10 Reasons My Forex Trading Has Been Profitable

December 29, 2006

I asked myself the following question today, "what is the most valuable advice I can give to someone trying to become a consistently profitable trader?" 
Before I get into it, let me just say that I've only been consistently
profitable for 4 months.  I am by no means ready to say that I am a
totally competent Forex trader.  I am also not saying that I have
mastered the art and I don't need to learn anymore.  I feel like I've
made decent progress towards my goal of becoming a full-time trader but
I still have a long way to go before I quit my day job.  If I had to
state a percentage of my goal completed, I would say I'm at 40%.   I
may be able to accelerate this figure this year but unfortunately I
realistically see myself working for the man in 2007 and perhaps 2008.  

I've
compiled the following list of 10 things by quickly brainstorming.  It
tries to answer the question, "What is the most valuable advice I can
give to someone trying to become a consistently profitable trader?"

  1. Develop a written trading plan.  This is an absolute
    must.  Don't attempt to just discretionary trade, this is for
    experienced traders.  If you are not yet profitable, you need limits
    and rules that will help you in developing discipline. 
  2. Search for the Holy Grail.   There may not be a holy grail
    but it doesn't mean that you can't look for it.  Continue to explore
    systems, indicators, and anything else you can get your hands on.  It
    will help you in developing as a trader.
  3. Read, Read, Read.   Keep reading anything you can get your hands on.
  4. Keep a detailed log of your progress.   I keep a record of
    all of my trades and I have monthly P/L graphs that are constantly kept
    up to date.  You need to know if you are making progress and this is
    the only way you'll know.
  5. Determine realistic stop loss and limits for the timeframe you're trading.  The key word here is realistic.  Don't use 25 pips stops if you are trading daily charts.  You have to be realistic.
  6. KISS.   Keep it Simple Stupid….  Keep your trading
    systems as simple as possible.  Remember that indicators are just
    derivatives of price.  The more indicators you have on your charts, the
    harder it can be to make a decision. 
  7. Don't randomly trade throughout the day.   Find the
    specific times of day that you can realistically expect your system to
    be successful.  Don't open trades at 3 pm EST, this is just setting
    yourself up for failure.  Pick a time frame and stick to it.
  8. Focus on 1 currency pair.   Don't concern yourself with
    all the different currency pairs.  Pick 1 and follow it closely. 
    You'll be surprised how easily you can get into the flow.
  9. Do back testing.  Back testing may use data from the past
    but it can help you learn more about the system you are testing and
    about trading in general. 
  10. Whatever you do, don't impulse trade.   This is easier
    said than done but it is an absolute must that you try to prevent
    yourself from impulse trading.  This 5 minutes of recklessness can hurt
    you enough to leave you on the sidelines forever.

Forex New Years Resolution

December 29, 2006

Today was the last trading day of 2006 and I lost.  No big deal… I was cautious today and only traded 1 lot.  I ended the month at +201 pips for my fourth consecutive monthly profit.  Since September 1st, I've been able to compile a total of 978 pips.  I'm generally happy with the way 2006 ended and I'm looking forward to an even better 2007.  What are my plans for 2007?

I won't go back in time to revisit my past trades because I feel like I know what I've done wrong.  A lot of my mistakes are emotional and I must work at either suppressing these feelings or learning another strategy of controlling them.  Like I stated yesterday, my biggest problem is with closing profitable trades out too early.  I feel like I can overcome this problem.  I've made this mistake enough times now that I realize it does nothing but negatively affect me.  It affects my profit in a negative way and also affects my mind in a negative way.  I never close a trade early if it's in negative territory.  I always wait for it to hit the stop loss.  Why can't I do this with the trades in positive territory?  I will in 2007.   

I feel like the previous 4 months have been most important to my progression as a trader and I'll try to continue what I've been doing during these months in 2007.  My plan for 2007 is simple.

  1. Continue trading my rules.
  2. Introduce another stream of income by integrating Lien/Schlossberg service into my trading. 

It would be shortsighted on my part to strive towards full-time trader status by trading only my rules just like it's not smart to throw all of your money into one stock or mutual fund.  That is why I'm trying to integrate a reputable forex trading service to try to either offset my losses or maximize my profit.  There is also a possibility that I may explore futures trading in 2007 but I don't want to take the focus off of Forex.  Therefore I will start slowly learning more about futures trading.

I hope everyone has been making progress in their trading.  If not, hang in there and continue to work hard.  It doesn't happen overnight.   

Trading Range Indicator

December 28, 2006

I've found this text-based trading range indicator to be quite valuable in my technical analysis.  Here is a picture of it on my charts:

Forex trading range

 

 

This shows the daily range in pips for today, yesterday, the average over the previous 5 days, 10 days, and 20 days.   It also shows the stop losses you might use if you want to set it at 1/2 or 3/4 of the average daily range.  

It's particularly useful in guessing whether a momentum trade has the potential to continue or not.

If your interested in checking it out for Metatrader, you can download it here.

Forex ADR indicator 28/12/2006,10:30 13.35 Kb.

Forex Trading Tactics

December 28, 2006

There is a pretty good article that explores five stages of a trading technique.

  1. trend detection
  2. detection of the rollback start point
  3. detection of the rollback end point
  4. getting confirmation from another indicator or system
  5. entering the market with placing stop order and TP

I have no idea if this common sense trading method works but I like the structure and simplicity.  

Forex Trading Tactics

Busy Trading Day

December 28, 2006

I've been pretty busy trading over the last 24 hours.  Here's a quick log:

  1. Lost 90 pips yesterday morning on an H-system trade that was a couple of pips short of a 90 pip gain.  I was sleeping and couldn't move my stops to breakeven.  No excuses here… this is just the way it goes. 
  2. 27 pip gain yesterday morning on discretionary GBP/USD 1 lot trade.
  3. Lost 42 pips on a Lien/Schlossberg trade that was very long and drawn out.  The stop was almost hit several times and seemed perfectly placed but it was eventually taken out.
  4. 40 pip gain on a discretionary GBP/USD European session trade this morning.
  5. 42 pip gain on the first 2 lots an H-system trade.
  6. 23 pip gain on the final lot of the H-system trade.

The profit/loss from all of these trades equals zero!  All of these trades were necessary though, even if it seems like I have nothing to show for it.  It's also quite satisfying to come back from the 90 pip loss yesterday morning. 

There is still 1 big problem that plagues my trading.  I continually close out my positions before they reach their target.  Let me go through the 6 trades above to show what it could have been if I just followed my rules.

  1. No change.
  2. Closed early, missed 33 pips.
  3. No change.
  4. Closed early, missed 20 pips.
  5. Closed early, missed 18 pips.
  6. No change.

So due to FEAR, I missed 71 pips.  Why can't I just stop doing it? I have to make a conscious effort to do so.  There will be times when closing it early would have been better but for the most part, it usually is far better sticking to the target. 

Lien and Schlossberg Performance Graphs

December 27, 2006

As I previously mentioned, I am currently only trading the GBP/USD on my own.  In order to
diversify a bit, I've decided to start trading Kathy Lien's and Boris
Schlossberg's signals.

Their trading philosophy is this:

"…every single one
of our trades is a fusion of both fundamental and technical analysis.
We also believe that money management is just as important as the
entry, which is why we practice defensive trading. This means we try to
bank profits as often as possible regardless of the size and reduce our
risk in the market as early as possible. In order to achieve this, we
usually trade lot sizes in multiples of two (2). There is always a
first target (known as T1) and a second target (known as T2). It is our
rule of thumb that whenever T1 is reached, we move our stop on the
remaining position to breakeven (the entry price) so there is no longer
any real risk and we have banked a portion of the profits. This allows
us to NEVER TURN A WINNER INTO A LOSER."

You can find the performance trading with their signals at all times at http://www.forexproject.com/Kathy_Lien_Boris_Schlossberg_Trades or on the left menu under "Lien Schlossberg"

Slowest Week of the Year

December 27, 2006

According to forexblog.org, this week is perennially one of the slowest of the year.  Why?  Traders are on vacation or busy evaluating their 2006 performance.  I'm of the thinking, "expect the unexpected."  From my experience I'm not going to write off trading this week.  I wrote off trading during Thanksgiving week and missed some decent opportunities.   On December 28th, 2005, the GBP/USD had almost a 300 pip range and it was pretty much a downward plunge.   I'll keep my eyes open and stick to my plan with hopes of finishing 2006 strong.

Earthquake Affects Currency Market

December 27, 2006

An undersea earthquake affected the currency market today.  Reuters users in Asia were very much affected.  One Tokyo foreign exchange trader said: "There are many currencies in
which market-making is being conducted via Reuters and such currencies
such as the Australian dollar and the British pound are in a very
tenuous situation now."

http://edition.cnn.com/2006/WORLD/asiapcf/12/27/internet.asia.reut/index.html

Moving Average Explosions

December 23, 2006

There is a new article on Investopedia titled, "Moving Average Explosions."  You can find the article at: http://www.investopedia.com/articles/forex/06/movingaverageexplosion.asp

Diversifying my Forex Trades

December 23, 2006

This past week, I decided to start diversifying my forex trades.  Let me explain.

I think a true turnaround in my trading occurred when I started following one and only one currency pair.  Since it is my strong belief to follow only the GBP/USD, I don't want to change at this stage of my trading career.  If you are still following 8 different currency pairs and 5 different time frames, stop now.  This is the best advice I can give to beginner and even intermediate traders.  

Since I can only follow one currency pair at this time, I have decided to rely on someone else to provide me with trades for other currency pairs.  I will be using a service that I believe I can trust the most at this time.  

I started relying on the service this week for some of my trades.  All in all, I had a very productive week, one which turned December around for me.  The last three days of the week produced 314 pips for me.  The breakdown in profits are the following:

H-system trades: 90 pips

My other GBP/USD trades:  120 pips

Service trades: 104 pips

I now stand at +246 pips for December.  I feel it is important because after I blew up a trade last week by removing my stops and losing 2 1/2 times more than I planned, I've been able to put it behind me to have a successful week.  

I've been following the service I'll use for my non GBP/USD trades for the past 3 months or so.  It is Kathy Lien's and Boris Schlossberg's service which has had modest success.   The service has actually been free since it launched a couple of months ago but this all changes in the new year.  The service now costs either $295/quarterly or $995/year.  If you're interested, you can read more about it and even get a free month at http://www.bkforexadvisor.com.  Why have a decided to use this service?

  1. Out of any other service out there, I trust them the most.  Yes, it may be because I've read their books or because they are known currency analysts at FXCM (some may say this is a reason not to trust them) but you ultimately have to feel some trust if you're going to use a service.   Neither of these reasons may be good ones but that's just how I feel.
  2. The previous 3 months, they've been mildly profitable.
  3. They are realistic in their expectations which are stated on their site.  Their goal is to average a 200 pip gain per month.

I'm going to be tracking all of their trades on this site so that you and I will know how profitable or non-profitable they are.  I'll announce when the link is up.

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