December 31, 2007
17 traders have already joined. It would be great if you did too. What’s in it for you?
It’s a chance to _________.
- check out Oanda’s trading platform
- add a little more incentive to trade that demo account like it’s real
- compete for pride
- have your name mentioned on the front page of this blog (big deal, right)
- get back into demo trading to try that new strategy you’ve been meaning to forward test
Check out details on how to join at http://www.forexproject.com/Forex_Contests/
Join within the next couple of hours. I have to approve the contestants before midnight today but I won’t be around later tonight because it’s New Year’s Eve. Contest starts at midnight on January 1st. If I don’t talk to you before then, have a Happy New Year.
Click on the image on the top right to see the results from the last contest.
December 29, 2007
I’ve received this question a lot as of late. Actually I’ve received a lot of emails recently. Could this be the result of an influx of new forex traders in 2008? Either way, I try to answer every email I get and if I get a lot of the same question, I’ll post it right here.
I can only give my opinion on what forex charting platforms I’ve used over the last 2+ years. I’ll summarize my overall ranking at the end.
- FXTrek Intellichart - I used this platform for a couple of months when I first started trading. I have to think back to what my experiences were but from what I remember, the charting was decent. You could choose from 2 different data providers (one being FXCM) and I was using FXCM at the time as my broker so I found this convenient. They have 2 versions of the software, the desktop version and the online version, the desktop version offering more customizable features. The major issue I found with Intellichart was that the desktop version didn’t work through my proxy at work so I had to use the online version. Therefore I had to maintain different customization settings between both versions. This was a pain. The software also doesn’t have the ability to create custom indicators so you’re at FXTrek’s mercy when choosing an indicator. The cost per month is currently $100, not super pricey but an expense nonetheless. Overall, you may be just as well off by using your broker’s proprietary platform which is usually free.
- X-Tick – I used X-tick for about 2 months last year while Rob Booker was my "mentor." He used X-tick and I really liked the look and feel of the charting platform when I watched his videos. Therefore I decided to try it. X-tick has FXCM as a data provider and I believe one other. A pretty cool feature they have is called XPaint which allows you paint data with your own conditions. So if you wanted to paint a candle a different color when the Stochastics was over 70, you can easily configure X-tick to do so. A newer technology which they didn’t have when I was using it allows you to display two or more tickers in one chart. You can also use different timeframes in one chart. This sounds like a pretty good feature too. I was experimenting with different indicators back then so what I didn’t like was that similar to Intellichart, they don’t allow you to create custom indicators. I don’t use too many indicators these days so I could probably get by using X-tick now. The major issue I found with X-tick was that I couldn’t connect through my work proxy therefore I couldn’t use X-tick at all when I wasn’t at home. You may not have this limitation though so this is probably more personal. Subscription price is $89 a month.
- E-signal – I used eSignal for close to a year. eSignal is the most expensive forex charting platform I used, from what I remember, close to $160 a month. eSignal has tons of features, many which Intellichart or X-tick don’t have but I found the platform to be a memory hog and slow. These two reasons, price and slowness made me switch. Other than that, I liked eSignal. I liked the programming language to create custom indicators and liked the backtesting capabilities though intraday data was limited. There is also a decent community built around eSignal so you can find a lot of free custom indicators already programmed for you. There are also some custom indicators which you can buy. Overall, a recommended platform if you can afford it.
- Specific broker platforms – I’ve experienced both FXCM’s and Oanda’s charting platforms more in depth than others. The advantage of using these is that you can trade right from the chart but advanced features won’t be found. It’s hard for me to comment further since I haven’t experienced them all. I use Oanda charts in a very limited fashion.
- Metatrader – Last but not least is the FREE forex trading platform, Metatrader. Metatrader has a lot of features, similar to E-signal. There really hasn’t been anything I haven’t been able to do with it. You can create custom indicators, customize the display colors of the platform, backtest, import historical data, export historical data, and much more. The platform is fast and you have the ability to choose many different brokers as your data source. The only thing I don’t like about it is that the data is displayed in the timezone of the broker which many times is GMT but never EST. I’ve heard you can find brokers that display it in EST but I don’t know how true this is. FXDD is based in New York City and their data is displayed on the charts using GMT. This isn’t a huge issue trading issue, more of an aesthetic issue. The best thing about Metatrader is the huge user community. There isn’t an indicator you can’t find for free.
Now for my recommendations. If you are a new trader, you just can’t go wrong using Metatrader. You don’t have to invest any money into subscription fees and you’re not limited in anyway by the features it offers. There is also a huge user community so if you need help, you can find it without sitting on hold. If you’re an experienced trader, I also don’t see how you could go wrong using Metatrader. So my #1 recommendation is Metatrader. The one reason I can think why you wouldn’t use it was if you were primarily a scalper and your broker didn’t offer Metatrader as a trading platform. Since every little pip counts, you want to make sure the price you’re getting from your broker at any given time is what you’re going to get when you initiate a trade. Therefore, scalpers probably would use a charting platform provided by their broker.
My personal ranking:
- Broker platform
December 28, 2007
I've had a bunch of inquiries on where I obtain my forex historical data so I figured it's best to address it right here.
In my 2+ years of backtesting experience, I've found a variety of forex historical data providers. Some have been good, some bad. I have only paid for historical data once and it was cheap, $134.99 cheap. The major issue with this data is that it's indicative and has holes. For those of you that don't know what indicative data is, it's data compiled from multiple providers so the prices could reflect either the median or average price. This is not a true reflection of what's going on when you're trading. Indicative data in my opinion is useless. Unfortunately, you'll find this mostly in Foreign Exchange since their is no centralized exchange. If you're really interested in this data, you can find it at http://disktrading.is99.com.
The ultimate goal is to find forex data that is not indicative. A decent source is at Gain Capital where you can download historical tic data from 2000-present. It's a whole lot of data since it's tic but it's not indicative so it's useful. The major issue is that it's going to take you a long time to download (Gain throttles bandwidth I believe) and clean it up. This is from someone I received an email from today but his issues were the following:
- Some of the files were stored in 16bit unicode and not UTF8
- Spans of data overlaps
- 2005 is possibly missing chunks
- Somewhere in 2006, the CSV started using quotes at random which broke his parser
Like I said, it's going to take you a lot of time to get this data in a usable format but it's not bad. You can find it at ratedata.gaincapital.com (Gain capital is forex.com)
Another decent provider of free forex historical data is at Forexite. This data is also not indicative and spans back to 2001. It's 1-minute OHLC data (Open, High, Low, Close.) The only minor issue with this data is that it's in GMT +1. Your backtesting has to take this into consideration. All I did was write a script to convert the time to EST once it was imported into the database. The time zone differences can get confusing sometimes and I didn't want this to get in the way of my actual backtesting logic. Interested? You can find this data at http://www.forexite.com/free_forex_quotes/forex_history_arhiv.html.
Another option is to export the data right out of Metatrader from whatever broker you connect to. The only issue with this is that the intraday data doesn't go back more than 2 years at the most.
Once I have all the forexite data imported into a database for the 17 different currency pairs, I'd think about offering it out to the public for download but this wouldn't be until after it's been checked for holes.
December 27, 2007
There's only 4 more days to join the Forex contest. We only have 7 traders so far. Read more at http://www.forexproject.com/Forex_Contests/
December 27, 2007
I started doing more probability testing over the last couple of days after I got my backtesting database all sorted out. I have seven (7) years of backtest data for the GBP/USD. My backtesting has been on trading in a direction based on the OHLC of a certain time period. For instance, take this example which turns out to be profitable over 7 years of backtest data.
- Look at an hourly GBP/USD chart. What color is the 4:00 a.m. EST candlestick?
The candlestick is green? Go long at 5:00 a.m. EST. Close the position at 12:00 p.m. EST.
The candlestick is red? Go short at 5:00 a.m. EST. Close the position at 12:00 p.m. EST.
Pretty easy. This is a strict day trade. Who cares about anything but the 4:00 a.m. candle. Sounds random, right? Who knows if it is or it isn't. All I know is that it turns out as the most profitable from what I've tested so far.
What do you set your stop loss to? You don't set one. This is a time-based stop loss. You will close the position at noon no matter what.
What is your profit target? Again, this is a time-based target. You will close the position at noon no matter what.
How profitable is this? Over the last 7 years, the short trades would have profited 4,636 pips. The long trades would have profited 7,510 pips. That's a total of 12,146 pips total or an average of 1,735 pips a year, 145 pips a month, or 7.25 pips a day (based on 20 day trading month.)
You may ask what type of drawdown this system will produce. I have those numbers too. The greatest loss from all short trades was 251 pips. The greatest loss from all long trades was 292 pips.
What is the greatest profit from a short and long trade? 225 pips and 256 pips respectively.
Is this a viable strategy? I have no idea. With a lot of capital, maybe. I'm just throwing it out and sharing. Don't take my word for it. I've validated the results but they're all dependent on the data provider. If you really think about it, trading a 1-lot mini-account, you're looking at a profit of $1735 for the year. This is peanuts and not worth the effort. Trading a 1-lot standard account, you're looking at a profit of $17350. Still peanuts. If I wanted to live off this one strategy, I'd really have to trade 6 standard lots which means my maximum loss could cost me $17520.00. Wow. If I wanted to only risk a maximum of 1% per trade, I'd need an account over 1 million dollars. Sucks. This just shows how hard it is to make money doing this if you don't already have a pretty sizable capital base.
December 23, 2007
My site was hacked sometime between yesterday and today. I noticed the site was down Sunday late afternoon. Hacker bastards…. Everything is back to normal now. Continuing to fight the forces of evil…
December 23, 2007
I recently received an email from a trader, Craig who I've chatted with via email or comments over the last couple of years. I'm glad to see he's still going too.
"Hi Rich, you probably remember that I started about the same time as you. Like you, I now bleed at a snails pace. However, I do feel I'm getting closer. I went though a long period of trying to be personally disciplined, trading the London open etc, but I just can't do it as I am already tired and stressed from my job and life in general. However what I can do is discipline myself to write code on the weekend and back test. I think it's important to realize when something is not working and not to be worried about moving on. I flogged myself trying to trade many systems (linuxtroll simple scalping, Point and figure, CCI etc.) Nothing really worked. Now I only trade automated and only if I can mathematically prove that I have some sort of positive expectation on unseen data. I can see how trading is anything more than that. Am I making a killing? Not yet… but I do feel that each time a system fails, I learn something new which brings me one step closer to my goal, which is the same as yourself and Simon's.
Thanks for the email Craig. Of course I remember you.
December 22, 2007
Forexontop.com was updated today with the latest traffic rankings. The site was redesigned last week pretty much from the ground up including the new logo. Newest links include:
What’s with forexpros.com? I never heard of this site but it’s moving up rather fast. Seems like most of the content is unoriginal and just aggregated from other sites. If I’m going to go to a forex portal, I’ll usually go to FXStreet which is much better.
December 20, 2007
I haven't been able to put a lot of time into actual trading. I woke up late twice this week and didn't have any time to look at the charts before heading to work. It's never a good idea to try to trade when you're in a rush. This is a recipe for disaster. I've done it in the past and won't do it again. On top of that, Wall Street hit me hard this week when bonus numbers were released. It just figures that the hit was hard yet the work load has increased at a fast and furious pace.
I remember a post that Simon had a couple of weeks ago about not putting pressure on yourself to trade for financial freedom. Instead, he said trade towards material things like a plasma television or something else. If anyone has worked long enough in the corporate world, you've seen someone get layed off after 20 years of service or your compensation decrease. Therefore, guess who owns you. Time will tell if trading is my route to financial freedom but there's no doubt that my goal everyday is to strive towards the goal of trading full-time so I'm in control. I love gadgets and big screen televisions but the thought of owning them do not motivate me. It's up to you to find that motivating factor.
That brings me to my end of year question, "Do I feel any closer to becoming a full-time trader?" The answer is no. I've made a lot of progress over the last 2+ years but no where near where I have to be. Where do I have to be? I don't know, a lot further along than where I am now. I've made leaps with managing my money so that now when I bleed money, it's at a snails pace but I have to be honest with myself. If I'm not showing a consistent profit, I'm no closer to trading for a living. I'm not discouraged, I have a renewed sense of motivation since I started trading again in November. Trust me, I'm not going down without a fight and will continue the struggle in 2008.
December 17, 2007
UPDATE (January 2008) I’ve created an AJAX forex position size calculator that performs the calculations for you. You can find it at http://www.forexcalc.com
Here is a complete checklist to determine the most important aspect of money management, position sizing.
1. What is my account balance? $4234.58
2. What percentage of my account balance will I be risking? 1.0%
3. What is my stop loss on this particular trade? 50 pips
4. What currency pair am I trading? GBP/USD
5. How much is a pip worth on a 10K (mini) account? $1
6. CALCULATION What is my dollar risk amount? (Account Balance x Percentage Risk) $42.35
7. CALCULATION What is my position size (Dollar Risk Amount x 10000) ÷ (Stop Loss x Pip Worth)
- It’s up to you to determine what percentage of your account balance that you want to risk. I’ve heard traders risking from 1.0%-5.0% per trade. I risk no more than 1.0%.
- It’s important to determine what your stop loss will be before continuing with the checklist.
- This is the hardest to determine by hand with the exception of currency pairs with the USD in the quote currency such as the GBP/USD, EUR/USD, and AUD/USD. These currency pairs always have a pip worth of $1 on a 10K (mini) account. For other currencies, it’s easiest to use a pip value calculator. Make sure you use the pip value from the "Lot 10,000" column.
- This is easy. Take the account balance and multiply it by .01 (1.0%), .02 (2.0%), etc. to obtain your dollar risk amount.
- This is the most important calculation. Do it right.
EXAMPLE #1 (Answer questions 1 – 7)
- 50 pips
- USING A CALCULATOR-> ($4234 x .01) = $42.35
- USING A CALCULATOR-> ($42.35 x 10000) ÷ (50 x $1) = (423500) ÷ (50) = 8470 units
What you might be thinking… I can only trade a mini-lot which is 10,000 units. This is more than my calculated position size. This means that you are under-capitalized. You need more capital to trade mini-lots. Another option is to use a variable-lot size broker like Oanda where you can specify 8470 units. Another option is to risk a smaller percentage per trade (use 0.5%.)
EXAMPLE #2 (Answer questions 1 – 7)
- 75 pips
- USING A CALCULATOR-> ($10582.26 x .02) = $211.65
- USING A CALCULATOR-> ($211.65 x 10000) ÷ (75 x $0.8829) = (2116500) ÷ (66.22) = 31962 units
In this example, you could enter a trade in the USD/JPY with 3 mini-lots or 30,000 units. If you have a variable-lot size broker like Oanda, you can enter a trade with 31,962 units.
There may be a better or quicker formula for calculating position size. This method works but if you know of a more efficient way, let me know.