Beginning of the Week psyche
Taking a bit of a profit early in the week is good for the psyche. I find that I trade much smarter when I do.
That is the reason why I closed 2 positions that I opened last night for a total of a 16 pip profit. I missed the European open and gave up an additional 50 pips that I could have made had I closed out these positions then. I set my alarm for 3:30 am EST but I never woke up. When I did wake up this morning, the positions had retraced so I took what I could get. I may have not closed them had the volume been greater. It was good for my psyche to take the profit and look for a possible setup tonight.
I’m taking pivot points a lot more serious these days. I’ll comment more on them later but they can be used in place of fibonacci or to complement fibonacci. I might consider using both.
Renko Charts
I stumbled upon Renko charts when I was checking out the VT Trader platform. I don’t if would use them for but they certainly are interesting for their simplicity.
Renko charts, as the name suggests, were invented by the Japanese and are constructed by placing either a white or black brick in the next column once the price surpasses the top or bottom of the previous brick by a pre-defined amount. White bricks are used for an uptrend and black for a downtrend.
Renko charts are just another way of representing price changes. They are quite superior in displaying the trend when it may not be as obvious pictorially on a candlestick chart.
Here is a renko chart and a candlestick chart for the USD/JPY using identical time periods (click the picture for full-size):
; "Renko Chart")
; "Candlestick Chart")
Wait for the candle to close
Wait for the candle to close; this is probably well-known to most traders but a lot of visitors to this site, including myself are new to forex.
I have to claim ignorance to the fact that I regularly open short or long positions without waiting for the candle to close because I never really knew otherwise. From everything I’ve been reading including a video I’ve been watching today, this point could not be more important. Whether your trading the 30-minute, 60-minute, 240-minute, daily or any other time frame, the close of the candle is most important. Not doing so can result in being on the wrong side of the market.
I’m watching "High Probability Trading Triggers for Entering Trading Positions" by John Person. Person mainly demonstrates the use of candlesticks and pivot points to identify turning points or trending conditions. You’ll need to register to view the video but it is free.
December 20th Commitment of Traders
The Commitment of Traders report was released on Friday. It can be viewed at Forex Volume
Crude Oil: 12,000 less long positions, 25,000 less short positions
CAD: Sentiment is Long; 10,000+ increase in Long positions, 3,000 short position decrease
CHF: Sentiment is Short; 5,247 total long positions vs. 39,314 short positions
GBP: Sentiment is Short
JPY: Sentiment is Short yet there was a substantial decrease in open interest(-67,985) and also substantial decrease in short positions (-55,857)
EUR: Sentiment is now Long; There is a net flip to Long Positions with a decrease of 8,000+ Short positions
Forex Holiday Hours
I’ve done a quick survey of a couple of forex brokers to see when they re-open since technically, the forex market never closes. I found that all re-open Monday evening (EST) or Tuesday morning (EST).
I don’t foresee there being much volume. I couldn’t say for sure though since this is my first Christmas holiday trading.
Major Forex Broker’s reopening:
fxcm.com : Tuesday, the 27th at 2 am (EST)
forex.com : Monday, the 26th at 7 pm (EST)
cmsfx.com : Monday, the 26th at 5 pm (EST)
GFT : Monday, the 26th at 6 pm (EST)
fxsol.com : Tuesday, the 27th at 1 am (EST)
Holiday Reading: The Candlestick Course
I picked up a book today in the bookstore by Steve Nison who supposedly was the first westerner to reveal candlesticks to the West.
It’s called "The Candlestick Course." Brian, a regular website visitor mentioned his daily Illuminations newsletter to me and I signed up for the 2 week trial. You can check it out at http://www.candlecharts.com/
I can’t really say more than this because I haven’t opened it yet. There is a posting on this site with a candlestick glossary attachment if anyone wants to get familiar with candlestick patterns. Just use the search feature and look for "candlestick glossary".
Week 3 Performance
It was obvious that the currency trader took a vacation this week as the volume was agonizingly low. I would have been better off taking the week off but the "project" must go on. If I’m trading this time next year (and I will), I will most certainly turn off my computer until after the holidays.
I actual made 9 trades this week, 4 winners, 2 losers, and 3 even for a loss of 15 pips and $55.10. I made a mild comeback yesterday and since then haven’t looked at anything. I’ll wait until next Tuesday.
After 3 weeks of trading a standard forex account with a starting balance of $10,000, my account totals $11344.10.
Week 1 – 6.5% gain
Week 2 – 7.0% gain
Week 3 – .48% loss
I’m still in the game.
Happy Holidays!
What is your multi-lot trading strategy?
I’ve been trading mainly 1 lot at a time. Sometimes I trade 2 lots but when I exit, I exit both at the same time. So even though technically, it is a multi-lot trade, I’m not using a multi-lot exit strategy.
I figure that I should start reading more about exiting from multi-lot positions before I start doing it. From what I’ve read, there are benefits to multi-lot lot trading. As a multi-lot trader, you are able to scale out your positions by closing positions at the respective target levels. While doing this, you can also trail the stop-loss level to the breakeven point or the previous target.
From what I’ve read, Mark Douglas recommends the following in his book, "Trading the Zone.":
If you do a multi-lot trade, say a 3 lot trade, you take 1/3 of the position off at the first price target if the market gets there. This leaves you with 2 lots. You would then take 1/2 of the existing position (in this case, 1 lot) off at the next price target. This then leaves you with 1 lot. The recommendation is to move your stop to the break-even level for the final lot and let it go wherever the market takes it.
John Carter uses the scale out method which is explained below:
For all intraday plays, he gets in all at once and scales out as the position goes his way. The target for 1/2 of his play will typically be small as the goal is for at least an initial profit. Once he has this profit, he will give the second half more room to play.
For swing trades, he gets in all at once and out all at once.
I don’t remember who mentioned this but I believe there is a trader who trades a given number of lots dependent on whether he is trading with or against the trend. If trading with the trend, he opens a position with 5 lots. If trading against the trend, he opens a position with only 2 lots.
I’m going to have to learn more about this before either using an existing or developing my own strategy.
What is your multi-lot strategy?
Holiday Forex Characteristic
Since this is the first December I’m trading currencies, I’m getting accustomed to the market characteristics that come with the holidays. For one, there are less traders sitting at their desks. This is evidenced by the "whippiness" of price action.
whippiness = lower volume = higher volatility = higher risk = higher return
This has not been a good week for me. My trading time has been limited due to my full time job and the holiday preparation. It’s during these times that I should be sitting on the sidelines because the trades I have been making are just not thought out very well. I’m entering trades without having stops or limits. Once again, it comes down to be disciplined. "Don’t enter a trade just for the sake of being in the market." This is me talking to myself.
I have a lot to learn.
The profits made during week 1 and week 2 may very well be wiped out by week 3. I’m figuring this week wasn’t the best for experimenting with wider stops and limits.
2006 Currency Outlook
There’s a decent article written by DailyFX that takes a look ahead to 2006. I’ll summarize the major factor that could affect the currency in 2006:
EUR/USD Outlook
-Change in focus from bearish to bullish EURO hinges on ECB rate hikes. If delivered, interest rate differentials between euro and dollar gradually compress
USD/JPY Outlook
-Will Japan put an end to their zero interest rate policy? Will revaluation occur with the Yuan? If the answer is yes to either one, the Yen could rebound
GBP/USD Outlook
-GBP may have another tough year considering England is fighting inflation, slow growth, and a slide in the housing market all at once. The GBP may be hardest to pull out from its slumber
USD/CHF Outlook
-With so much instability in the world, Switzerland may see an influx of capital as investors seek safety and stability. In addition, Switzerland had the fastest growing economy among the majors in the second half of this year. If this continues, they could benefit from this as well
USD/CAD Outlook
-Will crude prices stay below $60 dollars a barrel? Doubtful. CAD could have another big year
AUD/USD Outlook
-Will growth continue to slow and gold prices top out? Hopefully not for the Aussies sake.
Read the entire article at www.dailyfx.com
