This System Worked Today

March 30, 2007

The GBP/USD reversal trade that I talk about from time to time has been working very well.  It's probably the only thing that has been working for me as of late, but it gave me a little jolt of optimism today.  I profited 64 pips on 1 lot in a very short period of time.  This obviously is ideal and doesn't happen all the time but nevertheless, it's given me the motivation to put together a 10 minute video about this simple strategy.  I would recommend that you perform your due diligence to see how you can take advantage of this system if you're interested.   I can certainly improve on the video but I think you'll probably get the point.  I hope you can take all of the "UMMS" in my commentary.

http://www.forexproject.com/forex_videos/gbp%20reversal.htm 

My Forex Trading Slumber

March 29, 2007

In the past two years, a reliable indicator that my forex trading is up in the air are the limited number of new posts on this website.  This is my 28th post of March.  In February, I had 37 posts and in January, I had 40 posts.  The trend is obviously down.  When my trading is in a state of flux and uncertainty, it's not easy to find anything to say.  Like I've said over the last couple of weeks, I just haven't found the time to dedicate to trading or posting.  From my experience, if you want to be successful, trading needs to be pretty high up on your list of priorities.  Whereas last year I was able to concentrate my energies on forex trading and less on my full-time job, the opposite now seems to have taken hold.  My full-time job has been very hectic and longer hours in the office have meant less time for everything else.  I'm being tested more than I ever have in the past 2 years and the easiest thing for me to do would be to put all forex related activity on hold.  I don't think I've ever been away from trading more than a couple of days and I really don't want to take a leave of absence.  These are not excuses, just a fact of life.  I'm not about to call it quits, far from it but I'm hoping that as I get accustomed to my overall schedule, I'll be able to find the time to continue to strive for the goal of trading forex full-time.  I use Google Calendar to keep track of a lot of the non-trading tasks I have to do on a daily basis but maybe I should try to schedule particular times in the day that I will dedicate to forex.  I'm also in a bit of a transition where I'm moving away from day trading and more towards trading longer term.  I have yet to define a plan for this transition and it is probably the first thing that I need to do before anything else.  I welcome this challenge because I never thought this goal was ever going to be an easy one.

10 Reasons Why You Are Not Rich

March 26, 2007

The Street has an article on the reasons why me and perhaps you are not millionaires.  Some of the reasons can directly be applied to why me and perhaps you are not making any money trading forex.  

  1. You care what your neighbors think – Neighbors in this case could be other forex traders.  I do care what all of you think because it helps me in my quest to become a successful forex trader.  But ultimately it's your money that you're trading and if you have a successful strategy that works for you, I think you should run with it no matter what others say.
  2. You aren't patient – This is a very key trait in successful traders.  I need work on this one but I'm coming along.
  3. You have bad habits – These bad habits have to be isolated and purged if possible.
  4. You have no goals - "It's difficult to build wealth if you haven't taken the time to know what you want." Enough said.
  5. You haven't prepared – Preparation in trading is very important.  Prepare for the worst or you'll wind up risking a good portion of your capital.
  6. You try to make a quick buck – I wish a quick buck was easily obtainable trading forex.  Don't believe the hype, it's not.
  7. You rely on others to take care of your money - The whole point of trading forex is for me to obtain financial freedom.  Relying on forex signal services or others doesn't accomplish this goal.  Who says they're going to do anything but lose you money.
  8. You invest in things you don't understand – I hope I understand a bit about trading forex but I have a lot more to learn.  Don't throw all of your savings into the market until you know that you have a more realistic chance of success.
  9. You're financially afraid - If you're afraid to take risks, trading forex isn't for you.  Risk takers are sometimes the most financially successful people.  As long as your risk is known and planned, you'll be better off.
  10. You ignore your finances – Keep track of your finances which means keeping strict records of your trades.  Don't be afraid to analyze a losing trade.  You have to be able to learn from losing trades or mistakes. 

If you want to read the article, go to http://www.thestreet.com/_tscrss/newsanalysis/opinion/10345796.html

What Is Your Trading Style?

March 25, 2007

When I first started trading forex almost 2 years ago, I would hold trades for longer than a day.   This was mostly due to the fact that I didn't know what I was doing and I was either looking for unrealistic profit targets based on my time frame or it was because I would keep moving my stop loss hoping for the price to bounce back my way.  

I've never held a trade more than a couple of days and in the past year, I've rarely held a trade for longer than 24 hours.  Therefore I would have to classify myself as a day trader.  I feel most comfortable technically day trading but does day trading suit me? Based on my hectic schedule and already my challenge for sleep, I don't think it would be smart for me to attempt any day trading strategies at this point in my life.  My h-system is a day trading strategy but it's systematic so I'll continue trading it but if the performance continues to suffer and the only option is for manual intervention, I might have to put this off also.  

So what I'm doing now is trying to look more at trades that last a couple of days.  I'm not sure what style of trading this can be classified as but from what I mention below, it could be swing trading.   I'll continue to look at 1-hour charts but I'll also start concentrating my efforts on the 4-hour and daily charts.  Position trading is the style that ultimately may suit me best.    

I was reading the Special Trader's Issue of Stocks & Commodities that I received this month and they have an article that looks at the different trading styles.  According to the author of this article, there are actually 7 types:

  1. Intraday trading – This style of of trading is very short-term, mostly holding for only minutes.  This style requires extensive knowledge of the market and also extensive capital, both of which I'm short on.   Traders of this style may want to use 15-minute to 1-hour support levels.  This style is impossible for me at this point.
  2. Day Trading – Trades may be held a bit longer than intraday but not much.  Traders of this style may want to use end-of-day intraday support levels.
  3. Momentum Trading – This style of trading tries to take advantage of a sudden rise or drop in the price of a currency pair.  Trading this style is very similar to day trading in that traders would mostly want to use end-of-day intraday support levels and also have a moderate sized capital base.
  4. Swing Trading – Traders of this style typically hold positions for several days to a few weeks.  Swing traders use weak support levels that form over several days.
  5. Position Trading – This style requires a smaller capital base and less experience in the market.  Position traders can use weekly charts to start their analysis and moderate support levels that form over weeks to 3-months.
  6. Intermediate-term trading – These traders look longer-term and at quarterly support levels.
  7. Long-term investing – This style of trading requires holding trades for a years at a time.  I don't see myself trading Forex long-term.  If I'm investing long-term, I'll look at mutual funds and dollar cost averaging.  

Free Futures Magazine Subscription

March 22, 2007

If you are interested in a free 6-month subscription with no strings attached, go to http://lyris1.nuco.com/t/1046207/13016885/43429/0/ to sign up.  Futures Magazine also includes Forex content.

The offer is only available in the United States and Mexico. 

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I Suck At Technical Analysis

March 22, 2007

I like posting email's or comments from other traders that I receive because I find the information many times insightful and refreshing.  Here's one such email I received yesterday from a visitor that wishes to remain anonymous.

I don't trade the news instantly for the obvious reasons; widened spreads, dodgy broker activities, its just not worth it.   i'll take a position 10 minutes or so after the news is digested.  I'll give you a perfect example of a trade i did earlier this year where i made a lot of money.  When the BOE raised rates to 5.25% the pound went through the roof, over 120 pips (i think)… but look what happened right afterwards a huge selloff – which is clearly, people either

  1. taking quick profits
  2. people who were short and just got nailed

However, the fundamentals did not change.  I kept saying to myself the BOE just did a surprise interest rate announcement.  I rode that announcement up to 1.99, got out around 1.98 when all the drama about the close vote came through.  During the runup to 1.99, there were some ups and downs (people taking profits, corrections) but the fundamentals never changed.  In hindsight i was hoping for 2.00 break which would have been very interesting and it was only 80 pips away or something.  Then you look at the initial rundown from 1.99 – 1.92… the BOE has a close vote, int.rate future uncertain, then you have all the poor UK inflation, then BOE holds rates again its all right there in the chart.  This really helped my trading.  Take a 60 minute chart for the week, take all the economic announcements/daily reports and write in, when each of them happened.  Dailyfx does this at the beginning of each week.  It's very helpful.  When you do that… your labels will generally be beside large bars/candles, then you can see the corrections, the movements back down/or up and watch the times they happen, you'll see how fundamentals shape the market. 

Using a current example, I'm currently long eur/jpy and have been since Monday.  Yesterday there was a huge selloff because the Bank of China said they won't accumulate more reserves, so all this fear entered the market., I saw my 100 pip profit whittle down to basically nothing.  But I didn't get out, because I relaxed and asked myself:

  1. Is this enough to alter the outlook?
  2. Does this change the fundamentals right now?
  3. Will hedge funds/banks etc. give up their carry trades for this?

I said no, the EUR/JPY is now back up to its prior levels.  I could have been wrong, sure, but at least it was my decision not the decision of a moving average/stochastics etc.  The reason why i don't like moving averages in particular and a lot of technical analysis is that while yes they can work, you gotta remember big banks/hedge funds have these tools as well.  They know how the small guys trade.  They have the capital to push prices down knowing a MA cross will occur, and then they will just reverse and continue the trade in the fundamental direction.  My biggest problem as a trader are entry points.   I work really hard on technical analysis but honestly, I suck.  Technical analysis is not useless don't get me wrong.  I've been checking that Ed Mamula blog and I'm sitting here like "is this guy for real" cause that's crazy and very admirable.  I'd say on a fundamental basis I'm right 80% of the time.  Economics in Forex is not hard.  The sick reality of Forex is that you need capital and lots of it.  The worst feeling in the world is being right but still losing money.  Look at your losses.  How many times would you have been right if you just could afford to have bigger losses.  I mean if you're wrong, you're wrong.  I'd suggest really looking at your losses (not those Lien & Boris ones) and ask yourself, was "I right" fundamentally… one/two days later. 

In the New Market Wizards, they interview Bill Lipschultz, one of the most famous currency traders ever.  He said something so eye opening i never thought of.  Think about an investment bank… they get an order to buy 300 million euro/yen, they fill the order at a huge spread (profit right there), the order goes through, knowing an order of that magnitude will move the market, they take the same position and piggyback.  Front running is LEGAL in Forex.  Think about that concept.  Like i said, I'm not so successful at this that I can do it for a living (I WISH).  I love the markets but know where i stand in the big picture.  I know my orders don't reach the interbank market and I know i'm trading against my broker.  I do my best and get really frustrated when I was right but my capital can't sustain my positions.  I'd say maybe to improve your returns always focus on three things:

  1. INTEREST RATES – why do you think the pound has been so choppy…because there is no clear indication anymore about interest rates.  Look at the Aussie dollar recently at 10 year highs… Why?   Keep raising int.rates indicating more could be on the way.  Look at the euro… talk of 4.00% maybe more.
  2. WATCH CNBC (I'm serious) Like i mentioned previously, I made a killing shorting the yen at the end of February.  Technical analysis did not matter, nothing mattered.  It was all over the t.v., in the newspapers;  "the world is coming to an end!!!" Risk aversion blah blah… It was the first time i ever traded the eur/jpy cross but i didn't care that i had no history with the pair.  It was the easiest bet this year.  I just wish had the capital to trade gbp/jpy as well…. 
  3. Maybe try making a decision (keep a chart) of in your mind what the currency's should be doing based on your fundamental analysis.  Once you come to a decision stick with it, until you feel the fundamentals have changed.  Fundamentals do not change from some random news headline, or report.  They change over time.  For example, right now i will NEVER short eur/usd.   I don't care if it goes all the way back down to 1.29.  I will only BUY.  If you're asking the question, should i buy/should I sell, you shouldn't be making a trade, period.  Last week, the easiest pair to trade was usd/jpy.  Why???  On CNBC, they continually talked about how if the DOW is moving up, it must because the yen is weakening and vice versa.  I really do believe the only advantage of investment banks have over us is:
  1.  They have more capital
  2.  They know when big orders are being placed
  3.  They have the luxury of knowing where orders are

Look at the eur/jpy, gbp/jpy, aud/jpy, nzd/jpy crosses this week, the calm is back.  There's worries about subprime but equity markets have been up most days.  Carry traders want their interest.   Don't lose sight of that, until you read about another massive selloff in Asia, or about a few mortgage lenders in the states actually going under you, should buy these currencies against the yen.

Do One Thing Right

March 22, 2007

Piptopia, Rob Booker's site has a short post that says to do one thing right instead of getting tangled up with multiple financial instruments, indicators, time frames, and trading systems.  I've said this in the past and that's why I was concentrating on 1 currency pair and 1-2 trading systems associated with this currency pair.  But what happens when this system doesn't work anymore in the current market conditions? This is probably where patience comes into play.

I'm in the situation right now where my trading system isn't working out like it once was but I am sticking with it and trying to remain patient.  At the same time, I'm trying to explore other ways of trading and to be absolutely honest, don't know where to begin.  This has happened in the past to me, a period of confusion that sets in and takes me over.  I'm not trading recklessly but I feel frozen, unsure of anything.  My patience is being tested as I start to move away from my primary currency pairs to other currency pairs and multiple time frames.  I'm searching for something, anything but maybe I just need some time away to regroup.  Should I trade short-term or long-term, should I trade just the GBP/USD or start incorporating new currency pairs, should I try discretionary trading again or stick with system trading, should I….  What to do.  I wish I knew at this point what to do but one thing I do know is that I shouldn't jump in and start trading with this uncertainty hanging over me.  I'll continue to put trades in based on my systems but I'm not about to do something rash that would threaten my account balance.

When this confusion has happened in the past, some people have recommended that I just start trading in my demo account but I always felt that I couldn't take my demo account serious enough for it to be much help.  If I start using my demo account this time around, I'm not sure if anything will be any different.  Maybe I should consider trading smaller lots but this is just throwing away money at the expense of trying new things.  Therefore I'm going to try something new to see what type of involvement I can get from others to make trading more competitive and perhaps, more meaningful.  I've set up a FXContest on Oanda in which anyone can be a part of.  Quite simply, as long as you have a demo (FXGame) account with Oanda, you can join the contest.  FAQ's regarding the contest can be found at https://fx2.oanda.com/mod_perl/fxcontest/fxcontest.pl?rm=help#q6.  If you already have an FXGame account, it's as easy as going to the "Forex Project Contest 1" and joining.  You can do this at https://fx2.oanda.com/mod_perl/fxcontest/fxcontest.pl?rm=contestDetails&contestId=130.   If you currently don't have an FXGame account, they will instruct you on creating one and then you can join the contest.  The contest is slated to begin next Sunday, March 25th and will end 2 weeks later.  Performance is based on portfolio return.  They talk about this more in the FAQ's link above.  

I don't know if this is of interest to anyone but if it is, feel free to join.  I thought about offering some sort of prize that goes to the winner but I'd rather wait to see what type of involvement the contest gets first.  

Lastly, I just want to give credit to Booker's post that's mentioned in the first paragraph; you can find it here:  http://www.robbooker.com/blog/2007/03/20/do_one_thing_right.php

Forex Trading Dedication

March 21, 2007

Is my forex trading dedication waning, are my priorities shifting, or have I come to
a realistic conclusion? I'm talking about the time I actually spend sitting at
my computer trading.  There was a time
when I was getting up way before the crack of dawn trying to trade the European
session at 4 a.m. EST.  I also used to
watch the charts closely during the Japanese session.  Those times are over though.  The time I actually sitting in front of
charts has lessened by the month at this point and I'm not sure that's such a
good thing for someone at my stage of learning. 

I get a lot of emails like, "why don't you do this or why don't you
do that" but the reality is that I just can't do most of those things.  Some of these "things" are trading
the news and trading shorter-term charts. 
I certainly appreciate the feedback but can someone with a limited
amount of time actually be a trader? I'm not sure but maybe I'm taking the
wrong approach to all of this.  Maybe
someone short on time shouldn't be trading short-term charts or trade news
releases.  Maybe I shouldn't even think
about day trading. 

I've been trading a daytrading system for a while now mainly because it was a set and forget system.  I could set my orders, stop losses, and
profit targets and wake up most of the time to find the trade already complete but this certainly doesn't give you any flexibility.  Particularly, I'd find it very difficult to implement a breakeven requirement to my trading plan unless I automate this via a Metatrader broker.  So do I have to give up trading 30-minute and 60-minute charts and move toward 4-hour, daily, or weekly?  Perhaps I will have to do that. 

How are all of you managing to day trade and work full-time for a living?

Five Ways To Increase Profitability Possibilities

March 19, 2007

I was reading the Afraid To Trade blog which concentrates mostly on trading stocks and he mentions 5 ways in which you can increase your possibilities for profit.  Here they are modified a bit to fit currency trading:

  1. Hold your trades longer than usual
  2. Increase your position size by concentrating your capital on fewer currency pairs
  3. Decrease your position size but trade higher volatile currency pairs
  4. Decrease your normal position size but trade more opportunities in more currency pairs
  5. Increase your market knowledge and education

In my opinion, these are decent suggestions as long as you don't compromise your trading plan or style.  These can not be forced on yourself either.  For instance, if you don't feel comfortable or if you're not familiar with trading the GBP/JPY (a highly volatile currency pair), you shouldn't just dive in without performing your due diligence.

You can find view the Afraid To Trade post here.

Trading Price Action

March 19, 2007

I got hooked on the Forex Factory forums over the weekend specifically reading the price action posts by James16.  I received the following snippet of a comment a couple of days ago that turned me on to the forums:

Mate, you need to learn how to trade price action. Come over to Forex Factory and join the paid forum. I promise you will never see the
market the same way again….  Once you learn how to successfully trade price action off 4 hour, daily
or weekly timeframes, you never go back to trading systems again.

A lot of James16 posts are charts with some minor commentary.  Some of the patterns he mentions are:

  1. DHLHC – a double bar low with a higher close on the second bar
  2. DBHLC – a double bar high with a lower close on the second bar
  3. Two or more matching highs or lows which if broken usually mean a resumption of current trend
  4. BEOVD – bearish outside vertical bar in which the second bar totally encompasses the prior bar with a lower close on the second bar.
  5. BUOVD – bullish outside vertical bar; same as #4 but reversed
  6. Bullish and bearish outside vertical bars

Some of these may not mean anything to you until you actually view his corresponding charts.  I found the posts pretty compelling but I'm hesitant to trust anything I read at this point.  You can view this particular post at:

http://www.forexfactory.com/showthread.php?t=2331 

Does anyone have any experience with the James16 Group?

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