How am I doing?

I've been asked how I'm doing lately, since my trading posts have been non-existent as of late.  Well, I haven't traded since August 3rd mainly because I'm trying to get a handle on a bunch of things going on right now that are non-trading related.  Since I cannot focus all of my attention on trading, I don't want to force anything and trade just for the sake of trading.  

Believe me, this is not my way of saying that I'm quitting.  My motivation is being channeled elsewhere and unfortunately I just don't have a choice.  In an effort to keep some focus on trading, I picked up a copy of Market Wizards:Interviews with Top Traders by Jack Schwager since it comes highly recommended by many people.  It can only be good for the mind to read about highly successful traders who managed to turn $1000 into billions.   

FXEngine Seizes

After 30 trades and 9 weeks of automated trading via FXEngines, I am abandoning ship.  It isn't because I've lost money because believe it or not, I'm up 49 pips.  The primary reason is because I just don't see how this system of trading will benefit me in the future. 

First, I just do not want to be reliant on anyone but myself when trading.  This method of trading put a little bit of discretion in your hands but not enough for me to feel like "I" had a good trade when the trade made money. 

Secondly, initially I thought that automated trading may be a good way of supplementing my discretionary trading income in the future.  I just don't feel that it can.  The trades that were profitable were mostly the medium volatility news trades that slowly moved in your favor.  This could have just as easily done manually.  The trades that this system is advertised to catch were just not possible.  This could very well be that FXCM is the broker and the limitation is with them.

This was certainly an experience, one that was educational.  How? It really shows that if you remain disciplined and consistent, you can come out on top or at least even.  Like I said, I'm ending my relationship with FXEngines with a 49 pip profit.  In all, I made 30 trades.  12 were winners, and 18 were losers.  The key here was also money management and the tighter stops.

To see the weekly results, go to http://www.forexproject.com/FX_Engine_Performance/

To see each trade by week, go to http://www.forexproject.com/Forex_Engine_Trades/  

Bank of Japan Intervention

Interesting read on the day in the life of the Bank of Japan's foreign exchange dealers who are responsible for conducting an intervention.  Just an excerpt:

Foreign exchange dealers are, in general, very early birds, and dealers
at the Bank of Japan are no exception. We start work before 7:00 a.m.
JST when morning trading in the Sydney market in Australia, which
starts two hours earlier, peaks out. Our first job is to get ready for
the morning market reports meeting by gathering, sorting, and analyzing
information. We first check the previous day's developments in the New
York and European foreign exchange markets, and then make our own
forecasts for the day by listing up bull and bear factors as well as by
exchanging views with market participants.

Read the Outline of their intervention options and the rest of the "Day in the Life…" at http://www.boj.or.jp/en/type/exp/faqkainy.htm  

Fed Intervention

Everyone saw the dollar tank this afternoon after Bernanke and crew decided to leave interest rates unchanged.  But then, from out of nowhere, the dollar sprung back to life.  What the hell? I'm green behind the ears so I don't know much but from what I've been reading, this was very likely caused by a Fed intervention.  I don't have much knowledge on this subject but it's pretty widely known that the Bank of Japan commonly intervenes in the foreign exchange market as do many of the other banks around the world.   After I've had time to digest this a bit, I'm going to try to put a larger post on this subject.  If anyone has any comments or explanations, please do post them.

Sitting Tight

I'm sitting tight tonight, Sunday because I'm expecting consolidation after the Dollar bearish moves last week.  I'm expecting consolidation also on Monday and most of Tuesday until the FOMC interest rate statement on Tuesday at 2:15 p.m. EST.  As always, there is no way to tell what might happen the days ahead, so I'll be keeping my eye on 3 currency pairs nevertheless.  This weekend, I went through all of my charts and deleted the AUD/USD, USD/CHF, EUR/JPY and USD/CAD.  I'm going to stick with trading only 3 pairs, the EUR/USD, USD/JPY, and GBP/USD.  I've been trying to maintain 7 currency pairs on 4 different time frames and this is just not wise to do as a beginner.  I have to get to know these 3 pairs.

I've been reading around today to see what an interest rate hike or a pause in rate hikes may do to the market on Tuesday and from most everything I've seen, 2 out of 3 scenarios could be dollar bearish:

1. FED pauses in rate cycle would equal dollar weakness
2. FED raises rates and keeps a hawkish statement could be initially dollar bullish
3. FED raises rates and tones down their hawkish statement could equal dollar weakness 

I did some manual backtesting this weekend of a couple of systems I've been working on.  I'm still learning MQL4 (Metatrader programming language) so I haven't automated my backtesting but hopefully I can close the knowledge gap this week.

No New Developments

There weren't any new developments in either my automated or discretionary trading this week.  I lost 26 pips on 7 trades this week so losing was definately nothing new.  On the other hand, FXEngines only triggered 2 automated trades for me, 1 winning, 1 losing, for a net loss of 5 pips.  I don't know where my trading is headed but as far as I'm concerned, I'm pressing ahead.  Hope you all caught some pips this week.  Have a relaxing weekend.

Regular vs. Hidden Divergence

I realized today that unbeknownst to me, regular divergence and hidden divergence are absolutely and totally different beasts.  In fact, I'm not even sure if I knew about hidden divergence.  What this means is that I may have been classifying regular divergence as hidden divergence and vice versa.  This is my mistake, one in which I don't want you to make too.  So I am going to reference some material to give an overview of both types.

Divergence happens when price makes one pattern and a corresponding indicator makes the opposite pattern.   You can use any indicator but the most commonly used are RSI, MACD, CCI, or Momentum.  I'm going to go through the process of identifying 4 types of divergence.

The first type is Regular Bullish Divergence.

Characteristics:  

• Occurs in a downtrend
• Possibly signals the end of a downtrend
• Possible bullish correction
• Lower lows in price
• High lows in indicator

#1

 

 

 

 

 

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The second type is Regular Bearish Divergence.

Characteristics:

• Occurs in an uptrend
• Possibly signals the end of an uptrend
• Possible bearish correction
• Higher highs in price
• Lower highs in indicator

#2

 

 

 

 

 
 

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The third type is Bullish Hidden Divergence.  

I would have simply called this next type of divergence regular bearish divergence in the past and I would have also expected it to have the regular bearish divergence characteristics above.  Let's first look at a chart of Bullish Hidden Divergence.

#3

 

 

 

 

 

As you can see, the price continues its ascent because Bullish Hidden Divergence is a continuation pattern.  You have to look closely but look at the MACD in the chart #3 above as opposed to the MACD in chart #2.  In chart #3, the price is making higher highs and the indicator is making lower lows and the MACD in chart #3 IS ALREADY IN OVERSOLD TERRITORY.  This is quite different than chart #2 as MACD is still in positive territory.   

Characteristics:

• Trend continuation
• Higher highs in price
• Lower lows in indicator

---

The fourth type is Bearish Hidden Divergence.

This too is a continuation pattern as the bearish trend is expected to continue.

#4

 

 

 

 

 

You also have to look closely at the MACD in chart #4 above.  The MACD is already in overbought territory and the indicator is making higher highs.

Characteristics:

• Trend continuation
• Lower highs in price
• Higher highs in indicator

This isn't the easiest thing to explain.  Just look closely at the four charts above and the four different types of divergences shouldn't be hard to see.

August Issue of Currency Trader Magazine

The newest issue of Currency Trader Magazine has been released.

Highlights:

• Using the Commitment of Traders Report to gauge trader sentiment
• The Dollar and its' hidden risks
• Trading the forex the mini way
• Improving on moving average

Content Removed: Download from http://www.currencytradermag.com

Inside Day Bollinger Band Turn Trade

There's a new forex article on Investopedia titled, "Inside Day Bollinger Band Turn Trade" by Jamie Saettele.  I don't know much about the author except that a lot of his articles involve trading systems.  It's a good read because it shows how simple it can be to develop a system that could potentially be your money maker.   I remember a Rob Booker seminar where he said that if you put yourself in a room long enough, you can make a trading system out of anything.  This is absolutely true.  The question is whether this system can be profitable or not.  That would all depend on your rules, expectations, money management and a whole lot of other things but it is possible.

Read the article at http://www.investopedia.com/articles/forex/06/BBInsideDay.asp

Automated Trading Championship

MetaQuotes Software dropped me an email today to let me know that they are having an automated trading championship starting October 1st.  The main objective of this Championship is to raise the popularity of Automated Trading.  If you are interested in programming custom experts in Metatrader, this is for you.  I am thinking about creating an expert so I can participate. 

Your expert will trade automatically with fake money and at the end of 3 months, the expert that has the most profit wins the following:

1st prize: $40,000

2nd prize:$25,000

3rd prize: $15,000

This is not a bad chunk of change.   

To read more, go to http://championship.mql4.com/  

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