Items Tagged With october 2006

The H-system started me off well this week with a trade that almost wasn't.  I had an appointment with my lawyer at 10:30 am this morning and at 9:00 am, my orders were still sitting unfilled.  It didn't seem like they had a chance of getting triggered so I cancelled all of my orders.   When I was about to leave after 9:30 am, I noticed that my entry price was about to be hit.  A lot of things were going through my head like:

1. Just close your laptop and forget about the trade, you have an appointment anyway
2. The ISM report is coming out at 10:00 am, do you really want to enter a trade so close to the announcement
3. If I don't trade this signal, I'll regret it later if it turns out to be a winner
4. You're better off not trading it because if you do and it turns out to be a loser, you'll tell yourself "I told you so" later

Ultimately, I didn't want to ignore the signal to buy the GBP/USD that my trading system was giving me because I had done this a couple of weeks ago and the trade would have been a winner.  For consistency purposes too, I wanted to adhere to my trading rules no matter what. 

First, I went long 3 lots.  Second, I hung around a little bit to see if I could move my stop up if the pair went my way.... it did.  Third, I was able to leave 20 minutes after I entered because it was already up over 20 pips each lot and I moved my stop up to break even.  I got to my appointment on time, plugged in my Verizon wireless card, and managed my trade from my laptop.  I profited a total of 123 pips but it wasn't easy.  I have to wonder how long I can continue with my dedication to trading and not let it get in the way of the rest of my life.  We'll see but getting rid of the full-time job sure would help.

Japanese markets are closed today for Health and Sports Day? Tomorrow is Columbus Day in the United States and most financial institutions are open for business.  I know because I have to be in work tomorrow. 

Sports Day gives kids the opportunity to test their skills and compete against each other in various events.  I guess parents can also attend these events and it can be a whole day of family fun.

I was busy this weekend mostly with web development of http://www.allpivotpoints.com and another site that I'm starting.  It's still in the beginning development stages so I'm not sure how long it's going to take.  All I'll say now is that it's related to retail brokers.

I find that now that I have a well defined system, I don't sit and stare at charts all weekend searching for setups.  I'm still working on other trading systems though so I do stare at charts all weekend backtesting.  

I've received 3 free offers from forex teachers/trainers and developers who are willing to give me their services for free after they read my interview in Currency Trader Magazine.  I'm going to take them up on their offer and see what it's all about.  Hopefully I'll have a post with more details tomorrow or later this week.

Thank Bill for his comment and interested analogy on surfing and trading:

I share your apparent struggle with the 'I'm a trader so I need to trade' impulse, as I'm sure all traders do. It's only recently that I've become marginally comfortable with the idea that it's ok not to surf every wave that comes my way.

Feeling 'in-sync' or 'out of sync' with the market is analogous to catching a wave for a fat ride or missing a wave that might have either given you a fat ride ... or, ground your face into the ocean floor.

As you know, trading for trading's sake is dangerous ... and so unnecessary. Yet, all traders have to deal with what to do with their feelings of frustration. I mean, how long can a surfer sit on his stupid board and watch waves pass by?

The fact is, traders can't make the market send them decent set-ups anymore than surfers can make Mother Nature send decent waves.

Basically, it's an emotional battle. Traders want to make something happen ... but, the reality is, traders can only ride the waves that are sent their way. The trader's real job is to be sufficiently alert and aware to recognize a good wave when as it approaches and to position himself to catch the ride before the swell rolls past.

Then, of course, there's gratitude. Gratitude that Mother Nature gave you 12 pips rather than grind your face into the ocean floor.

I had just about written off FXEngines as a viable option for news trading but not as a trading platform.  Here is a question I sent to them yesterday:

I'm wondering if the following can be automated?

Here is an example:

1. Schedule order at 1:30 am at a specific price with a 30 pips stop and a 30 pip limit
2. Order executes at or after 1:30 am with a 30 pip stop, 30 pip limit.
   
3. If the position goes in my favor and is up at least 20 pips at anytime, move the stop to breakeven
4. On a long position, once profit reaches 30 pip profit, trail the stop using last candle low and the reverse for a short position

This is possible with FXEngines FX Trader Plus package which costs $1.00 per lot traded.  You get premium exits like the one described in my question, exit creation, US news trading engines for not only the EUR/USD but the GBP/USD, USD/JPY, and USD/CHF, European news event engines, Japanese news event engines, and Australian news event engines.  I don't see myself taking advantage of the news engines but if I can totally automate my trades via this platform, I will.  

Let's think about the cost of the FX Trader Plus package.  $1 per lot traded.  If I make 20 trades a month at 3 lots each, that's 60 total lots for a price of $60.00.   How much does it cost for the Oanda API where you also have to do the programming, $600.00 a month.  Quite a difference for losing a little bit of flexibility.  The drawdown here is that you are limited to only FXCM as a broker but this may change in the future. 

I've signed up for the FX Trader Plus and as always will let everyone know how it goes.

If you're interested, follow this link and use me as a referral: http://www.fxengines.com/register/signUp.jsp?referralUser=rparedes

Here is my first post to this site exactly a year ago on October 6th, 2005.   Present commentary is in red:

I started trading currencies a little over a month ago and it has been quite a learning experience. Since then I've lost $600, started a Forex News website/blog, and have become addicted to studying charts and following world economic fundamentals. This first post is going to be quite raw until I can get my feet a little wet. I think we can all learn from my experiences day trading currencies.

Since then, I think I've become more of a techie and less of a fundamental follower.  Don't get me wrong, I try to stay current with world economics but I don't think fundamentals are as important to day traders as they are to longer term traders.

I think it's best to follow just one currency pair initially. My currency pair of choice is the GBP/USD. I know there is a 4-5 pip spread for this pair compared to only a 3-4 for the EUR/USD and USD/JPY but I just felt comfortable with the Sterling.

Seems like I am still attracted to the GBP/USD.  I think if you are just beginning to trade, this is decent advice, to follow only one currency pair but it shouldn't be the GBP/USD.  This is just my opinion but I find it just too volatile compared to other pairs like the EUR/USD.  I think the EUR/USD is the perfect pair to start following if you are just beginning.

Let me go over my trades for the day: In the early afternoon the Sterling was making a comeback versus the Dollar and the technical indicators looked favorable for the Sterling. I bought 10K GBP/USD at 1.7725. I went to lunch and came back to the GBP/USD trading at 1.7750. That was a healthy 25 pip profit so I set a tight 10 pip trailing stop at 1.7745. Unfortunately the stop triggered when the GBP/USD fell to 1.7745. I was happy with the 20 pip profit until the Sterling quickly raced up another 65 pips. This was a total lost opportunity and a problem I have been having. It wasn't that I was inpatient, it was that I was just scared.

Do I have any idea of what I'm talking about here?  Do I even know what I'm talking about now?

My second trade occurred a little while later when I decided to reverse my support for the Sterling. I sold 10K GBP/USD at 1.7784. My rationale was that the pair had hit a resistance line. I couldn't sit at my computer and watch the trade so I set a stop at 1.7804 and left. My thinking was that if I picked the wrong end of the trade and my stop tripped, I'd be even for the day. Well, the stop tripped and I was at 0 for the day.

This sounds like I was trading just because I made a profit earlier in the day.  This is bad trading.  If you enter a position because you think you have free money from a profitable trade earlier in the day, you're setting yourself up for a loss.

From the daily charts, everything points to the Sterling making a run up. The MACD and Slow Stochastic confirm this. In addition, the 38.2% fibonacci (High in 12/04 to Low in 07/05) retrace is at 1.8143. I think if I hold a long position, I can profit 300 pips over the next week or so. This is why I made a third trade for the day, going long on GBP/USD. I bought at 1.7801. Since then, the dollar has come back a little and I've been down between 30 and 50 pips most of the evening. I would usually be uptight about being in this position but I have so much confidence that the Sterling is the way to go in the coming weeks that I'll be able to sleep easy. It can be a big mistake though and not setting a stop is even a bigger one.

This doesn't sound good.  I'm confident that this position is going to go in a certain direction? I'm not setting a stop?  This is real bad.  The point is, you never know what direction a pair is going to go and putting it in your mind that it is destined to go in a certain direction is bad trading.  I think since then, I understand that there is quite a bit of uncertainty in the markets.  Never fall in love with a position like I did here.

I found this on Digg today and it's certainly worth reading.  The 10 steps are targeted to a broad category of people and not necessarily towards traders but it might as well be.  All steps are relevent to trading:

1. Make your goals vague
2. Make your goals difficult to visualize
3. Think and speak negatively of your goals
4. Avoid planning incremental steps
5. Don't Do - Talk
6. Wait until you are motivated
7. Don't set a date
8. List why it's impossible
9. Don't research your goal
10. Think of anything but your goal
    

http://www.persistenceunlimited.com/2006/05/10-steps-you-can-take-to-guarantee-failure/

I just read a review of TheMoneyBlogs which is a financial blog aggregator run by Trading Markets.  The review was done by Business Week and was not favorable.  I'm mentioning it now because I found myself in the same situation that Business Week found other financial blog authors. 

I was approached by Trading Markets asking me to allow them to pull the full feed from my site, essentially pulling all content, and having it displayed on Trading Markets and The Money Blogs.  What was in it for me?  I thought that it would give The Forex Project more exposure but after some technical issues they were having pulling my feed, I decided to abandon any attempts to have my posts displayed on their site.  I'm glad I did at this point seeing that Business Week sites that the link back to your blog that Trading Markets places on their site was hard to find and tucked away.  In addition, they plaster ads everywhere essentially making revenue off your hard work.  So I'm not really knocking their business model; if they can make money doing that fine, but I'm just glad I'm not contributing to it.  

http://www.businessweek.com/technology/content/oct2006/tc20061025_067653.htm

I looked into the past at the price action 12-24 hours prior to an FOMC release and as expected, consolidation appears more times than not.  What this means is that I could very well be sidelined until Thursday because I won't attempt to trade the FOMC tomorrow.   Of course, I could change my mind if the GBP/USD continues its ascent.  

I'm feeling good about sticking to the H-system even with the loss today.  The first thing I did when I got home from work today was open up my charts to look for a possible filters that I may be able to incorporate.  One such filter that looks promising is divergence between price and MACD.  I've heard that in general divergence fails more than it succeeds but my experiences with it have shown that as long as you don't use it as a standalone system, it could be useful.  

I just wanted to let everyone know that Brent from Forex2Stay after a brief hiatus has started his blog posting again.  I speak to Brent via email now and again and enjoy the insights and guidance he has to offer.  I'm glad he has decided to start posting again.   Anyway, you can find his blog at http://forex2stay.blogspot.com.

I have reference to Woodie's CCI on this site so I thought I'd mention a post by Globetrader related to Woodie's CCI that is worth reading.  http://globetrader.blogspot.com/2006/10/worth-article.html

I'm tapped out content wise and I'm having a bit of writer's bloc today.  See ya.... 

A visitor to the site, Forex Trader brought up a very good question that I have considered.  His question was:

Could you shed more light on how you handle major news releases in your backtesting: do you leave them as is, or do you filter them out? If you do filter them out how do you deal with the gaps?

I'm assuming that he considers the major US economic releases to be the "major news releases." The short answer to this question is no, I do not filter them out.  I have not yet built this into the logic of the backtesting script.   A majority of the entries though don't occur during a US major economic release but the entries that did were not filtered.  I realize that because of this, the results are not totally realistic but it's really hard to simulate real world results in any backtesting script.  I would have to go back to find out historically, when certain news releases occurred and then not register a trade during that particular time period. 

The backtesting results I sent out yesterday do take the spread into account but certainly not slippage.  My philosophy in backtesting is that I don't consider successful results the end all to putting a system into production with live money.  I think that backtesting is very beneficial to finding out if a certain system should or should not be explored further.  If this system showed terrible backtesting results with a big fat loss with 2 years of data, I might just move on to something different.  The important step after backtesting is forward testing with a demo account to see if these "utopian results" can be obtained.  The point is, I'm not looking for backtesting to give me the absolute true and realistic story because I don't think this is possible.  I'm just looking for it to give me some indication of the viability of the trading system.  Once you get intimately involved with your trading system by forward testing or by trading it live, you can come to a pretty good conclusion of its worth to you.