Expanding My Horizons
After performing backtesting and limited forward testing, I've decided to expand the currency pairs that I trade the H-SYSTEM with. I've been searching for months now to find additional currency pairs where this strategy might work. I will always take the GBP/USD H-SYSTEM signals because this has proven to be profitable. In addition, I'll also look at taking signals on the GBP/JPY and GBP/CHF. From my studies, the GBP/JPY may have more conducive moves for this strategy than the GBP/USD. I've also found that in backtesting, if I lose on a GBP/USD trade, the GBP/JPY would often give me a win. This would not totally cancel out the loss since a pip is worth less with the GBP/JPY than the GBP/USD. I have thought about the lack of diversification considering trading any of these three pairs are all betting on the British Pound to strengthen or weaken. I've determined that this doesn't matter to me at this point. If it works, it works. Another drawdown of using these additional currency pairs are their increased spreads, typically 7 pips at Oanda.
I've wasted no time in incorporating this into my trading plan, maybe a bit hastily. I had three short signals this morning on all three pairs, GBP/USD, GBP/JPY, and GBP/CHF. Two of the three positions were profitable for a total of 180 pips. The GBP/CHF lost. So if I had only traded the GBP/USD, the results would have basically been the same, +90 pips.
I'll have to see how this goes in the upcoming weeks. The point of this isn't to stretch myself thin but to give myself more options when trading this strategy. My ultimate goal is to have multiple strategies but my time has been consumed with just the H-SYSTEM for 6 months now. Some of you had great comments in the Carry Trade post and developing or reusing some Carry Trade strategy may be a future goal.
Make Money With Carry Trades
I don't know if I can call my current state of Forex trading a slump but February has been tough going for a couple of reasons. I've been experimenting with a couple of new strategies and unfortunately I always do so on a live account. This may not be the smartest thing to do but what's done is done. I'm currently at -217 for the month. The H-system is at -102 and Lien Schlossberg is at -83. I found out the other day that when I signed up for the service, I signed up using quarterly payments. This means that I have 3 months of their service. I'm going to see what I can do to change this to monthly because what I've seen so far from them is less than impressive. It's still early in the month so I have plenty of time to recover.
One addition to my trading history is the tracking of interest. I've been talking to another trader about carry trades and I've also been reading about an interesting strategy on the Oanda forums. You can read more about it but basically, this trader will buy a pair where the base currency has a higher interest rate, such as the GBP/JPY. The GBP has an interest rate of 5.25% and the JPY is at .25%. The easiest way to try to explain this is with an example:
First day: He'll buy the GBP/JPY at some predetermined time in the evening.
- If target hits 100 pip profit, he will close position
- There is no stop loss
- If 100 pips profit target is not hit, the position remains open
- He is collecting interest equal to GBP, JPY differential
Second day:
- If the current price is below the price he entered but not more than 100 pips below, he sits tight. Remember, this position is collecting interest.
- If the current price is over 100 pips below the price he entered at, he opens another position based on 1 percent of his NAV. So he is scaling in (on a losing position)
- If the current price is above the price he entered, he closes the position at a profit
To continue the example, I'll assume that he either had to scale in or sit tight.
Third day:
This is basically a repeat of second day steps.
- If the current price is below the price he entered but not more than
100 pips below, he sits tight. Remember, this position is collecting
interest. - If the current price is over 100 pips below the price he entered at, he
opens another position based on 1 percent of his NAV. So he is scaling
in (on a losing position) - If the current price is above the price he entered, he closes the position at a profit
This strategy could incur significant drawdowns but he's also collecting a nice amount of interest on money that really isn't his (leverage.)
I hope I'm understanding this. It's not the easiest thing to explain. Read over the thread at Oanda. I'm not saying I'm going to use this but I've never really investigated carry trade strategies and I find it very interesting.
Measuring Currency Strength
I stumbled upon a great resource today for measuring currency strength. There have been lots of talk on how to go about measuring this in forex forums for years. The USD index on the NYBOT is determined by a basket of currencies but according to FuturesMag, overweights the EURO and includes the irrelevant Swedish krona. A company, the International Index Company in conjunction with major investment banks have created FX indices for the AUD, CAD, CHF, EUR, GBP, JPY, NOK, NZD, SEK, and USD. Each index uses a particular basket of currencies to determine strength or weakness. For instance, the GBP index uses the following weighted basket of currencies:
- 66.59% EUR
- 21.47% USD
- 5.91% JPY
- 3.14% CHF
- 2.89% SEK
The following is a GBP index graph over the last month:
I don't know how I can use this information to my advantage at this moment but if I can't, maybe you can. You can find an accompanying article that details the IBoxxFX indices at Futures Mag.
To access the indices, you have to sign-up for a free account at http://www.iboxx.com.
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:
- Entering before the candle closes is a big NO-NO unless #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.
Should have traded when it fell back in channel.
Journal Entry from European Session Monday Morning
{mosimage}
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.
Frustration Bottling Up
I'll admit that the frustration of losing is bottling up. I did manage to end the losing streak by getting a couple of smaller pip wins today after my 30 pips loss. I ended the day -15 pips. I sent a message to Rob this afternoon stating my frustration and he had 2 suggestions for me:
- Stop trading the EURO! He thinks the currency pair is a "turd" and that it hardly moves. He told me to stick to the GBP which has been moving big time over the last 2 weeks.
- Decrease my lot size on a day with no economic news whatsoever. I only traded 1 lot, followed my rules, and only lost 30 pips so it ain't so bad
I sent a follow-up question asking him what pairs he likes to trade most.
May 2nd NY Session #2
Funny how I was able to squeeze out a 11 pip profit on a trade that was absolutely discretionary. I was watching the GBP/USD and it was highly overvalued on the short-term charts with solid resistance at 1.8400. Even though the pair had reached a new high today, the MACD histogram failed to reach new highs (negative divergence on the 5 minute, not shown below). The I shorted the pair at 1.8380 with a stop 30 pips above at 1.8410. Once the pair ran up 15 pips, I set my stop to breakeven. It ran up as high as 26 pips but started losing momentum. I was watching for an exit on the 5 minute charts and once I noticed momentum and inertia decreasing, I exited.
15 minute chart below:
Not Following the Rules Can Hurt!
I am attaching a PDF file that includes all of my trades this week with date/time, P/L, max drawdown, max run-up, and important commentary about the trade including whether I followed the rules.
While I was putting this together, I realized that I failed to follow the rules 50% of the time. Do you know how many pips I lost because I didn't FOLLOW THE RULES?
113
How many pips did it cost me for following the rules?
43
This doesn't count the fact that I failed to follow the rules today in my GBP/USD trade that cost me 30 pips or more!
If I would have followed the rules 100% of the time, I would be about even.
I take full responsibility for my trades and blame only myself. I should also note that though this trading system has rules, it is discretionary.
Here is the file:
Forex Trade Report 28/04/2006,00:08 11.74 Kb
It’s My Fault
A transcript between a couple of us today:
Wim Says:
Hi Rick,
Minus 180 pips on 3 days of trading seems not that
great. Wow, I would be pissed of, part of learning.. Are mentors really
that great..
Why would you coach someone if you make a ton of money?
I would not spend my time trying to learn somebody for $1000 if I can
make 50K/month with my personal trading.
Some time ago, I
took the FXCM euroshop ($169), well in my eyes, it is worth nothing. it
looks really nice on their website until you pay for it.
3 methods but none of them actually work in my eyes. Everybody can make a course or call himself a mentor.
Personally,
I won't spend a dime to education or learning anymore. Being in this
business for 3 years, I make money now but not the first 2 years.
I
think a combination of knowledge and market understanding is a lot more
worth then pulling up some indicators and following them blindly.
Magdalena Says:
Wim,
A couple of questions for you:
1) Are you saying you didnt make money in the first 2 years and are you trading full time?
2) What in your opinion is the best way to learn how to trade and gain the knowledge of the market, how did you do it?
Rich,
What
is the "touch of emotion" and how big of an impact it had on your
trading recently? Are you saying that Rob's methods work and you simply
didn't have enough discipline to stick to them, cuz that's exactly what
happened to me recently when using Raghee's setups.
Craig Says:
Hi Rich,
Bummer, I have been making a bunch of losing trades as
well. I was looking though your trade history and trying to figure out
why you made all those AUD/USD trades on the 25th, the pair was going
sideways. Is it possible to elaborate on your current stratergy?
P.S.
Have to say Wim's comment is pretty on the mark.
I Said:
I'm getting my spreadsheet together to analyze these trades but before
I jump over Rob, I have made some mistakes with execution and did so
specifically with my lost GBP trade this morning. I entered incorrectly
and got stopped out by 5 pips before the 100 pip move up. This cost me
huge. Some of the other trades were also executing issues. I can
honestly say that without even analyzing and from the top of my head,
if I was more experienced with this system, I would probably be up. A
lot of his strategy utilized multiple lots so that you can let some
more profit run. I'll post more when I know more.
I Said again:
Magdalena, I think Rob's strategies can work. I think they give you the
best shot at making money doing this. The touch of emotion happened 2
times to me:
The first was with my Aussie trade where I entered
before the candle closed. Rob says you can enter before the candle
closes but he waits and recommends you wait. After this trade, I would
definately wait also.
The second time was with my trade today. I
entered 2 candles late on the GBP/USD trade and set my stop without
reflecting the price 2 candles ago. If I would have set a stop based on
the price if I had entered 2 candles ago (when I should have) I would
have made MANY MANY pips today. Like I said before, I think I would be
in positive territory if I didn't make these mistakes.
First Trade 1 PIP Profit!
OK. I closed out the GBP/USD position with a 1 pip profit for 2 reasons:
- European session is over
- All major currency pairs are consolidating in expectation of US economic reports this morning.
I couldn't set the limit to close out the pair at break-even so I performed it manually. That is why I profited 1 pip.
Good thing I did. The pair moved upwards 20 pips right after I closed it.
I'll regroup and see if any setups emerge during the next couple of hours.
