October 31, 2006

Bill commented on my self-analysis with the three C's that guide his trading, cautious optimism, continuous learning, and choice & responsibility.  My comments to each follow:

Cautious optimism

This is a good one.  This could have a couple of meanings.  Optimism is great but if the optimism turns into cockiness, you could find yourself in trouble.  I never go into a trade thinking it's a lock.  If you know anything about the world of sport betting, this term is thrown around liberally.  "New York is going to cover the spread for sure, it's a lock."  These are famous last words and almost always guarantee that it is not a lock.  Instead of cautious optimism, I could just say, "I don't know what is going to happen next."  No one does.  This is what stop losses are for. 

Continuous learning

How much can you learn? Enough to last a lifetime.  Unfortunately you can't learn it from a book.  Like most things that aren't easy, experience is golden and takes a long time to obtain.  Anything I've ever read has said that it could take anywhere from 3 – 10 years to learn how to trade.  

Choice and responsibility

You buy a trading system and it doesn't work.  That guy scammed me. 

You listen to some self-proclaimed currency analyst who screams DOLLAR SHORT! Dollar moves long, he's no expert!

Taking responsibility is so important.  There is no reason to blame anyone except yourself.  I've listened to other people before when it comes to trades and when I lost, it made me feel better to blame them.  How long can anyone expect to last doing this? This is why selling trading signals for a living has to be the worst job on earth if you actually care about your credibility.  When you win, your the best.  When you lose, your dirt.

Trading Performance Update and Ramblings

October 31, 2006

The H-system has performed well since I started trading it again; it looks like October may be one of my most profitable months trading.  On Friday, I was up 287 pips.  Yesterday, I captured 90 pips and today I'm up 40 pips on my closed lots with a guaranteed profit of 30 pips on my only open lot.  That brings the total to 447 pips for October.  

I've been working on a couple more systems to add into the mix.  The goal for me right now is to trade multiple systems and to incorporate additional currency pairs instead of just the GBP/USD.  One system that I just finished backtesting on 5 years of data uses the USD/JPY only and trades during the Asian and European sessions.  It certainly loses more than it wins but the average reward/risk on each trade is 2:1. 

As this journey continues going forward, certain things that I was told when I first started trading become realized more and more each day.   All of these things are based on what I personally have noticed over the past year and don't necessarily mean they are true to you.  Remember that I've only been trading currencies for a year.  I may look back at this post a year from now and roll my eyes wondering how I could have ever thought this.  

  1. I have to keep discretionary trading to a minimum.  This doesn't mean that I won't use any bit of discretion when trading but my personality is more suited to trading systematically with a touch of discretion.  The systematic part is present in each and every trade but the discretion may or may not be needed in a particular trade.  
  2. You don't have to win more than you lose.  This means making money management the most important part of your system.  In fact, I shouldn't make winning or losing my #1 goal.  The #1 goal should be to preserve my capital. 
  3. Searching for the holy grail is not fruitless.   This may sound contradictory but there is nothing wrong with trying to find the holy grail as long as you remain realistic.  Trying to find that perfect system helps one come to that realization that there may not be one.  Searching also provides one with experience and motivation to find the best of the best.   The holy grail to me doesn't have to be a system that wins 100% of the time.  It can be a system that suits me best and produces an outcome that is favorable to my trading experience. 
  4. I don't need a mentor because I have you and you have me.  I'm not saying that I can provide you with advice on how to do this for a living nor am I saying that a mentor won't help you.  I'm saying that you have every other trader at your disposal either through forums or emails that you can tap to get you back on track.  Everyone that has every sent me an email or comment has helped immensely no matter what the question was.  It's actually unbelievable how helpful and honest most people can be.  It helps restore my faith in humanity.  I've also tried to answer every question that was ever posed of me because it's just another nugget that you or I can use to come to our own conclusions.  Rob Booker or any other mentor won't tell you how to be profitable.  Booker will give you advice based on his understanding but it won't work for you until you can put it all together on your own.  For instance, he tries to get his students to trade breakouts of the European session high or low during the US session.  I don't think he expects you to continue trading this forever or continue to follow everything he has to say for the rest of your life.  All he is doing is giving you the discipline to follow a system, tweak a system, and make decisions on your own. 

I have a lot more realizations but I think this is enough for one day.

Soul Trader is Back Again

October 31, 2006

I've followed Soul Traders blog and his MoneyTec forum posts for a while now as he has openly contributed for the community of traders.   Back in May of this year, he announced that he was quitting day trading in the following post excerpt:

to take some time out this morning and have a chat with you all, this
might be a long post and it might be the last one ever."

Well, I guess the day trading bug bit because he has announced that he is going to start discretionary trading again.   This winter, he'll be demonstrating the development of a new trading method that fuses discretion with auto trading.   I'm interested in hearing more from him since he is an experienced trader so I'll follow him along to see where it goes.

What days and time do you usually trade?

October 30, 2006

I pretty much stick to the European and US sessions.  I can trade from
my Palm Treo and I usually close my positions from it during the US
session.  I trade everyday assuming I get a signal.  When I was a total
newbie, I tried to trade the Asian session and I stared at the charts
all the time looking for a trade.  Now I pretty much know where I'm
going to enter and exit.  This is all predetermined and needs to be
because I have a full-time job.

Trend Trading Tricks

October 30, 2006

Rob Booker is having a live question and answer session tomorrow at 15:00 GMT titled, "Top Five Tricks of Trend Trading" on FXStreet.  You can sign up at the following link:  

Becoming a Great Forex Trader

October 30, 2006

There is an excellent article on CNN Money about the secrets of greatness and how researchers have found that natural talent may be irrelevant to great success.  Thanks for the link Forex Rookie

British-based researchers Michael J. Howe, Jane W. Davidson and John A.
Sluboda conclude in an extensive study, "The evidence we have surveyed
… does not support the [notion that] excelling is a consequence of
possessing innate gifts."

For failed traders that had been told that they failed because they weren't born with the gift now have renewed promise.  According to researchers, if you want to be great, you need to do what everyone else that is great did which is:

  1. Practice, practice, practice.  (Michael Jordan never took a day off and shot more basketballs in a day than most of us in our lifetime)
  2. Work hard.  (This is a given)
  3. Try to obtain immediate feedback on your progress.  (Even if the feedback isn't going to be favorable to you, still seek it out)
  4. Set specific goals.  (A must)
  5. Concentrate as much on technique as on outcome.

Read more about the research in this New York Times article.

Forex Risk Calculator Released

October 28, 2006

After weeks of development, the first beta release of the Forex Risk Calculator has been released.  The calculator on the surface doesn't look too involved but believe me, there are a lot of calculations, logic, and validation that had to be taken into consideration.  This calculator has all the functionality of the Excel FX Risk Calculator released from Alex Douglas.  In it's simplest form, the risk calculator helps you manage risk.  Ideally before each trade, you should know exactly what your entry price, stop loss price, and target prices are.  After inputting these values, your account balance, and intended position size, the calculator will "calculate" your available leverage, pip profit, pip loss, profit at target, and loss at stop.  In addition it calculates the most important values, the percentage of your account at risk and the percentage reward.

The calculator is programmed using AJAX (Asynchronous Javascript and XML) so it's responsive and fast.  There is also no need to hit any submit button.  

Just be aware that this is a beta release so it's not perfect.  This will come in time and I use it more and more.

I also added a link to the left Forex Resources menu.

Biggest Profit In 5 Months

October 27, 2006

I decided to stick to my trading system this week and today profited 110 pips on the H-system and another 54 pips on my "discretionary" system.  164 pips for one day is tops for me.  My second best day in the previous 5 months was back on September 14th when I profited 133 pips, this also with the H-system.

In regards to my discretionary system, it is an old "system" that I decided to start using again yesterday.  As I mentioned in a previous post, this system can probably be more systematized which I'm working to do in the next couple of weeks.  

With 2 1/2 trading days left in October, I'm up 287 pips.  I ended September +286 pips.  

I'm quitting my job today…..

Just kidding.  I need another 12 months like this before I even consider it. 

As I was exchanging emails yesterday with a fellow trader Mike, we were on the subject of our day jobs.  It made me think how difficult it would be to leave my corporate job in the future if I ever do decide to trade full-time.  Let's face it, my company is handing over a paycheck every other week.  Sure, I have to perform to my abilities and as long as I don't screw anything up or manage to get laid off, I'm guaranteed that this paycheck will be deposited each and every other week.  Obviously this will be far from guaranteed if I trade as my full-time job.  Some weeks I'll actually lose money and some weeks I'll make money.  This is just a fact.  I guess I'll address this if it ever becomes close to reality.  Right now, I'll tuck it away in the back of my mind and focus on learning how to do this.

The MACD Is Overrated

October 27, 2006

I read a pretty enlightening article on the MACD today and how this indicator has been elevated to mystical status.  Is this deserving?  According to the author, no.  The MACD is an indicator based on moving averages; that's it.  "In the end, the performance of moving averages and indicators based on moving averages will always be, well, average." I personally use the MACD and I'll admit that I've been guilty of elevating this indicator to mystical status as well.  I predominantly use it to identify divergence between price, but I also use it to identify momentum.  

I've talked in the past about my avoidance of lagging indicators and the author of this article says that if this is the route that you want to go (I do), then here is what your toolbox should and should not be.

Your toolbox if you want to perform technical analysis in a lagging manner:

  1. Moving averages
  2. MACD
  3. Stochastics
  4. Parabolic SARs
  5. Bollinger Bands 

Your toolbox if you want to know where price "is likely to go next… as often as 80% of the time."

  1. Trendlines
  2. Pivot Points
  3. Candlestick

This article presents far from revolutionary information but it goes against from the norm and states why you would be best served by using something other than the MACD.   That is why I like this article.  There are just so many articles on how to use the MACD to your advantage.  

The author also mentions some candlestick patterns (hammer, star) that when identifying them when price is near pivot points or trend lines, can be more powerful.


Free Webinar Today from John Carter

October 26, 2006

I just got the word that John Carter is having a free webinar today titled, "Trading Ambushes – A Plan for Identifying & Trading Pullbacks."  I like these guys, John Carter and his trading partner Hubert.  They seem like they're real hardcore traders, not marketing machines.  If you are available, take advantage of it at 4:30 pm EST today.

Next Page »