Items Tagged With march 2008

I opened 23 positions in January, 19 positions in February, and 11 so far in March.  There were approximately 22 trading days in January and 21 trading days in February. March will provide 21 trading days.  It's pretty clear from these numbers that I average about 1 trade a day.  I'm not trading everyday though.  Trades sometimes come in bunches and on some days, I open multiple positions.  It's also clear that I'm a forex day trader.  I attribute this to my personality.  I'll be the first to admit that I'm a bit impatient.  I accept this and therefore design my strategies based on my self-evaluation.  This is the only way I can see doing it.  Fight yourself and it will show in your bottom line.  

Until I actually broke down the numbers above, I felt like I was "under" trading this month.   "Under" trading to me means that I'm missing trades that my systems are generating.  The simple fact is that every month I miss trades that my systems generate.  So I'm not strictly a mechanical trader because I do use discretion in my trading or maybe it can be called intuition.  Intuition usually turns out helping me a lot more than it hurts me.  How do I use intuition in my trading? Quite simply, sometimes a signal I get just doesn't feel right.  In this case, I won't enter the trade.  Sometimes if I'm already in a trade, I'll get out before it completes.  I'll admit that sometimes it may be due to fear but many times, it's just gut feeling.  After today's total meltdown of a certain financial firm's stock (they were all over the news), I now believe that I should trust my intuition even more.  I worked for this financial institution.  I left the firm two weeks ago.   There were a lot of contributing factors to why I left but every January of every year, I could have left the firm but I never did until this year.  Luck?  Maybe but maybe not.  

I think intuition should play a role in every trader's decision-making process.  How do you know if intuition, logic, fear, greed, or other emotions are expressing themselves in your trading? The key is to find the right balance which will come with experience.

This came as a complete surprise to me but I absolutely welcome it. FXCM announces they will offer Metatrader in 2008.

FXCM plans to introduce the MetaTrader online trading platform in the beginning of 2008.Because many traders have expressed an interest in this trading platform, we would like to keep them informed of our progress. Please complete the form below if you would like us to send you information about the upcoming release of MetaTrader.

http://www.fxcm.com/metatrader-platform.jsp

I was in gloom and doom mode around this time last year (2007).  Without getting too personal, I had just concluded a divorce so that definitely had a lot to do with it.  My advice would be to stay away from doing anything that involves risk, especially trading forex when you're going through a life changing event.   Here was a post from last year:

Ask my subconscious self why I exited my position "early" today and he might tell you that it was due to fear.  Ask me why and I'll tell you that it was not fear but a necessity to boost my psyche.  Let me explain why.  

I measure my performance month to month.  I may have gained 7% in January and 10% in February but to me, March is a whole new month.  So when March 1st came, in my mind, I was at 0%.  I like measuring this way for two reasons.

1. If you had a bad month, it gives you a chance to reset and start over from 0.  Why carry over the loss and put that additional pressure on yourself to "get it back."  Technically, you are still down compared to the previous month but I think it just puts you in a better state of mind.  On the flip side, if you had a profitable month, why risk the chance of instilling overconfidence or invincibility.  Reset.
2. A month typically gives you enough time to come to that average win/loss percentage.  Measuring week to week is too short. What if you had only one trade.  This wouldn't accurately reflect your overall trading performance.  Measuring longer than month to month and you might miss the chance to assess your trading before it's too late.  End of month performance assessment can lead to important changes that may improve your trading.   

So why did I exit my position early this morning? I entered a long AUD/USD position yesterday with the intention of holding until I obtained at least a 200 pip target but the pair shot up nicely this morning and I was quickly up 100 pips.  I exited here for one reason, to kick the month off on a positive note.  This was important for my confidence going forward this month.  Exiting a forex position is also a good idea if you're stuck in a losing streak.  Why risk the chance of losing the profit and losing even more confidence? Take the profit and put an end to the losing streak. 

Check out these other forex blog posts.

1. Forex Trading Profit Up 9.6% In February
2. How Many Times Have You Exited a Position Early?
3. Forex Trading in the Black
4. The True Test
5. Six Percent Loss This Week

I ended the month of February up 9.6%.  This betters the previous month of January where I was up 6.8%.  I consider it an achievement to be up 17% so far in 2008 but I'm not getting ahead of myself to think that the rest of the year will go like this.  

What did I do right this month?

1. I never risked more than 2% on any trade. 
2. I knew my stop loss before entering a trade, sized my position, and never moved my stop on a losing trade.
3. My reward to risk was typically around 2:1.
4. I traded one of my systems pretty consistently (missing some opportunities) and stopped trading two others when I found I was being too inconsistent with following my rules. 

I think it was a good idea for me to stop trading two of my systems this month.  I may have put them into the mix too quickly without fully trusting them.  As I mention in #4 above, I was being inconsistent with my rules and found myself breaking them more times than not.  Instead of sticking with them using real money, I moved them back into development and continued trading them in a demo account.  I think that if you have any doubt in your trading method or system, it's best to discontinue using it until you trust it. 

What did I do wrong this month?

1. I exited some positions before they hit their target.  This was due to fear and fear only.  There is a simple cure for this.  I should just close my trading platform and open it again only once the position has closed.
2. I'll say it again but I started trading a couple of systems before I was ready.  It could have turned out bad but it actually did not this time.  They systems were profitable but I was still not comfortable with the methods I used in obtaining the results.
3. I sometimes got lazy or forgetful this month with one of my trading systems.  I failed to place an order when I should have, costing me profit.   

If you had success or failure this month, I think it's important for you to find out what you did right and what you did wrong.  It's imperative to evaluate your performance so that it can be improved upon. 

Explore these other Forex related posts:

1. Six Percent Loss This Week
2. How Many Times Have You Exited a Position Early?
3. Dooku Forex Trading System
4. My Biggest Mistakes This Month
5. 2 Percent Risk with 2R Multiple

I've mentioned in the past that I don't trade the Asian session.  This year though, I have opened GBP/JPY positions.  No other pair I've observed has as much volume as the GBP/JPY during this session so if I like what I see, I won't hesitate to pull the trigger.  But other than the GBP/JPY, most other pairs don't exhibit the volatility that a shorter term trader would prefer.  

Asian session characteristics:

1. quietest, least volatile of the three Forex trading sessions
2. account for 15% of daily turnover
3. typical 20-30 pip ranges for the EUR/USD
4. spreads increase
5. price action more due to Australian and New Zealand economic announcements than Japanese

The European trading session is a better time than ever to trade the volatility of the Forex market.  I trade this session more than any other and find it suits me.  I know most times at what price I'll enter a trade so a lot of my positions trigger automatically sometime between 2 am and 5 am EST.  Many times, they'll also close automatically during this time range without me ever knowing because I'm asleep.  This suits me because it prevents me from micromanaging positions which I sometimes have a habit of doing.   

1. London is the heart and soul of FX and has over 200 market maker dealers
2. 35% of daily trading volume
3. whipsaw moves
4. spreads decrease
5. some observe the first price move during this session to be false as dealers run stops and explore support and resistance levels

I trade the US trading session but not as much as the European.  I'm strictly a technical trader and since the US economic announcements move the Forex market like no other, I don't feel that comfortable.  I used to trade more during this time but found that Forex brokers made it more difficult to properly manage a position (platform slowdown, increased spreads, wild swings.)

US session characteristics:

1. account for 25% of daily turnover
2. 10% of turnover from Greenwich, CT, the hedge fund capital of the world
3. some observe that all price action that occurred during the Euro session is reversed
4. the focus turns from European economic news to US economic news

Source for some of the information came from the article titled, "Secret Rhythms of FX Time Zones" at http://www.sfomag.com.

Explore these additional posts at Forex Project relating to Forex Time Zones:

1. Is Trading The Asian Session a Waste Of Time?
2. Most Volatile Pairs during Asian Session

There is a research paper that was brough to my attention by one of the authors which finds that combining two types of information (fundamental and technical analysis) improves risk-adjusted performance of an investment strategy.  This paper specifically addresses the success in 23 emerging  markets. 

I asked one of the author some questions.  Here are their answers.

How long and how much research was put into the paper?

The four of us have spent in total about one man-year of work into creating this research paper. We will present it at the emerging markets conference at Cass Business School in London in May '08.

Do you or the other researchers have experience as professional traders?

Two coauthors of mine are purely academic, but one is at ING Investment Management and I myself am at the Quant Strategies dpt of Robeco Asset Management. I would like to tell you about our quantititave strategies and how we apply our insights in real live portfolios, but our compliance departments do not allow this. So you could mention our affiliation with
professional investment teams, but nothing about the practical application.

What is the main attraction of the paper? 

I think the main attractor of the paper is the (slightly changed) abstract: The authors measure the profitability from fundamental and technical trading rules for emerging markets currency investments. Using a sample of 23 emerging markets with a floating exchange rate regime over the period 1995-2007, they document that both types of information can be exploited to implement profitable alpha trading strategies. In line with evidence from surveys of foreign exchange professionals concerning the use of fundamental and technical analysis, the authors find that combining the two types of information improves the risk-adjusted performance of the investment strategies, with Sharpe ratios above 1.4 for emerging currency markets and above 0.5 for developed currency markets. These results indicate that active currency traders may wish to expand their strategies to emerging currency markets, where alpha opportunities seem to be larger.

You can download the paper from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1088222