Items Tagged With July 2006

The quick and dirty answer to this is no.  Just ask retail traders whose monies were frozen when Refco went down.

I was reading an article in the Wall Street Journal today that brings up the fact that we as retail traders need more protection.  The CFTC or Commodity and Futures Trading Commission have a "segregation" rule which means that brokers must keep client funds separate from the firm's operating funds.  This rule only applies to U.S. traders who deposit funds for trading on-exchange futures or options on futures.  If you trade over-the-counter derivatives or off-exchange products such as FOREX, there is no rule against brokers mixing your funds in with the firms operating funds.  This is what Refco was doing.  

So the bottom line is that our money is absolutely not safe and there is nothing that says that a broker firm cannot use your deposit money to operate their business.  The unfortunate thing about all of this is that neither Congress or the CFTC have taken any steps to expand the segregation rule to FOREX traders.   

This is very disturbing and probably reason enough to only deposit what is absolutely necessary to trade.  In addition, if at any time you can withdraw money or profit, for this reason alone, you should do it.  

This article was written by FXCM's chief compliance officer so I would be very interested in knowing if FXCM follows their own rules and applies segregation to their client's funds.  I'll try to find out. 

I've received a lot of great comments from you about automated trading through FXEngines.

Duncan summed it up pretty well by saying that, "Big news items don't work at FXEngines. Small news items don't move enough. Only mid news items seem to be successful."

I feel the whole point of trading the news would be to capture the big news reports.  The CEO places the ability of the platform to capture these large pip moves above everything else and it is just not happening.  It may not be anyone's fault but their clearing broker.  I spoke to Scott (CEO) about this on the phone on Friday and basically all FXCM has to do is put their orders on manual and you can pretty much kiss goodbye any potential profit you could have made.  For example, if 100 people put market orders in at a particular time, instead of these orders being cleared electronically, they would go into a queue.  FXCM will take each order one at a time from the queue and manually execute it.  This probably requires a human to pull up a list of orders, click it on, and process it.  In between the time they pull it up and process it, they can take 2-3 sips of their coffee, take a trip to the bathroom, or do whatever they want while you sit on the other end hoping your order will be closed in time for you to make a profit.

Craig's comment, "Is not trading the news like having a Tiger by the tail? spreads increase & orders are not filled. Most advise I have read (all of course to be taken with a grain of salt) recommends staying out of the market during the news.  I qualify this as an observation, I have never attempted to trade the news or use FX Engines."

I've heard this before and Craig may very well be right.  It may just be more wise to stay out of the market during the news and try to get the follow through 15-30 minutes afterwards.

Mike states, "In summary, the FxEngines platform is a great concept, but WAY too loose around the edges to make it work during volatile markets."

Yes this is true and if it wasn't for 1 economic news release, Initial Claims, I would be losing money using this platform.  This goes back to Duncan's comment about mid news items being successful.  The Initial Claims is a mid news item and these types of news events seem to work.

So what am I going to do about all of this?  I'm not sure yet.  I'm up 50 pips in 5 weeks but is it worth it.  Will I ever be willing to put big money into this? I don't think so. 

After 6 weeks of trading the news with FXEngines, I've seriously considered abandoning the platform.  I haven't really been trading the news over the past 2 weeks but I'm having a hard time giving it up considering I'm up 48 pips total.  So I'm going to give it a couple of more weeks and see if it pays off.  On one hand, the reason why I would give it up is because it just isn't producing enough pips for the time I put in to it.  But on the other hand, it's the only profitable system I have right now so I would be an idiot to just throw it away.  So my plan going forward is to subscribe to the All Events Ultra-Aggressive EUR/USD.  What this means is that I will be mostly on auto-pilot, with the platform automatically trading every news event available.  Sometimes I'll intervene to manually exit if I can and sometimes I won't.   

My discretionary trading is going no where right now.  I only made 1 trade this week, shorting the USD/CAD.  This position was up 60 pips before it came back and stopped out at break even.  It was a good thing too considering the news out of Canada pushed the pair back in the USD's favor.  So I'm still down 225 pips for the month with 1 week of trading in July left. 

Being the inexperienced trader that I am, I tend to go between feeling in sync with the market to feeling utterly and totally out of sync with the market.  The last couple of weeks, I've felt the latter, totally clueless.  I'll stare at the charts everyday and I might as well be staring at a book written in Chinese because it all looks foreign to me.  I've had a lot going on but I just don't feel with it lately.  I actually feel lost.  This has happened to me in the past and I do seem to recover from it.  I think it's just time for a vacation because not only do I feel out of sync with the market but I've also been having a case of writers block.  I don't really consider myself a writer but I haven't posted much here lately.  It isn't only because I've been busy but also because I just haven't had much to say.  This also has happened to me in the past and before I know it, I'm posting 5 times a day.  So the bottom line is that if you want to make it in anything you do, you just have to keep grinding it out.  The most rewarding things sometimes are the hardest and I enjoy learning how to trade and maintaining this blog too much.  So I'll get back into the groove sooner than later. 

I hope you all had a great trading week.   

My post earlier today asked whether your funds at your broker were safe: http://www.forexproject.com/Blog/Investing_and_Trading/Is_your_money_at_your_broker_safe?

I sent the following email excerpt to James Sanders, Compliance Officer at FXCM and the author of the Wall Street Journal article I cited:

I read your article in WSJ regarding the "segregation" rule and how Congress nor the CFTC have done anything to apply this rule to FOREX.  My questions are:

1. What if anything can we as retail traders do to put pressure on them?
2. Does FXCM apply the segregation rule to funds deposited by your clients for trading FOREX?

James was nice enough to respond to my email and here is his response:

1. You can write to your local Congressional representatives and the Chairman of the CFTC.
2. FXCM keeps customer funds separate from firm operating funds as a matter of practice but this would not provide the funds with any special protection from creditors in the event of a Refco-type collapse.

So even though a firm keeps customer funds separate doesn't mean jack.  The creditors will still be entitled to your funds before you are.

This weekend I decided to explore the Oanda and Moneytec forums to see what I could gleen from them.  I found a lot of petty non-forex related content on Oanda that took away from the usefulness of it.  There was less of this on the Moneytec forums and for this reason, I found more insight here.  A lot of people find these forums useful so I'm not ready to trash them and say they are useless.  

One thing that I can say is that there are traders out there who are very willing and able to provide you with some great advice and information.  In an open forum like this, you'll always have those who are providing genuine and legitimate advice, those who are just looking to sell you something, or those that think they are the smartest person in the room (they also think everyone else is an idiot). If you are willing to dig a little, you can find some helpful posts.  

Therefore, I'm going to try to start mentioning certain posts on these forums in the coming weeks.  It seems like I've been to the end of the internet and back now searching for forex content that can be useful to both you and I.  I'm thinking that there is a lot more useful content out there but I just have to look in different places (not search engines.) 

I was reading about using Average True Range for price filtering and stop losses and found the subject interesting.  The ATR is one indicator that I never really exposed myself to until now.  If you don't know what the ATR is, it is an indicator that measure volatility.  http://www.investopedia.com/terms/a/atr.asp

One way to use the ATR is for price filtering.  If you have a system that generates a certain buy or sell signal, it's always helpful to use some sort of price filtering so that your chances of being whipsawed are lessened.  Let's just say as an example that the MACD has generated a buy signal.  Instead of just buying right then and there, it would be beneficial to confirm this signal.  One way to do this is to get the daily ATR of the currency you're trading.  For example, the 21 day ATR of the GBP/USD today was 140.  If a long signal went off at a certain price bar, you would first find the high of the bar.  Let's say that high is 1.8435.  The close of this bar was 1.8425.  So if you were NOT using price filtering, you would have bought at 1.8425.  But since we will use ATR for price filtering, we will say that if we get a long signal, we will buy at the high of the bar + 15% of the daily ATR.  15% of 140 is 21.  So we take the high of the bar, 1.8435 and add 15% of ATR which is 21.  We get 1.8456 and this is the price that we will buy at.  Today, the GBP/USD shot up to about 1.8550 after that price bar so if we did NOT use price filtering, we could have caught 125 pips.  If we used price filtering, we would have caught only 94 pips.  In this case, the price continued to trend up but many times, this will not happen and if you bought at 1.8425 after a bullish candle was exhibited, you may find that the price will reverse or and you'll get whipsawed.  If you use price filtering, your chances of getting whipsawed are lessened.  

Another way to use the ATR is for stop losses.  I know some people are of the thought that technical levels such as support or resistance should be used as stop loss levels but they don't always have to be.  Going from the above example, if we wanted to place a volatility stop, we could say that we are going to use a stop 30% of the daily ATR.  This would be 140 x .30 = 42 pips.  So we could use a 42 pip stop from our entry point of 1.8456 which is 1.8414.  Bear in mind that these are just examples and you could obviously modify the percentages or the entire method altogether.

Yet another way to use the ATR is for support or resistance line penetrations.  Instead of entering a position if price penetrates a trend line, you could enter using a certain percentage of the daily ATR from the trend line price.  So if a support line break occured at 1.8400, instead of just selling at 1.8400 or 1.8395, you could sell at 15% of the daily ATR below this line.  If the ATR was 140, you would sell 21 pips below 1.8400 at 1.8379.  Once again, this could save you from making a trade that doesn't continue in your direction.

My mailbox gets flooded with requests for the eSignal indicator I wrote that emulates the TTM Squeeze indicator.  The TTM Squeeze indicator is offered for sale by John Carter on his website at http://www.tradethemarkets.com .  My version is free but instead of responding to every email I get, I've added a new menu to the website where it is available for download.  In addition, I have added about 300 metatrader indicators for download.  This will be a repository for all to share indicators.  As long as you are a registered user, you can upload indicators.

To download indicators, go to the right menu item titled, "Metatrader Indicators" or visit:

http://www.forexproject.com/option,com_docman/Itemid,203/

To download the Squeeze indicator, follow the same link but click eSignal Indicators. 

For those of you that ask whether this squeeze indicator can be used for metatrader or tradestation or any other platform, the answer is no.  It can only be used for eSignal.

I am in the process of writing a squeeze indicator for metatrader but I am still learning the MQL language so it may be a while until I release it.  I did just finish a simple indicator that plots 5 EMA's that John Carter uses on all of his charts so if this is of interest, download here:

http://www.forexproject.com/option,com_docman/task,doc_download/gid,299/Itemid,203/  

I know it isn't easy to define who are the best forex traders because really, you only know how good you are.  Knowing this, I posted to the Oanda forum asking the more informed and experienced users who the most "successful" or experienced traders were.  

www2.oanda.com/cgi-bin/msgboard/ultimatebb.cgi

I received a response with traders whose member names were ~chaffcombe , blueingreen, oldhand, craigatk, altman, Airoekhion, and danielgsx.  I wanted this information because I really want to concentrate on reading posts by them with the hope of learning more.

The post that caught my eye asked the question, "Right tools for trends and ranges?"  The post is located here: http://www2.oanda.com/cgi-bin/msgboard/ultimatebb.cgi?ubb=get_topic;f=15;t=004808;p=1

There are a lot of recommendations but I was watching what oldhand had to say:

While I agree with the "eyeball" indicator, I'd have to disagree about the value of "indicators" taken by many. For example, s/r lines, whether horizontal or angled are probably used by all traders to greater or lesser degree and they are just as much "indicators" as MACD/RSI/CCI etc. Trend lines and channels in my experience being the strongest of all devices to suggest high probability directional clues. What about moving averages? The 100/200 SMAs in virtually all time frames are a must for any trader to track. The 200 SMA especially on weeklies and dailies is a must and to ignore such an indicator or be oblivious to it is guaranteed to lead to mis-steps on trades. Not knowing Fib levels for your price analysis is likewise operating with one eye closed.

Whether "indicators" inform about some objective underlying reality about price patterns or simply are self-fullfilling reations of various trading segments is a question that can never be answered one way or another. But, the fact that the majority of traders rely upon the variety of indicators to make decisions is not in doubt. Your best trades are always going to be when a variety of indicators, whether moving averages, Fib levels, trend lines etc all line up at certain points and within different time frames. For example, if you see price touch a channel line on the daily and let's say the 3 hour, and RSI is in over sold/bought territory, and a Fib level is at the same point, and MACD or Momemtum paint a divergence, price is going to react in a major way and predictably. Why? Simple really. The different trader segments, some weekly or daily players relying lets say on channel lines, and another segment relying on Fib levels, and another on RSI levels and so on, are going to all react at that point causing a counter price movement. How far price will move is very difficult to predict but direction is not.

So, I'd say a study and attention to indicators is a must for any trader and well worth the effort.