February 28, 2008
Do you want to support the Forex Project and at the same time get a more in-depth view into 1 of the 24 remaining NFA registered forex brokers? I’ve never explored Forex Club and don’t know much about them. I like to keep my options open though when it comes to forex brokers so I’m always on the lookout to find out more about one. To support this website, you’ll need to fully sign up for a demo by clicking on the link to the right…. or don’t.
February 27, 2008
I didn’t really write an e-book but most of the e-books I’ve seen out there should be combined into a big pile and burned. If I were to write a forex e-book, it would probably be less than a page long. Here is my e-book replacement.
If you’re a beginning trader, then go out an invest in a currency related book on technical and fundamental analysis. There are tons out there that cover both and they’re a lot cheaper and easier to read than an e-book. If the book doesn’t go in depth enough on a particular subject you’re interested in, do a Google search and you’ll find all the information you will ever need.
After getting some book smarts on the subject of forex trading, jump right in and start trading. Trade a demo or put a small amount of money that you can afford to lose at a broker that offers variable sized lots. Being able to trade in variable sized lots or micro-lots is critical. If you don’t have the ability to do this, most likely you’ll be overleveraging which will most likely lead to ruin. Try different strategies, either ones you’ve picked up on forex forums or ones you’ve created on your own. Experimentation is key and success will only come with experience. Consistent profitability isn’t going to happen overnight. The goal is to stay in the game for as long as you can without getting discouraged. I hate to sound like a walking cliche but there will be many bumps in the road. You’ll have to prepare yourself to take the punches and keep getting up. Take a break when you feel overwhelmed by the market with the intention of jumping back in when you feel like you’re ready.
My brother is a pilot for a major US airline so I know how many hours he had to have flying an airplane before he was considered proficient enough to fly a large passenger jet. Why would trading be any different? Get those trading hours. Even then, there is no guarantee that you will be successful but you’ll never know if you don’t get the experience.
If you trade long enough, you’ll start to see consistencies in the forex market. Your style of trading will also appear even if you weren’t trying to find it. You’ll also start creating trading systems that match your trading style.
With this experience and increased ability, I’d like to think the rest is this simple.
- Size your position. Keep your risk low on each and every trade. I like the risk per trade to be less than 2% of my total account balance. Use my position size calculator at http://www.forexcalc.com if you don’t know how to calculate it.
- Execute your trading system(s) knowing their criteria for trade entry and exit.
- Tune and tweak your trading system if needed. Continue to search for additional trading systems that you feel may give you an edge in the market.
- Repeat step #1.
Maybe I have a case of trader muscles but I don’t think it should be much more complicated than this. There may be a time when you decide to look into carry trading or more exotic trading strategies which complicate things a bit more but even then, I feel the basic principles still apply.
February 27, 2008
- Trade for the right reason. Do you trade due to boredom or for excitement? These are bad reasons. Why else would you trade except to make money.
- Match broker to your needs. This one could take some time and experimentation. Even after finding the broker that meets your needs, the job is not over. I’m always revisiting brokers I’ve rejected in the past to see if they now meet my requirements.
- Understand the risks of a position. This is very important. I keep the understanding of my risk simple. I know that most of my positions will risk 2% of my total account balance.
- Select entries carefully. I have predetermined entry rules because I want to keep the entry as unambiguous as possible.
- Mechanics trump everything. Know the market you’re trading. Become an expert. This will come with experience.
- Have a plan. I don’t think I need to elaborate on this one. This is a must.
- Have a well-defined exit strategy. After all, if you don’t have an exit strategy, how will you ever make money.
- Don’t put all your equity in one trade. As I mentioned in #3, I risk at most, 2% on one trade.
You can read a more in-depth discussion about these 8 practives in the March 2008 issue of Futures Magazine.
To read more forex articles, head over to The Forex Project.
February 27, 2008
O.J Simpson guilty of at least one Las Vegas robbery charge? Barack Obama to win 2008 US Presidential Election? Bird Flu to be confirmed in the USA on/before March 31st, 2008? Earthquake measuring 9.0 or more on Richter scale to occur anywhere on/before December 31st, 2008?
So what’s this all about. I stumbled upon a site that allows you to trade these events and more. If you think the likelihood of this happening is good, go long. If not, go short.
Right now, the chances of the US economy going into recession this year are 63.2%, down from a high of 75% back in mid-January. I don’t know if this site would be of any use to me but it may be a useful indicator to gauge investor sentiment.
February 26, 2008
The top 10 most popular forex books based on Amazon ranking are:
- The Complete Guide to Currency Trading & Investing: How to Earn High Rates of Return Safely and Take Control of Your Investments by Jamaine Burrell
- Day Trading For Dummies by Ann C. Logue
- Fast Profits In Hard Times by Jordan E. Goodman
- Forex Patterns & Probabilities by Ed Ponsi
- Getting Started In Forex Trading Strategies by Michael Duane Archer
- Getting Started In Currency Trading by Michael Duane Archer and James Lauren Bickford
- Adventures of a Currency Trader by Rob Booker
- Day Trading the Currency Market by Kathy Lien
- The Forex Trading Course by Abe Cofnas
- Candlestick and Pivot Point Trading Triggers by John Person
February 25, 2008
I use multiple time frame analysis in my forex trading for the sole reason that I think it give me more of an edge than if I were to use only one time frame. Let me give you an example.
Back in January, the USD/CAD 1-hour chart showed a short-term uptrend. (Click thumbnail for larger image)
Thinking about going long? First, if you were following the longer-term trend of the USD/CAD, you would have seen that the pair was in a strong downtrend for a year. This might be one caution flag to warn you to only look for short trades. But what if you’re weren’t too concerned about the long-term and wanted to look for a quick long trade that lasted under two days? Using a combination of trendlines or other indicators, if you used multiple time frame analysis before going long, you might think twice.
Here is a daily chart of the USD/CAD showing the same time period as the hourly chart above. (Click thumbnail for larger image)
The red line is the 200-day simple moving average. Considering the downtrend the USD/CAD had been in for the last year and the position of the price in respect to the 200-day SMA, would you still think about going long here. If you were to go long, you’d be doing so right where the price was hitting major resistance on the daily chart. Of course this analysis all depends on the indicators you use. Personally, I use the 200 SMA so I would not have gone long.
The outcome is that the price bounces off the 200 SMA and heads down quickly.
This is all looking in hindsight but I hope it shows my point.
If you’re interested, there is a new article on Investopedia that goes into a little more depth about using multiple time frames in FX.
To read more about other forex related topics, go to http://www.forexproject.com.
February 24, 2008
I’m looking for guest posts from you, the forex trader. I find that comments and emails submitted to this site are often very helpful so I think it’s a great way to share your experiences to the large audience that visits here daily.
This is what I’m looking for:
- Practical trading tips, experiences, opinions, or anything related to forex trading.
- Posts can be of any length.
- Posts shouldn’t contain a lot of self-promotion. I certainly welcome you to mention what you do and I will have a byline link.
- Posts should contain original content not found anywhere else on the web. I don’t want to be penalized by search engines for having duplicate content.
You can submit your guest post directly to firstname.lastname@example.org in any format you wish (text, Word, html, pdf, etc.)
February 23, 2008
I’m posting a well composed comment by Lonely Trader after my posting a couple of weeks ago regarding discretionary versus mechanical trading.
Did it occur to anyone that discretionary trading also includes mechanical models? And did it occur to anyone that automated trading has its own drawbacks? I think as traders we tend to chuck our models too quickly, without really studying them — and, more important, without really putting in the personal effort at executing our strategies according to our rules. I am not saying this about you, Rich, but I think most discretionary traders let themselves down by not putting in enough effort at studying their markets and following their rules — and then after all that wasted time, thinking that letting their software make all the decisions will bring the profits they dream about. Of all the models that I’ve seen, the discretionary models have the higher returns without necessarily increasing risk. The reason for this is automated systems tend to truncate profits because of an inability to intelligently react to market changes. (Granted, there are some very sophisticated programs that now use adaptive neural networks, but these are out of most retail traders’ price ranges…by like millions of dollars!) I firmly believe that discretionary rules-based trading is the most effective way for retail FX traders to make money. Algorithms help, but as decision-aides. And I also think that most traders tend to fail in the execution of those models because either they are risking too much money or they are just lazy about following their rules. It’s also a matter of trial and error. Most people who think they are looking at a discretionary model, or some aspect of it, are unwilling or unable to conduct a thorough empirical evaluation of it. They rarely put in the necessary time to quantify aspects of their model and to quantify aspects of their behavior in executing it. And so they either chuck their models out of frustration (before empirically proving whether it works or not) or they move over to automated trading models — and get caught up in the system-fetishism that plagues so many. Either way, each of us has to make a decision. Will we continue to fiddle around with charts, backtests, and flavor-of-the-month indicators, or will we really put our noses to the grindstone, study the markets, study ourselves, and then execute the plan? It doesn’t matter, ultimately, what course one chooses to follow. Just execute the damn plan!
February 20, 2008
In my continued effort to produce the best results possible, I’ve added another level of statistics to determine the most visited forex websites at Forex On Top. I’ve added traffic rankings from Quantcast which complement rankings from both Compete.com and Alexa. The total ranking doesn’t reflect the use of Quantcast yet but will upon the next update on Saturday. I can imagine there being a huge change in overall rankings after the update.
February 19, 2008
Do you have a problem with exiting your positions too early? I always have. It’s one aspect of my trading that concerns me because I’m never sure if closing it early was the smart thing to do. Let me give you an example which just happened to occur today. I went long on the EUR/CAD before the European session open. I went to bed and woke up to see the position up 80 pips. I had a 100 pip stop loss and a 200 pip target. I was a bit surprised to see it up this much so quickly. I thought about it for a minute and decided to close the position and take the profit. Why violate my pip target? Based on my experience with the ebb and flow of the currency market, I figured there was a good chance that the price will not continue in my direction and retrace, wiping out any profit I had. I’ve seen this happen so many times. Today, this didn’t happen. The EUR/CAD continued going up and would have easily hit my 200 pip profit target. This frustrates me more than losing. Here are a couple of ways I’ve handled a position that goes in my favor by a substantial amount:
- Close it out based on feel or maybe fear. I’ll do this even if I have a target set on the position. My rationale for closing it is that either I’m satisfied with the amount of profit or I’m fearful that if I don’t, the pair will turn against me and wipe out my profit.
- Close a portion of my position based on feel or fear and leave the other portion open to run if the pair continues in my favor. From my experience, when I do this, more times than not, the remaining portion gets stopped out and I lose the profit. Almost always, when I close a portion of my position for profit, I’ll set the stop to breakeven on the remaining portion so I won’t lose any money.
- It runs to completion and my target price is hit. This almost always occurs when I don’t have time to monitor the position. The target price usually gets hit very quickly. I typically obtain my highest reward to risk in this scenario.
In scenario #1, I feel good about the trade if I close it out and then it does exactly what I thought it would, turn against me. I don’t feel so good if the pair continues in my favor after I’ve closed it and would have hit my target.
My feelings in scenario #2 and very similar to those in scenario #1.
In scenario #3, I feel great about the results of the trade.
So which is better, any of the three scenarios or flat out losing money on a trade? I think not losing money is best but the first two scenarios can sometimes lead to losing money. If I’m not getting a decent reward/risk because I’m exiting a position too early, when I do hit that losing streak (trust me, it will happen), my losses could be much greater than my gains. How many times have you closed a position early when it at a negative and not going in your favor? I can count the times on one hand.
I’d love some feedback on what your experiences are and if you can relate to my possible problem. It hasn’t affected my profit the last month and a half though. I’m up over 13% this month alone but like I said, this could be short-lived if I don’t address this now.