Holiday Trading

I want to take this opportunity to wish everyone a happy holidays.  It's been a productive year, one in which I hope my contributions have been helpful to you because yours have been to me.  

Now for a couple of announcements… 

• With the end of the year here, it may be advisable to reflect on all of our 2006 Forex trades.
• Forex Project postings and other types of information exchange are going to continue to be thin due to holiday "goings-on."
• I'll be around and I'll be trading with the goal of finishing up the year on a positive note.  The goal is to finish December in positive territory.  If I can do this, it will be four profitable months in a row.  Currently, I'm up 21 pips.
• I guess Rob Booker was making the rounds with all of his students this week.  I spoke to him via email yesterday and he warned me of "end of year volatility." 

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Caught Off Guard Three Days in a Row

I've been caught off guard three trading days in a row, a testament to the unpredictability of the markets.   Let me recap:

Day 1 - Friday, I took my stop losses off during the US economic announcement and the price spiked against me big time.  A little while later, the price spiked the totally opposite way and I was able to take some of the losses back.  If I would have kept my stop losses intact, I would have been even for the day, not down over 100 pips.

Day 2 - Monday, I was short three positions and price movement even after the US economic announcement was weak.  I closed my positions for 0 P/L going against my rules and maybe giving in a little to fear.   A short time later, the price started moving and my positions would have closed on their own with a nice profit.  This definitely isn't the first time I've closed out positions before they've reached their potential.  

Day 3 - I always have my long and short orders in before I go to bed.  I put my short orders in but not my long because I figured the price was too far from the long entry to ever trigger.  My short orders didn't trigger but my long orders would have so I missed out on a nice profit.

You may notice that I've underlined the WOULD HAVE's.  It's easy to say this in hindsight but it is a fact that if I followed my rules like I've done in the past, I'd be up over 200 pips after Day 1, 2, and 3.   Instead, I'm down over 100 pips.  

I'm not going to beat myself up over this but it's just something that I want to keep in mind.  These are the type of things you can never tell anyone to be on the look out for.  I couldn't tell you to follow your rules because of the mistakes I've made.  I think you have to make the mistakes on your own to realize this.   Mistakes are good if you use them to improve in the future. 

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Are You Kidding Me?

{mosimage}This is not a question but more of a response to the movement today.  Way down, way up, way down, way down some more….

If I would have held onto those 3 losing positions (-225 pips), they would now be up over 150 pips.  But I cannot realistically say something like this and believe it.  The right thing would have been to close those 3 positions at -30 pips each because no one has any idea what is going to happen next.  

I was able to capture some pips after this terrible trade but not without the fear of losing more.  I profited 87 pips after the 225 pip loss leaving me at -138 for the day and -9 pips for December.  So I'm not in as bad shape as I was an hour ago but it still doesn't change the fact that I blew up this one trade.  I'll get over it and in the long run, the loss will help me.  At least, that's what I'd like to think.

I'm done for the week. 

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What a Setback!

All I can say is that I had quite a setback today.  I'm writing this as my positions just closed out so I'm really disappointed at my stupidity.   Quite simply, I was trying something new and I got bit.

I was short on a 3 position GBP/USD trade that was profitable most of the European session yet not enough to hit breakeven or profit targets.  Then came the US CPI economic announcement this morning.  I have never felt comfortable being in any position going into an important US announcement and this time was no different.  I took my stop losses off the positions with the thought that I would close manually 1 minute after the announcement if my positions were down.  My reasoning? I wanted to prevent from a false spike taking me out of the positions which had happened many times before only to find out I was right.   If anyone was watching the market, you know what happened.  The price did spike but got pegged GBP bullish, the complete opposite of my positions.  I didn't even have time to close out my positions in a timely manner.  I painfully closed all 3 positions at a 75 pip loss each which was 2 1/2 times greater than my normal stop.  

This trade hurts for many reasons:

1. I went from being profitable by 129 pips in December to -96 pips in December
2. Went against my own good judgment
3. I was very patient all week and lost it in a minute
4. Not only does this wipe out my profits for December but also for November and part of October

So you can see how damaging 1 trade can be and it's not even the money that affects me as much as the mental setback.  It's going to take some work to get back to where I was.  

The positives from all of this? I don't foresee ever taking my stop loss off the table again.  Never, ever.  In addition, sometimes I need a big punch in the face to remind me that things like this can happen. 

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Mid-week Forex Trading Update

I try not to talk too much about specific trades I make because I think it's pretty boring to read.  I've come to this conclusion reading other people talk about technical analysis.  But I try to give a shout out once or twice a week to let everyone know that I am trading which is what this update is about. 

This week I am trading very cautiously.  This wasn't necessarily my choice only, it was my systems choice as well.   The H-system has been out of the market all week and hasn't generated a signal since last Friday.  This doesn't mean that I go to sleep because I do still trade on discretion.  This week still has been very slow.  I profited 21 pips Monday on my newest system that is supposed to be in forward testing.  Today I profited 30 pips semi-trading the news this morning.  It was a bit of intuition but I had a pretty good indication that the GBP was going to decline which it did.  I'm just disappointed that my 1 lot trade was up 60 pips and I only wound up getting half that.  

The difference now with my discretionary trading is that I'm not looking at six other currency pairs and 5 different time frames each.  I am only looking at the shorter time frame GBP/USD charts.  That's it.  Like I've said before, if you are new to trading Forex, I would recommend concentrating on only one pair.

I'm currently up 129 pips this month in an attempt to end 4 straight months with a profit.  Whereas before I saw this as a virtually impossibility, I'm starting to think that it's totally possible and I almost expect it of myself.   We'll see how it goes though because I still realize how difficult trading is.   I'm certainly not overconfident which I think is a good thing because I think having overconfidence is a really bad thing.  

The greatest emotional problem facing traders

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10:1 Reward Risk

I was checking out HedgeStreet.com a little today to see what they have to offer.  They're self described as the first Internet-based, government regulated
market where traders can hedge against or speculate on economic events
and price movements.  Just like trading Forex, you can buy or sell contracts by placing bids and offers.  The difference is that you trade based on certain events. 

Here is a good example.  Instead of buying the GBP/USD or selling the GBP/USD, you would answer the following question:

At 8:00 pm EST, will the EUR/USD be above 1.3400?

If you think it will, buy 20 contracts at their stated price of 9.00.  If the EUR/USD is above 1.3400 at 8:00 EST, you profit $1820.00.  If it isn't, you lose $180.00 (20 contracts x $9.00).

This is a 10:1 reward/risk, is it not?

Right now the EUR/USD is trading at 1.3235 so it would have to move up 165 pips and then close above 1.3400 after 8:00 pm EST.  We do have the FOMC at 2:15 pm but I think 165 pips is asking a lot.  In addition, just because you put the order in doesn't mean it is going to be filled.  In order for the order to fill, another trader has to take the action the opposite way.  If he takes your action, he stands to make only $180 for a risk of $1800.  

I thought I'd throw this out there.  It's hard enough trading forex by buying or selling at a given price but then also having to predict how much it will move in a predetermined time is even more difficult. 

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New Forex Features at Google Finance

Google Finance now includes Forex symbol lookup.  Features include quote, chart, and news.  As far as I can tell, they're not real-time quotes but the chart features are nice.  Here are examples of how you can search for the GBP/USD.  Type the following into the search field:

currency:GBP

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Another Trader Bites The Dust?

I tend to get a bit sad when any trader blog I follow goes dead for months on end.  I take this to usually mean that they have either given up trading or are taking an extended break from trading.  I've taken a break from trading before but I've usually tried to keep the posts flowing to some extent.  I'm not one to quit without a word though so you can be assured that if I ever do give up (don't count on it), I'll tell you.  

I noticed that Kitty's Forex Trading Journal has not been posted to since October 15th.  That's almost 2 months without a post.  Where are you Kitty from Australia?  http://forexkitty.blogspot.com/

UPDATE.  She is still trading based on her response below.

Yes I am still trading, not updating the blog due to lack of time and
frankly, just can't be bothered. As of late, I haven't even been
keeping a track of my trades in my excel spreadsheet. Pretty much just
breakeven trading at the moment.

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New Forex Trading System

I was busy this weekend doing backtesting.  I focused primarily on backtesting the H-system to improve on its performance.  I was able to obtain much better results by letting the third lot position run which is pretty much what I thought even before backtesting.  I was also able to obtain better results by using a breakeven stop.  My initial stop-loss is always set to 30 pips and I found that moving the stop-loss to breakeven when the position was up 25 pips was optimal.  I know this is only 5 pips from the target but nevertheless, this produced better results than without a breakeven stop or with a breakeven stop lower than 25 pips.  The GBP/USD is a mover and it needs some room to move.  From my experience, it's tough to find profitability with a stop lower than 30 pips.

In the process of coding the backtesting of the H-system, I created a new system that is basically a derivative of the H-system.  This new system isn't difficult to backtest manually so I did it for 2 years but I decided to automate it too just in case I made human errors.  The results from manually and automatically testing were very similar.  This new system is actually more profitable than the H-system on paper.  Like I said over the weekend, I don't want to jump to any final conclusions but by developing a standard backtesting infrastructure, the mistakes that I may have encountered before are lessened.  Therefore, I'm pretty confident with the results.  Now it's time to forward test this new strategy.  My weakness or possible downfall may be my willingness to forward test with real money.  I decided to do this with this new system today, profiting 21 pips on 1 lot.  Here is the equity curve of my newest system from January 2005 to present making the assumption that I'm starting with $10,000.  The label "Profit in USD" in the graph below is wrong.  It should read, "Equity in USD."

 

 

 

 

 

 

 

 

 

 

 

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FX Trading The Martingale Way

I mentioned the Martingale strategy a couple of weeks ago when I was focusing on money management. 

http://www.forexproject.com/Blog/Investing_and_Trading/The_Martingale_Method/

There's a new article by Lien on Investopedia about the Martingale and its popularity with forex traders.

http://www.investopedia.com/articles/forex/06/martingale.asp  

Popularity: 2%

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