How To Break Out of a Trading Slump

The definition of slump that I find most fitting is "a period
of decline or deterioration."   Since trading is so psychological by
nature, this period of decline or deterioration has to be expected.  I
don't think there is anyway to avoid it, it's inevitable.  The bottom
line is that I've either been in a slump or my level of inexperience
and ability is just not sufficient for it to be called anything but
expected.  

What can you or I do (or not do) to break out of this slump?  

1. Take steroids like athletes do.  This is certainly one way to do
   it in baseball or other sports but unfortunately in trading, there is
   no such thing.
2. By trying harder.  This seems like a sure-fire way to prolong the
   slump and this added pressure only makes things worse.  This could lead
   to overtrading and heavier losses. 
3. Taking a short break.  This sometimes helps me to refocus and
   takes my mind off the negativity.  This can definitely be a difference
   maker in breaking out of a slump and certainly has to be seriously
   considered as a "cure."  
4. Take a complete inventory of why you love trading.  Personally,
   if I don't love something, I just don't want to put the time or effort
   into doing it for there to be success. 
5. Trade in your demo account.  I feel like trading my demo account
   throughout April has helped considerably.  I've managed to take my demo
   account very seriously and I have a new fond respect for its ability to
   help me break out of a slump.
6. Change your routine.  If you don't have a daily routine, maybe
   creating one would help and if you already have one, maybe changing it
   would make all the difference.
7. Stop thinking in terms of winning and losing.  Focus more on
   whether your overall trading skills are improving even if you're losing
   more than you're winning. 
8. Unstress yourself.  Do something else other than trading that can
   relieve the everyday stress of trading and life in general.  Sometimes
   I forget why I'm striving to be a full-time trader, to have more
   freedom and security to enjoy things outside of earning a living.
9. Try something new or simpler.
10. Find someone that can help.  This someone could be in person, in a book, or just another fellow trader.

I'm not a trading expert, nor an expert in the field of psychology
but I read a lot and breaking out of a trading slump is really no
different than breaking out of any other slump that life throws out at
you.  I think we all have the ability to break out of it because of all
the experience from past slumps that we've encountered.  If I ever want
to be a full-time trader, learning how to break out sooner than later
can make the difference in whether I'm a success or failure.   

Lately, I feel like I'm ready to break out of this slump… I just feel it. 

Popularity: 4%

British Pound Reversal Trade

I had my first very good trade in a while on Friday so therefore I'm posting a video of last weeks possible trades using this strategy. 

I managed 124 pips on a risk of only 30 pips. 

This strategy happens to be the only consistent one in my repertoire at this time but I'm working on many more.  If anything, it takes a lot of pressure off of yourself when you have a simple strategy with a known set of rules.   It's when I don't have a written set of rules that I get myself into trouble.  

[youtube:http://www.youtube.com/watch?v=FFXGhbVdDLA]

Popularity: 3%

May Trading Contest Prizes

** UPDATE **

We have 30 participants signed up so far for the May contest which starts this Tuesday.

Sign up ASAP.  Detail follow.

************ 

I'm satisfied with the way the April trading contest has gone so I am offering 3 prizes for the May contest.  I'm going to have 3 different categories and the winner of each will receive a $50 Amazon gift certificate.  I would like to thank the sponsor of this contest….  me.  I didn't have the time to hit up any of my advertisers.  Maybe if May goes well, I'll try to get bigger prizes for June.  I know 50 bucks isn't much but hey, it's free money.  You can buy yourself a book or something.

I don't know if this is the best way to do it but nevertheless, here it is:

1st category is Aggressive Trading

The trader with the highest portfolio return % in the month of May with a maximum drawdown greater than 10% but less than 20%.

2nd category is Conservative Trading

The trader with the highest portfolio return % in the month of May with a maximum drawdown greater than 5% but less than 10%.

3rd category is Money Manager

The trader with the highest portfolio return % in the month of May with a maximum drawdown less than 5%.

• Having these 3 categories will prevent a trader from winning more than 1 category.   
• THE WINNER MUST HAVE A POSITIVE PORTFOLIO RETURN %.  If you have the highest return in a particular category but it's negative, you don't win.  

Currently there are 23 participants signed up for the May contest.  You have until next Monday, April 30th to sign up.  To sign up or to find any up-to-date details of the contest, go to http://www.forexproject.com/Forex_Contests/

Popularity: 3%

Oanda is #1 in Traffic

I got a couple of comments about the top 200+ forex website rankings; mostly how they weren't accurate.  The rankings before were dependent on how Alexa sorted the sites in their category listings.  I was pulling data in the order in which they gave it to me.  As some of you noticed, some sites were listed ahead of others even though their Alexa Rank wasn't higher.  The one website that got shafted the most in the rankings was Oanda which had the highest Alexa traffic rank but was listed as #19 in the rankings.  I fixed this tonight and now the rankings are based on traffic rank.  You can see that Oanda benefited greatly from this change. http://www.forexontop.com

In addition, every forex websites Alexa traffic rank is also listed.  More enhancements coming soon.

 

 

 

Popularity: 3%

Bread and Butter Setups

I enjoyed this quote by Teresa Lo so I thought you might too:

{xtypo_quote}"I think most people simply don't realize that the market only has 2 modes:
trend (directional or grinding) and chop (trading range or consolidation pattern).
The most profitable is the directional trend mode, and there are only two setups:
retracements and tests.

New traders should attempt to trade the bread and butter setups, i.e. only the retracements and tests in the directional trend.

That's
why the oldest piece of advice is: "The trend is your friend (trade
retracements) until the end (test), when it bends…"

That's
all there ever was, no matter what anyone says, and the key it to KISS.
So many traders and educators make it seem like they have an "arsenal
of weapons" for trading, but in the end, it's all moot, if they cannot
identify, which of these few conditions they are attempting to exploit,
and I am sure that we can do this without even going into multiple time
frame analysis by slapping on a few moving averages…"{/xtypo_quote}

Popularity: 3%

Forex2Stay Abandons Oanda

Brent from over at Forex2Stay has decided to rid himself of Oanda.  He decided to go with an STP/ECN broker, EFX Group or MB Trading.   

Popularity: 3%

The Mighty Have Fallen

The April trading contest is at the tail end with only 3 real trading days left and the mighty have fallen.  QLaun who led most of last week and the first couple of days this week has fallen from the top.  

 

 

 

 
The top 6 traders sorted by portfolio returns have maximum drawdowns between -4.20 and -17.99.  I found details of some other contests and how they determined an acceptable maximum drawdown level.  

Acceptable maximum drawdown level for aggressive trading should not exceed 15%.

Acceptable maximum drawdown level for conservative trading should not exceed 10%.

Acceptable maximum drawdown level for fund managers should not exceed 5%.

So if I were to use these figures, I would rank contestants as of today this way: 

TOP THREE AGGRESSIVE TRADERS

1. Dumb Luck +24.26%
2. MartinFXUY +14.66%
3. RotcaX +12.52% 

TOP THREE CONSERVATIVE TRADERS 

1. Dumb Luck +24.26%
2. MartinFXUY +14.66%
3. RotcaX +12.52% 

TOP THREE MONEY MANAGERS

1. RotcaX +12.52%
2. Milton +2.91%
3. Netman +1.86% 

Good job guys.  I'm not doing too well.  I'm at -3.05%.  The only thing I have going for me is that my maximum drawdown is -1.17. 

Popularity: 3%

Keep Your Eye On The Clock

I was reading Bain's blog and want to mention some of what he wrote because I have had similar observations.  This information, for those of you have been trading forex for a while may be more common knowledge at this point.  

Peter simply states that forex traders should be aware of the clock due to price swings associated with certain times of the day.   These swing points can be noticed most often during the following:

1. London open (3 am EST or 8:00 GMT)
2. London close (10:30 am EST - 12:00 Noon EST or 15:30 GMT - 17:00 GMT)
3. New York open (8:00 am EST or 13:00 GMT)

Swing points are most evident when London is opening, in session, or closing due to London's majority in Forex trading volume.  

I've always said if I were ever to trade forex full-time, it would most certainly be during the hours of 3am EST (London Open) and 12 Noon EST (London close).  Outside of these times, things can be pretty low a majority of the time. 

Popularity: 1%

250+ Most Visited Forex Sites

I've updated the database of most visited Forex sites to include now over 250 sites, about 40 more than there were last week.  More functionality will be coming like Alexa ranking display, historical forexontop ranking graphs, and a search feature.  The other reasons behind the site is to keep my programming skills sharp and also because I love statistics and rankings.

Visit http://www.forexontop.com 

Popularity: 3%

What Is Maximum Drawdown?

What is maximum drawdown? Why and how do I calculate it?

First, what is maximum drawdown?  It is defined as the largest drop of a given asset within a certain time period.

Why calculate it?  I've never made it a point to calculate maximum drawdown but I'm going to now.  This is my attempt to start looking at more "advanced" money management concepts so I've decided to start with one of the easiest.  The reason for calculating maximum drawdown is to measure the riskiness of your trading strategies.  It will also give you an idea of how much money you could lose at some indeterminate point in time.  

How do I calculate it? During the history of your trading strategy, I'm sure you'll be keeping track of your change in equity from one day to another, one week to another, one month to another, or whatever time period you choose.  In the course of your trading, you will calculate drawdown which "represents the total percentage loss experienced by
a strategy before it starts winning again … and drives the
investment balance back up." (Source: http://www.confidentstrategies.com/maximum-drawdown.htm)  

 

 

 

 

 

 

 

 

 

 

In this picture (Source: http://www.autumngold.com/Performance/DescriptionDD.htm), the drawdown is calculated with the following formula:

(Valley VAMI - Peak VAMI) / Peak VAMI

The Valley VAMI is the red arrow or approximately $1,100.  

The Peak VAMI is the green arrow or approximately $1,425.

Therefore the drawdown is ($1100 - $1425)/$1425 or -22.8%.

Let's do 1 more example from the picture above.  First let's find the Peak prior to the green arrow. 

The Peak VAMI is approximately $1,250.

The Valley before the green arrow is at approximately $1,150.

Therefore the drawdown is ($1150-$1250)/$1250 or -8%.

So to find the maximum drawdown, select the drawdown that was greatest, in our example, -22.8%. 

Popularity: 8%

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