Moving Average Explosions

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

Newest Issue of Currency Trader Magazine

The newest issue of Currency Trader Magazine was released today.  Some of the highlights are:

• EUR/JPY Trading Strategies for short-term Forex Traders.  Identify daily and intraday tendencies.
• Are
  currency traders making life unnecessarily difficult for themselves? 
  The so called currency trading professionals have terrible returns for
  2006.  How can the individual trader expect to make it then?
• Charts are not enough.  Traders need to be more aware of the fundamental news causing price movement.
• Slowdown in the Eurozone? What's in store for 2007.

You can download a free copy from http://currencytradermag.com/subscribe_acrobat.htm

My End Of Month Forex Results

I'll mention what I've been busy with in a moment but let me recap November first.  I ended the month of November in the black at +14 pips.  It isn't much but nevertheless, the third month in a row with profitable results.  Over the previous 3 months, I've managed to take 747 pips from someone else's grip.  Consistency is the key and the goal in everyone's trading; I'm slowly starting to believe this is possible in my trading.  Of course I always have my doubts on whether trading Forex is a viable option to wealth growth but I have to believe that trading full-time is possible.  I've received so many emails over the past year from many traders and most have not obtained success.  If you believe what "they" say, that only 5% of traders are actually profitable, then I can understand this.  There is obviously no way for me to prove who really makes money but from all of my conversations, but I'd say maybe only 1 or 2 have achieved a success that one may strive for.  I've also received emails from long time traders that are convinced that there is no way you can make money trading Forex.  They are absolutely and positively sure of this.  I don't believe this or I wouldn't be writing this post.   One thing I am certain about is that it takes a lot of time and effort to learn how to trade.  I can only estimate that the amount of time I've spent learning (everything from reading, trading, writing) exceeds 3000 hours.  That's about 50 hours a week for 65 weeks.  So this is already my full-time job, but unfortunately I have 2 demanding full-time jobs.  I only want 1.

Anyway, I had a nice start to December with a 90 pip profit trading the GBP/USD today.  The pound has been "pounding" the dollar since last week with its sights on 2.0000.  I wouldn't be surprised if it hit that mark next week.  What a resistance level that sounds like, 2.000….

I'm out of time right now so I'll have a post in a couple of hours related to what I've been busy with. 

Free Trading Books

I was reading about a little known trendline trick at swing-trade-stocks.com which states, "in an uptrend, if a higher high is made but fails to carry through,
and then prices drop below the previous high, then the trend is apt to
reverse."  Though this information may seem obvious, I still find it valuable.  I looked back at the 240 minute EUR/USD chart and noticed that more often than not, this is the case.  Why? 

"…the locals as well as the brokers who trade on their own account
have a vested interest in driving prices slightly above or below these
"resistance" or "support" points to force execution of the stop loss
orders. This is called "taking out the stops." After the stops are
executed, the market will readjust."

This information was provided by a trader (Trader Vic) who was featured in the popular "Market Wizards" books.  This leads me to how you can get free trading book content.  The above "trendline trick" is just one of three of Trader Vic's criteria for a trend change.  I wanted to find out the other two criteria.  I easily found it by searching for the book "Trader Vic" at Google's Book Search.  The entire book isn't provided but a lot of content from the book is.  This is the case for many more trading books.  I've said it before but sometimes a tidbit of information can go a long way and there is a lot more than a tidbit of information at http://books.google.com.   Search for Forex and you'll find a lot of books on the subject, just be sure to skip over the "Forex Made Easy" book by James Dicks.

What are the 3 criteria for trend change? (Provided by the book, "Trader Vic–Methods of a Wall Street Master")

1. break in the trend line
2. test of preceding high or low
3. breaking of a preceding minor rally high or minor sell-off low

Rule 2b is actually the trendline trick mentioned above.

Here is a graphic corresponding to the 3 criteria for trend change:

 

 

 

 

 

 

Even the Experts Do Not Make a Killing

I wanted to show Kathy Lien's and Boris Schlossberg's trading results for the last 2 months so that everyone can see what reality is.  For those of you that don't know who they are, they both have written books on trading Forex, are both currency analysts at FXCM and they both regularly appear on CNBC.  The results below are for the trades that they made public.  What goes on behind the scenes is obviously unknown to me. 

Their results are good; they made 366 pips between September 29th and today.  I'm bringing it up because I think it's important to have realistic expectations when trading.  When I first started trading, I thought it would be easier to make a living doing this.  I quickly changed my thinking.  Also, when you see "experts" making 366 pips in 2 months, you wonder how it would ever be possible to do this full-time. 

If you average 400 pips every 2 months trading 2 100K lots, that's a total of 2400 pips over the year.  That's approximately $24,000 a year.  That's it!  That's not a lot of money.  I think the only way to do this for a living is to have plenty of capitalization so that you can trade more than 2 lots.  In order for you to make $96,000 a year, you would need to trade 8 100K lots each trade.  That would give you 4 times as many pips and therefore 9600 pips over the year. 

How much capital would you need to start if you wanted to trade 8 100K lots with only a 3% risk per trade to your account.  Let's use 30 pips as a stop loss for this example.  If you lost 30 pips trading 8 lots, you would lose a total of $2400.  Therefore, you need to have $80,000 in your account if you only wanted to risk 3%.  

If my calculations are off, let me know but the reality is, even if you can consistently make good trades each and every month, you need a lot of capital to start to make a living.  I'm assuming that you have to make $96,000 a year but some of you may require much less.   For those of you in the New York City area like me, $96,000 isn't rich and I'm sure it's the same for a lot of other people in California or other parts of the country or world. 

 

 

 

 

 

 

10 Things I Have Learned Trading FOREX

This is a list off the top of my head of the 10 things that I've
learned since I started over 1 year ago.  Some of these may be
repetitive and are based on my opinion only. 

1. I don't really trade in a market with the largest number
   of participants or volume of transactions.   In reality, I trade in a
   very small world created by my broker.  Therefore, I'm at a huge
   disadvantage because they can see my hand but I cannot see theirs. 
   Yes, generally the quoted prices are similar to what the interbank
   offers but execution is dependent on your broker and their willingness
   to allow you to make money. 
2. Trading FOREX isn't easy.  There are many reasons for this.  One
   of them could be because of what I mention in #1.  Some of the things I
   saw when I first started trading FOREX and still see today are
   "testimonials" from "trainers" or authors (ie: James Dicks) that state
   how easy it is for you to trade for extra income and also how stay at
   home moms can do this for a living.  This is bull and it isn't just
   because I haven't consistently been profitable over the last year.  The
   reality is that a large majority of people who were trading FOREX when
   I started a year ago are long gone.  Trading FOREX is a revolving door
   and it's negligent to suggest that it's easy.  Some of the seminars
   I've seen on TV look like they target older people who are closer to
   retirement.  This is strictly my opinion but trading FOREX has to be
   the worst retirement vehicle for someone nearing retirement.  
3. It's all about money management.  When I started trading, I heard
   a lot of people saying that you should have a certain reward/risk when
   entering a trade but it didn't really resonate as it does now. 
4. It was fun when I found a new indicator with cool colors, bells,
   and whistles but you can endlessly skip amongst indicators looking for
   the holy grail.  There is nothing wrong with experimentation as long as
   you know that it might be better to stick with what you have and become
   intimate with it. 
5. Review all my trades whether it is was a winning trade or losing
   trade.  This is still a work in progress.  No one likes to re-live or
   replay their mistakes but it is an absolute must to learn from your
   mistakes.
6. Don't get crazy stupid.  I'm sure a lot of you have had that one
   trade that just went crazy wrong whether you removed your stop and
   prayed for the price to go back in your direction or any other reason. 
   This one trade can wipe your account balance and just as much your
   confidence and motivation.
7. Keep on learning.  There's a lot of information out there and a
   lot of it is repetitive.  I've found that if you can disseminate the
   good from the bad, one small tidbit of information can be an
   unbelievable help.
8. Develop a trading system that suits your personality because what you can learn from it is invaluable to your trading.
9. Remain realistic.  Don't expect that once you start trading FOREX
   you'll make millions of dollars.  Try to remain totally realistic with
   your expectations.  I'm sure it's possible to make a million dollars
   but just like a lot of things, the odds aren't good.  I'm not saying
   that it's not possible to make a million dollars over the long haul,
   but I don't expect to make a million on a couple of trades. 
10. Trading with a demo account is useless to me.  I just haven't
    been able to stick to using it.  It may not be the smartest thing but
    trading with real money will introduce real emotion.  I just cannot
    stress enough how many people have said they made huge profits trading
    with a demo only to see this fortune reverse when they went live.  Of
    course I started trading FOREX with a demo account when I didn't
    understand order execution, stop losses, currency pairs, and everything
    else but once I became comfortable, I started small with money I could
    afford to lose.

I will remain very flexible in determining these 10 reasons.  This list could easily be
different next year as my knowledge and experience grows.

Support and Resistance Spillover

There's a short lesson on support and resistance spillovers on Dailyfx.  Specifically, they talk about using 20% of the range for stop placement below or above the new low or new high. If you are fading and short at proximity of the range high, instead of placing a tight stop right above the range high, you would calculate 20% of the range and place a stop loss at that value above the range high.

Support and Resistance Spillover

Enhancing Trader Performance

I just read the first 6 pages of Brett Steenbarger's new book titled, "Enhancing Trader Performance: Proven Strategies from the Cutting Edge of Trader Psychology."   The book was just released  on November 3rd. 

Brett easily hooked me in the first 6 pages with a profile in psychology of two real traders.  The first trader, Al never lost his cool and didn't violate his stop losses.  The second trader, Mick was kind of a hot head who violated his stops and took a loss personally. Mick after having a bad morning where he allowed his emotion to affect his trading decided to skip lunch to review his trading, figure out the market and also how to get back his money.  Al took his lunch and went back to trading with his cool and calm style after lunch.  Which one is the successful trader you ask?  Mick is the multi-million-dollar performer.  Al is no longer trading.  How has Mick been able to succeed despite his obvious violation of psychological principles?  Deliberate practice.  Mick is dedicated to the market and analyzes his every mistake.  This helped in preparing him for similarly frustrating trading scenarios and provided him with the confidence to get through it.

I have not bought the book yet but I might.  

http://astore.amazon.com/theforexproje-20/detail/0470038667/002-4343923-4611237

Philosophy in the Preservation of Capital

As I've mentioned in the past, a very important goal for any trader should be the preservation of capital.   In fact, making this a primary goal ahead of all others may be most beneficial to success.  That is why I post anything that's related to this when I stumble on it. 

I've been following Kathy Lien and Boris Schlossberg's blog since they started it back in September.  If you've followed their trades since they started, you would have made a nice profit.  I have not personally taken any of their trades but I follow some of their trades for learning purposes.  Currently, they are providing this free service with the purpose of garnering your confidence in them to charge you later on.  I have no problem with this.  There is probably a lot of work involved in providing this and they have to get paid just like everyone else.   According to their FAQ's, they will be moving to a subscription model in a month or two which will be in the range of $85 – $100 a month.  I'm slowly getting to my point but what I like about them is that their philosophy is heavily geared towards the preservation of capital.  If you've followed any of their trade calls, this is quite evident.  They state their philosophy as the following:

"…we
practice defensive trading. This means that 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 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 that 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."

If you have any interest in reading more, feel free at http://bktraderfx.com.

What Is The Best Way To Be Successful in Forex?

What are the best ways to become a successful forex trader? These results are taken from a Moneytec poll that had over 6,000 respondents and are ordered by most votes first.  My comments follow each result.

1.  Study by yourself and get experience – Over 45% of the respondents said this was the best  way.  I have to totally agree with this and is what I've been doing for the last year.   One point I'd like to make is that you don't have to do it all by yourself.  If you can find a trading partner who has the same drive and motivation as yourself, this could be even more beneficial.  
2. Develop your own system – Over 25% voted for this but I think this goes hand in hand with #1.  If you are studying by yourself and want to get more experience, developing your own system is an absolute must even if you never use it.
3. Learn from a mentor – 15% said this.  I think I've stated my views on mentors clearly in previous posts.  Mentors are what you make of them.
4. Open a managed account and monitor it for education – 5% voted for this.  I personally have never tried this method.  I did just hear last week that you can open a managed account with Raghee Horner called Autotrade FX.  You open your own account at TradeDirectFX and it mirrors her every buy and sell order.  Interesting concept but I think difficult to learn from.  You see all the buy and sell orders but no rationale behind them.
5. Hire a portfolio manager - This was voted as the best way by 2.65% of respondents.  I don't get it.  I'd rather be self-sufficient and how do you know who to trust.
6. There is no way to become continually profitable in forex – 1.51% negative respondents to this one.  The jury is still out on this for me personally.  I hope I don't come to this conclusion.
7. Get signal alerts by subscription or live from a guru - 1.09% voted for this.  I don't know if this helps or not.  I don't like it though.  Who do you trust with the never-ending list of scammers out there.  If you want to listen to someone else though, there are plenty of sites where you can get free trade calls and technical analysis.  In fact, there are just too many out there to choose from.
8. 
   Get Analytical reports and Make your Judgement - Less than 1% chose this response.  Sound very similar to #7.  The analytical reports are basically going to tell you which way to trade so making judgment calls here is probably kept to a minimum.  Not for me.
9. 
   Buy Software or Strategy Description - Less than 1% chose this response probably because this too is very similar to #2, developing your own system.  If you are going to trade forex with TA, you need software and you need a strategy.

Link to Poll at Moneytec

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