Trading for a Living

I'm not sure if I've ever mentioned the site of a trader who seems to have tons of experience trading and has the proof to back it up…  Don't just check out his reports; be sure to check out his FX Thoughts section which talks about beginning trading, asset allocation, backtesting (he thinks you're crazy if you don't do it), carry trading, equity curves, psychology, scalping, stop losses, and much more.  Take some time to go through his site.   It's definately worth it.

http://www.users.bigpond.com/morleym/

What Time Frame is Right For You?

I was reading a new article in "Stock & Commodities" magazine titled, "What Time Frame is Right For You?" by Thomas Bulkowski (author of Encyclopedia of Chart Patterns) and felt it was a pretty good overview of a type of trader that you can strive to be.  Bulkowski identifies 5 types of traders:

1. The Scalper – if you want to be this type of trader, be prepared to be in and out of the market in minutes.  What does it take?
• Trading for about 4 hours a day
• Research 3 hours a day
• Very small chunks of profit
• Intenseness
• Tick, 1 minute, 5 minute charts
2. The Daytrader – if you want to be a daytrader, you most likely will buy and sell throughout the day and typically don't hold your position past that day.  What does it take?
• Follow only a few select securities
• Hold positions for a couple of hours
• Range trading
• Requires long hours of screen staring
• Less intensive than scalping
• Less than 1 hour charts
3. The Swing Trader – if you want to swing, you should be good at timing the market to buy at bottoms and sell at tops.  What does it take?
• Trades that can last from minutes to days and sometimes weeks
• Holding overnight sometimes
• Longer term view
• More relaxed than day traders
• 2 groups of swing traders: those that have trades that last less than 3 days and those that have trades lasting weeks, usually 8 to 10
• Typically 1 hour, 4 hour, or daily charts
4. The Position Trader – will usually buy and hold.  What does it take?
• Patience
• Holding for days, weeks, or months
• Typically have full-time jobs
5. Investors – your typically mutual fund investor.  What does it take?
• Buy and hold
• Checking the market weekly or monthly

Bulkowski found that 50% of surveyed traders were swing traders which is what I feel like I have been striving towards since I started.  My problem is that I don't time the market well enough to be classified as anything but a "trader in training."

This is kind of off subject, but a visitor to this site brought up a very good point the other day, MG said that 1 year just isn't enough to gauge whether you will be successful or not:

Give it more time, 1 year is not enough

To become a very good:

• surgeon – you need 15 years
• lawyer – at least 6-8 years
• programmer – at least 3 years (I can relate to this)
• carpenter – at least 3 years
  

…you hurt all the Wall Street guys feelings, man (meaning don't think you can just jump into the market and expect to beat the seasoned veterans in your first year or ever) 

Thanks MG.  

Oanda and Moneytec Forums

This weekend I decided to explore the Oanda and Moneytec forums to see what I could gleen from them.  I found a lot of petty non-forex related content on Oanda that took away from the usefulness of it.  There was less of this on the Moneytec forums and for this reason, I found more insight here.  A lot of people find these forums useful so I'm not ready to trash them and say they are useless.  

One thing that I can say is that there are traders out there who are very willing and able to provide you with some great advice and information.  In an open forum like this, you'll always have those who are providing genuine and legitimate advice, those who are just looking to sell you something, or those that think they are the smartest person in the room (they also think everyone else is an idiot). If you are willing to dig a little, you can find some helpful posts.  

Therefore, I'm going to try to start mentioning certain posts on these forums in the coming weeks.  It seems like I've been to the end of the internet and back now searching for forex content that can be useful to both you and I.  I'm thinking that there is a lot more useful content out there but I just have to look in different places (not search engines.) 

Abandoning FXEngines?

After 6 weeks of trading the news with FXEngines, I've seriously considered abandoning the platform.  I haven't really been trading the news over the past 2 weeks but I'm having a hard time giving it up considering I'm up 48 pips total.  So I'm going to give it a couple of more weeks and see if it pays off.  On one hand, the reason why I would give it up is because it just isn't producing enough pips for the time I put in to it.  But on the other hand, it's the only profitable system I have right now so I would be an idiot to just throw it away.  So my plan going forward is to subscribe to the All Events Ultra-Aggressive EUR/USD.  What this means is that I will be mostly on auto-pilot, with the platform automatically trading every news event available.  Sometimes I'll intervene to manually exit if I can and sometimes I won't.   

My discretionary trading is going no where right now.  I only made 1 trade this week, shorting the USD/CAD.  This position was up 60 pips before it came back and stopped out at break even.  It was a good thing too considering the news out of Canada pushed the pair back in the USD's favor.  So I'm still down 225 pips for the month with 1 week of trading in July left. 

Being the inexperienced trader that I am, I tend to go between feeling in sync with the market to feeling utterly and totally out of sync with the market.  The last couple of weeks, I've felt the latter, totally clueless.  I'll stare at the charts everyday and I might as well be staring at a book written in Chinese because it all looks foreign to me.  I've had a lot going on but I just don't feel with it lately.  I actually feel lost.  This has happened to me in the past and I do seem to recover from it.  I think it's just time for a vacation because not only do I feel out of sync with the market but I've also been having a case of writers block.  I don't really consider myself a writer but I haven't posted much here lately.  It isn't only because I've been busy but also because I just haven't had much to say.  This also has happened to me in the past and before I know it, I'm posting 5 times a day.  So the bottom line is that if you want to make it in anything you do, you just have to keep grinding it out.  The most rewarding things sometimes are the hardest and I enjoy learning how to trade and maintaining this blog too much.  So I'll get back into the groove sooner than later. 

I hope you all had a great trading week.   

Multi-lot Strategies Revisited

I've visited the subject of trading in multiple lots several times in the past year or so and unfortunately have not had the luxury of trading more than 1 lot at any given time.  

http://www.forexproject.com/Blog/Investing_and_Trading/What_is_your_multi-lot_trading_strategy?/  
http://www.forexproject.com/Blog/Investing_and_Trading/Multi-lot_incorporation /
http://www.forexproject.com/Blog/Investing_and_Trading/Multi-lot_strategy_for_Today/

One reason I'm bringing this up is because of a trade that closed out at breakeven today.  I had a short 1 lot USD/CAD position that was up over 60 pips early this morning.  My target was still a ways off so with the thought of remaining discipline, I left it alone.  When I checked on the market a couple of hours later, the position had closed at breakeven, no profit, no loss.  This can be quite frustrating and 60 pips is significant enough to be a nice win for me.  In the past, I may have jumped at the close position button abandoning my target expectations but doing this had turned into a pretty bad habit so I've tried to hold my profitable positions.  

In reading different articles and forum posts, I've heard many traders state that it is impossible to make money by trading 1 lot positions.  This may very well be true but what do you do if you have a cap on the percentage of risk per trade and don't have the capital to increase the amount of lots you trade?

1. If you a trading a standard 100,000 unit account where a pip usually equals $10.00, switch to a mini-account where you trade in 10,000 unit increments where a pip usually equals $1.00. If I were to switch to a mini-account, I could trade 10 positions instead of only 1.  10 positions would give plenty of opportunity to utilize multi-lot strategies.
2. Use Oanda as a broker where they support trades of any size.  In this scenario, you can trade the specific amount you want and don't have to deal with rounded lot sizes.  So if you have $10,000 and only want to risk 2% of your account on any trade, you would open a $200 position.  If this position becomes profitable to $300, you can close out $100 of this position as profit.  You can read more here:  http://fxtrade.oanda.com/about/innovation/
3. Increase your capital.  If you increase your capital, you can afford to trade in multiple lots without compromising your risk.

I am seriously considering option #2 because I've only heard good things about Oanda from other traders. 

FXCM Compliance Officer Response

My post earlier today asked whether your funds at your broker were safe: http://www.forexproject.com/Blog/Investing_and_Trading/Is_your_money_at_your_broker_safe?

I sent the following email excerpt to James Sanders, Compliance Officer at FXCM and the author of the Wall Street Journal article I cited:

I read your article in WSJ regarding the "segregation" rule and how Congress nor the CFTC have done anything to apply this rule to FOREX.  My questions are:

1. What if anything can we as retail traders do to put pressure on them?
2. Does FXCM apply the segregation rule to funds deposited by your clients for trading FOREX?

James was nice enough to respond to my email and here is his response:

1. You can write to your local Congressional representatives and the Chairman of the CFTC.
2. FXCM keeps customer funds separate from firm operating funds as a
   matter of practice but this would not provide the funds with any
   special protection from creditors in the event of a Refco-type collapse.

So even though a firm keeps customer funds separate doesn't mean jack.  The creditors will still be entitled to your funds before you are.

Is your money at your broker safe?

The quick and dirty answer to this is no.  Just ask retail traders whose monies were frozen when Refco went down.

I was reading an article in the Wall Street Journal today that brings up the fact that we as retail traders need more protection.  The CFTC or Commodity and Futures Trading Commission have a "segregation" rule which means that brokers must keep client funds separate from the firm's operating funds.  This rule only applies to U.S. traders who deposit funds for trading on-exchange futures or options on futures.  If you trade over-the-counter derivatives or off-exchange products such as FOREX, there is no rule against brokers mixing your funds in with the firms operating funds.  This is what Refco was doing.  

So the bottom line is that our money is absolutely not safe and there is nothing that says that a broker firm cannot use your deposit money to operate their business.  The unfortunate thing about all of this is that neither Congress or the CFTC have taken any steps to expand the segregation rule to FOREX traders.   

This is very disturbing and probably reason enough to only deposit what is absolutely necessary to trade.  In addition, if at any time you can withdraw money or profit, for this reason alone, you should do it.  

This article was written by FXCM's chief compliance officer so I would be very interested in knowing if FXCM follows their own rules and applies segregation to their client's funds.  I'll try to find out. 

Blog Posting Scarcity

Hi.  There have been limited postings to the blog for a reason.  This totally unrelated trading story has affected my ability to trade and post. 

Everyday, I entrust a daycare center to care for my 2-year old child.  Last Tuesday, I received a call from the Police telling me that everything was OK but they found my child walking 3-4 blocks from his school alone on a busy highly trafficked street.  Supposedly he walked out through a wide open door that some idiotic "teacher" left open.  The daycare center did not know he was missing for 15-20 minutes and didn't think to call the police or me at any time.  I found out he was missing for an hour.  I don't want to bore everything with all the details but I was about as angry as could be.  I'm thankful that he had the sense to walk on the sidewalk and also thankful that a nice woman stopped her car when she saw my son and called the police.  She stayed with him until they found out where he belonged.  My problem was that he was missing for an hour and the daycare center decided to try to "search" for him on their own without reporting this.  That is what they say but for all I know, they never even knew he was gone.  So either way, last week I had to search for new daycare and also had to talk to investigators from New Jersey Human Services.  They have told me that someone will be held responsible and fired.  So the point of all of this is to tell you that I didn't have time for anything trading related last week and for those of you with kids, ask a lot of questions when enrolling your kids in daycare and always be observant of the conditions on a daily basis.

I should also mention the neglectful day care center with the thoughts that this will be indexed by Google and hopefully displayed in searches for day care in my area.

The neglectful daycare center was New Fountain Preschool in Rutherford, New Jersey.  

Back to trading….. 

currency trading

I briefly read this journal and would like to state some points.

a) LOG – probably he most critical part of trading is a log.  Regardless of what you trade and how you must log the numbers.
Critical to this is your costs and your profits.  So .. what are your
costs and parameters that make a difference ? 

Trading risk, trading profit / loss , Spread paid , Commissions, instrument traded,
time ,comments ,win/loss count , expectancy

Calculating Expectancy -  We need to know we are in a winning
trading system .  With the above you should calculate your ( PROFIT /
LOSS not including commissions and spread and another including commissions and
spread ) / RISK  for each trade . Then average all these numbers . If
the figure including SPREAD and commissions is < 0 STOP trading .

I
have found most of my reasons for NOT TRADING in this log.  You must
have a very positive system or suffer massive drawdowns or even blow
up ( which few stomach. )  

b) I have seen many good systems not
work because the spread or commission erodes the profits. You say 5% of
traders consistently make profits.  My call on this is the "brokers"
almost always make profits and are the real majority of money makers.
To profit you must take seriously the read cost. In 4 point spread you
must make 4 points before even getting a look at the profit. Not to
mention the spread closing the order.  For a 4 point spread, for instance .7500,
the market maker will buy from the real market at BID = .7498  OFFER
.7502 .

If you sell, market maker buys at discount off you ( .7498
) and sells to market at .7500 making a 2 pip profit . If you buy he makes
2 pips the other way.  He/she cannot loose ( or rarely ) on a single
trade .

However, your situation is quite different – let's say
you buy when real market is 0.7500. You had to pay  0.7502 and sell
0.7498. If the position hasn't moved, you just lost 4 pips.  Let's say you
have a win/loss of 50%.  The statistical probability means you
are likely to experience a 10 loss streak = 40 pips ( spread ) + the
real loss. Simply stating your wins must be huge to give yourself a
chance at consistently profiting. At the very least you are limited to
1hr + time frame . If you trade less you are asking for trouble.

If
you wish to trade < 1hr time frames ( and you better be good ) you
at least need to trade the real platform and a 0.2 pip commission.

c) BACKTESTING – you must be able to back test your theories. 

d)
LARGE FUNDS – If you were a large fund and you wanted to buy, what would
you do?  Pay more or less for your currency?  Think about the human
nature for a moment. You would do your best to create a cheaper
currency to buy.  Big money know that a lot of traders live off 50 pips
and usually a tight stop.  They can create a SELL mentality for periods and buy up any new
SELLERS and hold onto the curency without fear of margin calls because
the funds are so large.

e) So in the end you must be able to
buy and sell cheaply especially if you trade small time frames.  Know
that the direction of the market isn't necessarily where the market is
about to go (in currency) but it may.  It depends if you are with the
funds or against.  Your trade log is critical in telling you if you
are in fact statistically going to fair ok.

In my opinion,
unless you have a large amount of capital you can give up trading for a
living unless you have other sources of income or capital to support
you during the poor phases of your trading .

If you do want to trade for a living I think currency is about the most difficult , suicidal place to start .

 

Good luck

regards

DAS

 

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Performance midway through July

Quite simply, this has not been the best of months so far.   I'm down 225 pips.  http://www.forexproject.com/My_Trade_History/

Things could be worse though.  I've been sticking to risk/rewards of 1:3 which may also explain the losses.  How?  Seeking a target 3 times my stop may be overly optimistic considering the choppiness of the market. 

I don't think that -225 pips is impossible to come back from.  Seeing that my goal is 260 pips a month, I will have to make 485 pips over the next 2 weeks to reach it.  This may not be too easy but if I can turn around the losing streak at the start of next week, I may get some momentum to reach this highly optimistic goal.  The key here is to not fall further in the red. 

As I mentioned earlier in the week, I have been busy with other things so my posting has been minimal.  I guess this is just human nature but when I'm on a losing streak, I tend to have a lot less to say.  The thing is that I'll always get around to stating the truth.  The truth right now is I'm down but not out.  

I hope everyone else had a better trading week than I did.  For all of you that take the time to send complimentary or other comments, I do appreciate them.  Sometimes 1 comment is all I need for that extra drive and motivation.

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