badly only for

it to turn in their direction the very day after they took losses.

Anyway, as you can see, those market conditions did not exist within our test period. In fact we

never had more than a single doji in a row, let alone four of them.

And that's what killed Grail, our test data just was not enough and did not cover all market

conditions.

Before I move away from this, just think for a minute and look at that chart.

Every month someone is saying "the markets have changed, the volatility will not return" - well

look at the chart - it stretches all the way back to 2001 - can you see any real market change

there? - I know I can't, just a trending market with a few areas of consolidation is all.

So, the questions arise like, well, if the test data had those kind of periods in then you may

have never traded the system, and that's true - chances are we would've either not gone

forward or we would have played it much less aggressive. The thing is we do not have a

crystal ball and we don't know what we would have done.

The fact remains that our test was not enough and for your information, for the test to have

those conditions in it would have had to have been a nine year test and even then the four doji's

in a row were much smaller in 1996.

Lessons

The lesson here and my message to you is that no matter how much you test, no matter how far

you go back there will always be a market condition that your test does not have. Next time it

could be 7 doji's together or even 17. We don't know.

The market ranges have also got much smaller - in 2004 the range for cable was almost 170

pips a day 05 was around 150, 06 was 140ish and this year has barely managed 110. But go

back further to the early 90's and you'll see ranges that will make you sweat just by looking.

Grail was a trend system and without a trend she died.

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So, those of you designing systems are now saying 'well, what the hell can I do? - I have to

rely on the fact that the past repeats it's self otherwise I might as well flip a coin'

My answer is that you need do nothing different apart from add one thing extra to your system

that we did not.

In the testing phase our system worked for four years solid - two more years and I would never

have traded again because I would have had 10 million quid in the bank. We were unlucky

with market conditions and you may be luckier.

LTCM (Long Term Capital Management) had around five years of amazing trading. They were

the Wall Street kings for years. But then market conditions arose which weren't in their test

period.

Here were a bunch of professors from MIT. They were the best of the best and made more

money than anyone else before them. Yet they went bang big style bringing the financial world

to its knees for billions.

One thing is for sure. No matter how good your system appears to be, no matter how much

money it has already made and no matter how much confidence and testing you put into it -

sooner or later a market condition will surface which you haven't seen before. We never know

what is around the corner; you could run the gauntlet and have 10 years or more of great

results. But sooner or later the market will throw off a wild one.

What's needed is something that traders hate to have to think about.

Long Term Capital Management didn't have one when they had to be rescued by the Federal

bank for Billions. Nick Leeson didn't have one when he broke Barings Bank, the oldest bank in

the world. And Soultrader and his team didn't have one when grail failed.

What they didnt have was a method of identifying when the system failed and a plan of what to

do when that happened.

I have no doubt that grail will become profitable again when the market returns to its groove.

In fact it's starting to look like the market ranges are coming back now. For months the 20 day

average has been below 70 on cable. Recently it's got above 100 for the first time in months.

Grail will work again and I might have a punt again when it does - there could be another four

years!

System designers need to add one more thing into their arsenal. They ask these questions when

designing a system

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1. When to enter a trade

2. How much to trade

3. Where to place a stop

4. Where to exit a trade

They are missing part 5 and part 6

5. How to identify when the market conditions cause the system to fail.

6. What to do when it's failed.

There is also something else that we have learned about our system design that i'd like to share

with you.

Grail was an intraday trend following system. It traded every day, when the intraday trends

disappeared so did grails profits.

Grail, with certain parameter changes would work on most currency pairs, in fact, most liquid

markets.

Grail was designed around a fundamental truth - trends exist. The fact that for the past six

months that have not existed intraday does not mean they aren't there on longer timeframes.

Our trading is still trend based, but no longer tied to a specific time period and no longer tied

to a single pair. I now trade trends over the longer term and on any currency you can name.

This new method of trading is better than Grail and so good things have come of this.

My advice to you is that when you design a system; make it a system based on a solid market

principle. And don't limit yourself - if it's good it will work on ANY currency pair.

The End Is Nigh!

This story has been here since 2005. I hope you've all enjoyed it. If all this blog does is make

you implement parts 5 and 6 into your trading systems then it stands here for something and

leaves a legacy.

Since grail we have moved on as a team. We are scarred and battered but not beaten. The true

mark of life's winners is that they do not give in.

The whole experience has changed me as a person. I'm still an arrogant sod but I have tasted

real humility and have been just about as low as you can get emotionally. I'm not going to say

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that I have come out stronger because it's not true. I've come out more cautious than ever before

and very cynical - two traits of a trader that are never publicised in the books you read but two

which will enable me to move forward with my chosen career in safety and with a degree of

humility.

Until you've been there you cannot possibly imagine what I and my team have been through

from the heady heights of amazing returns to the gutter lows of complete despair.

This is the final post for this blog and I really hope those of you who have shared this journey

have learned from it. If you are a currency trader and are finding this for the very first time I

strongly suggest that you read this blog from the very beginning. Feel the highs and lows with

us as you reach this final step.

And good luck to all for the future.

The Team:

Soultrader

Keres

Angelfx

Automan

Madisonfx

Whispy

Fluty

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Final Notes

So, here I am in 2013 looking back over the grail system.

When I began putting this book together I thought that it would be a story of bad times and

personal loss. I grieved the loss of grail for two years and a few weeks ago I still felt that this

was a failure.

Having put the thing together, digging out all my old notes and spreadsheets I found myself; in

the words of Little Anthony and The Imperials ‘On the outside looking in’ It’s a place that I

have never been in before with the grail story. As the posts unfolded on these pages I have

learned new lessons.

I’ve learned for the first time what the real reason was for this project to fail. I’ll come to that

in a moment. First let’s cover some of the things I’ve found.

One thing that the blog never mentioned was "The Black Swan". Those reading this that have

been system traders will know what I'm talking about. I believe the phrase was first coined by

Nicholas Taleb in his book The Black Swan: The Impact of the Highly Improbable (click)

which was published after the grail days.

The basic view is that systems are fine when all that swims by you are white swans, but

eventually a black swan comes along and screws up the system of counting white swans. Yes,

I know it's a rather poor description but if you want the whole thing then buy his book.

We had a river full of white swans. But black swans always exist and when they come, then

it's over. That is the problem with any fully mechanical trading system. The ability to notice

and act on changes to the underlying fundamentals of that system is what is needed.

Unfortunately though, by the time the black swan is visible it's already too late. What you need

to be able to do is see the ripples on the water as the swan is around the corner. The ripples

were there but we were blinded by confidence and past results. The changes in drawdown

were a ripple; the 'feeling' that I spoke out in late 2007 were a ripple; and the increased

number of losing months compared to the test data were ripples.

But when you're by the river counting white swans you don't see the ripples from the black one.

I have never again been able to put together a mechanical system with anything near the results

of grail, even from a backtest. I truly believe that it was a one off. I've tested literally hundreds

of systems based on everything from straight price to crazy moon cycles!

Some people will draw conclusions from the weirdest of co-incidences! I seriously believe

that someone could build a system around the number of time you go for a pee in a 24 hour

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period.

Indicators just paint a different way of looking at what has already happened. There is only

one indicator that tells you what is really happening now and that is price. If anyone asked me

for advice today on trading then I would tell them to clean the chart, take off all the pivots,

fibonacci lines, fractals and bloody butterfly lines and trade naked price, it is the only thing

that is real.

In the months following the end of the project all of the members of the team slowly drifted

apart. Whispy bought a landscaping company and began doing lawn care for affluent people in

the south of England.

Angel was one of the team that lived life as if the money were already in the bank. Half way

through the project she had bought an apartment in her dream location of Nice in France and

had moved there basing future income from grail.

Following the crash she sold the apartment and went back into health care in Australia. The

last I heard from her she had taken a Law degree and was planning a return to France this

year. She was the person that Martin and I really felt for because she followed the dream

before the money was in the bank.

On saying that we were all guilty of planning what to spend. We extended the plan to go for

one more year from one million to 10 million. The wife and I were literally viewing half

million pound houses and when we went to New York in December it was first class with a

bed in the aeroplane and a £500 a night hotel penthouse. Martin was ordering catalogues for

superyachts.

Tony devised yet more trading systems and developed trading robots taking thousands from the

markets. He was banned from more brokers that anyone I have ever known and unfortunately

ended up close to broke. If you think we were reckless with leverage then you've never met

Tony!

Kev took several jobs in hedge funds and stock broker companies and we are still dear friends

today. He's planning to get married next year. He earns good money and still trades himself

but on a much smaller level.

Martin continued to trade, mostly alone and reverted back to a quick hit trading style on the 5

minute chart. We left off contact for a year and he has it licked now and makes around 200 pips

a week on small leverage. We now continue to trade together daily and occasionally we take a

look at system trading. But usually it's not for long.

Following grail I went into quite a depression for two years but continued to swing trade and

hold my own. When the credit crunch hit in 2008 I decided that I needed a reason to leave the

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markets for a while. I took a job with a local radio station as a radio host and also running the

sales team. I planned to be there for just one year. I stayed out of the market for a while and

returned to trading in a 'swing' style whilst retaining the job.

In 2011 I developed a problem with my voice and to cut a long story short in 2012 I had to

have laser surgery on my vocal chords that left my voice incapable of radio or sales work for

more than a few hours a day. I'm now back in the markets daily and am surprised how they

have changed from a trend perspective.

Following this final chapter are the appendixes. You will have in your hands on the entire

system we used to create this and it's deceptively simple as you will discover. You'll also see

most of the changes we made to the system as I can remember them.

Following that is appendix 2 - sheets of all trades taken and stakes placed. Every single trade

we made with nothing blacked out.

The robotic trading 'experts' we built still work today and can be tweaked to perform but not

for a long period. The markets are so changeable these days and true trends are rarer than they

were back then intraday. If you are the lucky one that finds the next grail, a 100% mechanical

system with no decision making needed. Do let me know. I could write a book on you!

As a final note let me say this; People will talk about this book and what the lessons are.

Many will say it was the system at fault, many will say it was our ‘gung ho’ attitude. Most

will say it was a reckless money management system.

It wasn’t either of those. And this is the real lesson to be taken from this book. If you’ve read

this far then you deserve to know,

The true reason that grail failed was over confidence.

Put yourself in our shoes:

Let me leave you with a question...

If you had a system that you believed in 1 billion percent (if such a thing existed), that you had

lived and breathed for a year before trading it; that you had stress tested to the nth degree with

hundreds of tests; and that you just ‘knew’ would always return from a drawdown as sure as

night followed day...

A system that worked month in month out for four solid years....

How much of your account would you bet on it... right now?

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Thank you for reading and please do contact me if you would like to comment or chat about my

journey.

Soultrader.

Twitter: @soultraderforex

Facebook: Facebook.com/soultraderforex

Email trixietrader@gmail.com

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Appendix 1: The Grail System

Here I will lay bare for you the grail system. Remember I did say that it was deceptively

simple. It has no indicators apart from price and time

Rules of trade placement

1) At exactly 8am UK Time take the price of GBP USD

2) Place a Buy stop at price +40 pips, stop loss 80 pips, take profit 240 pips, trailing stop 60

pips

3) Place a sell stop at price -40 pips, stop loss 80 pips, take profit 240 pips, trailing stop 60

pips

4) If trade entry level is hit, delete second trade order

5) Close all trades at 6pm UK time

That's it.

That is Grail.

Changes Made throughout the experiment:

1. At +1 pip in profit change stop to -77

2. Made a change to the auto trading robot so it did not place the trade until price

was within 10 pips of entry so the brokers could not see the order levels. We also

had an instant trade version but reverted back to orders because of slippage

3. Changed the closure time to 3:59 pm UK time on short (sell) trades only - This

increased pips significantly

4. changed take profit to 280 based on new backtests

5. changed initial stop to 75 pips

6. changed closing time to 6:59pm UK time on longs

These are the changes we actually implemented from testing literally hundreds of other ideas

Money management method.

This changed quite a bit over the time as we experimented with different staking plans.

Starting strategy:

With a 10k bank we started at £10 per pip. This is the equivalent of 1 standard £100,000 lot in

the markets.

When the bank closed the day above £10,000 we would be at £11 a pip the next day. And so

on. The strategy was that if the price went down we did not reduce the stake. So lets say for

example at the open of the day we had £12,500 then we would play £13 per pip. The stake

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would remain at £13 per pip until we closed a day above £13k. Even if the money went down

below our original 10k we would remain at that level until it broke the next milestone.

You can see this strategy in the trading sheets appendix2 from Oct 05 until Jan 06.

From Jan 06 we decided to not just remain steady when the bank went down, we decided to

increase the stake by £1 per pip for every losing day until we broke the next £k milestone at

which point it would reset to the new level. Each winning day whilst in drawdown we would

reduce by £1 but only to the base level.

This is getting complicated so I'd better explain:

Say our account high was £14500

The base level would be £15 per pip - stakes could not go lower than this from this point on

Next day lose +£1 = £16 per pip

Next day lose +£1 = £17 per pip

Next day win but not break previous account high -£1 = £16 per pip

Next day lose +£1 = £17 per pip

Next day win and break account high to say £14750 then base level is reset to £15

That's it. This can be seen on the trading sheets from January2006 to May 2006

The reasoning behind this method of management was that because we were so confident that

drawdowns would always pull back, this would increase the momentum of that return.

In May 2006 mid month we hit £50k in the account and the +/- turned to £2 and it continued

that way until the end.

You'll notice that in December from the trading sheets we were at £118 per pip with a

remaining bank of just £54,000 this meant that our leverage at this point was over 20:1

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Appendix 2 - Trading Sheets

Actual trading spreadsheets follow this page

You will notice that Nov and Dec sheet has two columns 'stake' and 'our stake' I'm sorry but I

have no recollection why that is apart from ‘our stake’ was what we were actually placing.

For some reason that I cannot remember there was a jump in the stakes and I really cannot

remember why we did that. It may be that I added how much extra we were using double

leverage by from the income account just to show where we were.

I continued keeping the sheet until January 11th where the system WOULD have made new

highs and from that point on started a new sheet as you know we reduced stake at the end of

December.

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October 2005

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November 2005

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December 2005

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January 2006

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February 2006

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March 2006

100

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May 2006

102

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June 2006

103

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July 2006

104

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August 2006

105

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September 2006

106