My New Forex E-book

I didn’t really write an e-book but most of the e-books I’ve seen out there should be combined into a big pile and burned.  If I were to write a forex e-book, it would probably be less than a page long.   Here is my e-book replacement.

If you’re a beginning trader, then go out an invest in a currency related book on technical and fundamental analysis.  There are tons out there that cover both and they’re a lot cheaper and easier to read than an e-book.  If the book doesn’t go in depth enough on a particular subject you’re interested in, do a Google search and you’ll find all the information you will ever need.

After getting some book smarts on the subject of forex trading, jump right in and start trading.  Trade a demo or put a small amount of money that you can afford to lose at a broker that offers variable sized lots.  Being able to trade in variable sized lots or micro-lots is critical.  If you don’t have the ability to do this, most likely you’ll be overleveraging which will most likely lead to ruin.  Try different strategies, either ones you’ve picked up on forex forums or ones you’ve created on your own. Experimentation is key and success will only come with experience.  Consistent profitability isn’t going to happen overnight.  The goal is to stay in the game for as long as you can without getting discouraged.  I hate to sound like a walking cliche but there will be many bumps in the road.  You’ll have to prepare yourself to take the punches and keep getting up.  Take a break when you feel overwhelmed by the market with the intention of jumping back in when you feel like you’re ready.  

My brother is a pilot for a major US airline so I know how many hours he had to have flying an airplane before he was considered proficient enough to fly a large passenger jet.  Why would trading be any different? Get those trading hours.  Even then, there is no guarantee that you will be successful but you’ll never know if you don’t get the experience.

If you trade long enough, you’ll start to see consistencies in the forex market.  Your style of trading will also appear even if you weren’t trying to find it.  You’ll also start creating trading systems that match your trading style.

With this experience and increased ability, I’d like to think the rest is this simple.

1. Size your position.  Keep your risk low on each and every trade.  I like the risk per trade to be less than 2% of my total account balance.  Use my position size calculator at http://www.forexcalc.com if you don’t know how to calculate it.
2. Execute your trading system(s) knowing their criteria for trade entry and exit.
3. Tune and tweak your trading system if needed.  Continue to search for additional trading systems that you feel may give you an edge in the market.
4. Repeat step #1.

Maybe I have a case of trader muscles but I don’t think it should be much more complicated than this.  There may be a time when you decide to look into carry trading or more exotic trading strategies which complicate things a bit more but even then, I feel the basic principles still apply.

Lessons Learned From Making a Little Profit Today

I have 2 totally different subjects I want to talk about today.  The first relates to the question, "When are the best times to trade forex?"  Now I can tell you that I used to trade whenever I felt like it.  "I'm bored, let me trade during the Asian session.  I'm bored, I want to trade in the afternoon, 3 pm EST."  As an absolute beginner, you're told that Forex is a 24 hour market.  YES, that may be true but a lot of you that have been doing this for a while know that just because it's a 24 hour market doesn't mean you actually should place a trade at any time around the clock.  A lot of what I'm talking about relates to the shorter time frames and also if you want the best entry on longer term charts.  Most of the time, if you trade outside of the European and US sessions (2 a.m. EST – 11 p.m. EST) your chances of getting stopped out definately increase from my experience.   Of course you have a great chance of getting stopped out during the 2-11 time frame but you also have a greater chance of hitting your target.  I've found the Asian session almost untradeable.  There is absolutely no volatility or direction and the time it takes to watch the market isn't worth what you may get out of it.  CORRECT ME if I'm wrong but if any of you have found a successful way of trading the Asian session, let me know.  You could stick to higher volatility pairs like the GBP/JPY but with a 9-11 point spread, your already in the hole if you place smaller stop losses.  After 11:30 a.m., there are times when you can catch some volatility but I generally exit my positions around lunchtime because a lot of the time you just get consolidation.  

The second thing I want to talk about are my entry mistakes. 

I think it is important to mention the numerous times that I have been burned when I've entered a position a bit too early.  Generally I have 2 rules when channel trading during higher volatility sessions especially when I'm trading the 15 minute charts:

1. Entering before the candle closes is a big NO-NO unless #2
2. Allow the price to push at least 10 pips past your channel line

Today wasn't a bad trading day, I made $320 but should have made twice that amount.  I entered long on the GBP/USD when it closed above the upper channel by 1 pip.  The problem with this is that I'm putting too much faith in my charting software and not taking into consideration that momentum may have waned and this is just the tailend of the upward move.  For example, forex quotes are not the same amongst brokers and software providers.  An upper channel line drawn on Esignal chart may be different from an upper channel line drawn on a Tradestation chart.  So just because the GBP broke the upper channel line on my Esignal chart today doesn't mean that it broke the upper channel line elsewhere!  So I could have increased my chances of profiting if I would have given the price a little more breathing room.  I'm learning from experience that not giving the price a little breathing room or not waiting for the candle to close can cost me money.

Trading the News

Trading the news is something I've been trying to learn since I started Rob Booker "1 on 1" training.  I'm finding that the potential to be profitable doing so is there.  It does take time to learn though and the only way is to gain the actual experience of trading during volatile macroeconomic news reports.  

Today, I traded the news and made 30 pips on 1 trade and lost 30 pips on another.  Unfortunately during these times more than others, the price can swing wildly back and forth so the chances of your stop getting taken out quickly is a strong possibility.  The key is obviously in the entry.  You don't want to jump the gun and enter too quickly but you also don't want to enter too slow.  I entered both positions today at the same time after the close of a 15 minute candle.  These were both valid entries and both swung against me by more than 20 pips.  The Yen swung too far against me and I was stopped out as mentioned previously.  The Sterling swung about 25 pips against me (I had a 30 pip stop) initially and tried for an hour to move back in my direction.  There was a point when my position was even and I could have gotten out of the trade unscathed.  I decided to stay in because I've made the mistake of exiting right before the trade goes my way.  The pair went 20 pips in my favor and I thought again that I should exit.  I waited and waited.  My limit was 30 pips.  The pair was up 28 pips and I still waited.  My target was hit and even though I'm even for the morning, it felt good to have shown a bit of restraint and confidence in my initial entry.  

With that said, I wanted to mention a new article by Boris Sclhossberg that talks about exactly what I'm trying to learn; trading the macroeconomic news.  It's a quick read and worth it if your interested in learning how to trade the news.

http://www.investopedia.com/printable.asp?a=/articles/forex/06/ScalpFundamentally.asp

Should have traded when it fell back in channel.

Journal Entry from European Session Monday Morning

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I'm just now entering a journal entry for a trade I made this morning at 4:30 am.   We had a breakout of the upper channel GBP/USD at 4:30 am this morning and I thought we may see a little volatility so I went long at the close of the candle.  As you can see, it was quickly stopped out as the price entered back in the channel.

According to Rob Booker's rules, if the price falls back into and closes back into the channel, you can reverse your trade or place a new trade if you were stopped out.

I was stopped out and should have went short on the GBP/USD once this happened.  I would have had a stop at the bottom of the channel which would have been good for 50 pips or so.  

There's always next time. 

Asian Session May 8th

Journal Entry

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I decided to trade the Asian session and shorted the USD/JPY.  I was just stopped out at 0 profit/loss. 

I shorted the pair on a break of the support trendline and a break of RSI trendline.  It was good entry execution.  I waited for the price to break the trendline and then waited for the 15 minute candle to close.  After I was up 20 pips, I moved my stop to break even at 111.52.  My limit was still 111.05, right above a lower support line.  The trade was up as much as 28 pips where I typically would have closed the position.  Tonight, I wanted to show a little restraint and patience so I waited.  The pair never made it back down before stopping me out for a scratch.  

Should I have taken the 28 pip profit? Would you have?  

Trading Full-Time continued

Thanks to Forex2stay for the following comments.  Visit his blog at http://forex2stay.blogspot.com/

I do think it's possible, but I believe money mangement is the key.
This needs to be a marathon not a sprint. One thing I've realized is
that you can't use the same lot sizes for all of your trades. For
example on one trade you might be risking 30 pips and another 20 pips.
So if you trade 4 lots on both of them (standard account) you'd be
risking $1,200 on one trade and $800 on the other. That's not good
money management and it can get you a person in trouble.Here's what I do…..

When
I position trade (4hr and daily charts), I won't trade unless I have a
2:1 risk reward ratio. I figure out the proper stop loss for my trade,
based on TA. So for this example say that's 40 pips. I then make sure
based on TA that I'm comfortable getting at least 80 – 120 pips profit.
Once i'm comfortable I put my information into the following formula.

S=(E*R) / (P-X)

S = Size of Trade
E = Account size (Cash)
R = Maximum Risk percentage per trade
P = entry price on the trade
X = pre-determined stop loss or exit price

So let's put in some numbers…..

My account size $10, 000
Entry price on EUR/USD 1.2600
Currently I'll risk 3% of my account on a trade
My pre-determined SL is 1.2560

So how many shares of EUR can we buy with our money management rules??

S=($10,000 * 3%) / (1.2600 – 1.2560)
S = $300 / .40
S= 75,000

Anyway this is the way I do it. I hope it helps…

Forex2stay

My first trade in weeks

Just like that I'm back in the game.  I made my first trade in weeks going short on the USD/JPY.  Why did I decide to go short? Quite simply because of the strong resistance directly above my entry.  Early in the Asian session today, we saw the pair push as high as 118.69 but it couldn't hold. I'm looking for the pair to come back down to the 116.75-118.00 range perhaps retracing to the .618 fibonacci from the 4/3/06 high of 118.80. 

{mosimage} 

Do Trading Systems Work?

I’m staying on the trading system subject today because I was reading a transcript of an interview performed yesterday between FXSTREET and Markus Heitkoetter, President of Rockwell Trading.   The subject was "Trading Systems: Do They Really Work?"

Markus’ most important comments follow:

• - Like all other ventures, "having a plan" will give you an edge
• - A trading system consists of a set of rules; in it’s simpliest form a trading plan (or system) has entry and exit rules.  More sophisticated trading plans include position sizing and money management
• - You MUST have a trading plan to succeed
• - At a minimum your trading plan should consist of entry and exit rules
• - The 2 types of exit rules are stops (to protect your capital) and profit targets to realize profits
• - The "lack of the trading plan" is the No. 1 reason why traders fail
• - The easiest way to follow a trading plan is to automate it
• - Trading with a system removes emotions from trading
• - If you’re looking for trading action, don’t choose a trend-following system.

Here are the top six reasons why traders fail:

1.    Lack of a Trading Plan
2.    Lack of Discipline to Follow the Plan
3.    Failure to Control Emotions
4.    Failure to Accept and Limit Losses
5.    Lack of Commitment or stop trading using your system after the first loss
6.    Over-Trading

Trading a system helps you overcome the top six mistakes

Multi-lot strategy for Today

I have exited only 1-lot of a 3-lot position for the first time.  Last week I said that I had a bad habit of closing out a position when it went a little bit in my favor and that developing a multi-lot exit strategy may help.

I entered a Long position in the USD/CAD at 1.1360 (3 lots):

My targets were:

T1 – 1.1395
T2 – 1.1425
T3 – 1.1460 

My T1 was hit for a 35 pip profit.  I heard that it would be best to move your stop up to the entry level which I did at 1.1360.  So the worst I can do at this point is make a profit of 35 pips.  The best I can do is a profit of 200 pips.   

I already feel like this strategy will be good for me.  For one, I already have a guaranteed profit.  Two, I have the potential to profit 165 more pips without any risk of losing anything except unrealized gains.  I really think this will prevent me from micro-managing my positions and
impulse trading.

Stick to your Trading Plan

Here’s a post by Lloyd on his blog at http://tradingforaliving-assess.blogspot.com 

American trader and hypnotherapist Robert Krausz argues that 75% of trading depends on your psychology and claims that hypnosis can be used to control your emotional state to maximise your trading performance.

However, he stresses on the importance of having a trading plan at the first place!

Here are the 5 basic tasks necessary to become a winning trader and my personal takes:

1. Develop an analytical methodology
– For myself, I read fundamental news and run technical analysis

2. Extract a trading plan from this methodology
– I set up short-term swing trades (1-3 days), always try to pick good entry and exit prices

3. Formulate rules for this plan including money management
– Take profits while ahead, find the best place to get out on bad trades, not relying on stop loss

4. Back-test the plan over a long period
– Start trading small positions and allow mistakes

5. Finally, stick to the plan
– Having confidence and keep practicing till perfect

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