Trading Forex and Trading Stocks

I’ve been trading forex for about 2 1/2 years now.  I’ve had some breaks in between but overall, it’s been a pretty steady run.  While I’ve been trading forex, I haven’t strayed outside of this market other than investing in mutual funds or index funds.  Last night I started thinking about getting more involved in other markets, specifically the stock market since I have previous experience.  I’ve traded stocks in the past turning a small profit but I never got immersed in it.  

Today I searched around for a stock market demo account but unlike forex, you’re not going to find any of your major stock brokers that offer them; at least I don’t know of any that do.  I stumbled over a bunch of "fantasy" stock market websites, some free, some that cost a fee to join individual contests.  Marketwatch has good stock coverage and offer a virtual stock exchange but I liked WallStreetSurvivor much better.  Wall Street Survivor offers prizes and though they’re not easy winning since there are thousands of contestants, I liked that the website was a dedicated stock market fantasy game and free.  They currently have a $50,000 contest that runs from January 1st until sometime in April, daily prizes, and weekly prizes.  I’m pretty excited to get into the initial preparation phase of possibly trading in the stock market.  When I traded stocks in the past, I didn’t use technical analysis, position sizing, or much of anything I use now so it will be interested to see how I can transition from trading forex.  I’m certainly not taking the focus off of forex trading, just trying to expand my horizons….

Forex and Insomnia

I was mentioning to another trade via email that I have insomnia.  Personally, I’ve found that ever since I got into forex trading, I’ve slept a lot less.  I did burn out though sometime in the middle of 2007 and needed about six months to recover.  Try to pace yourself.  I can’t seem to do this.  It’s either full throttle or bust.  Anyway, I wanted to post this trader’s comments:

I think there’s a great element of sleeplessness for a lot of Forex trading related folk. I know I have it.

I’ve seen the ebbs and flows of a host of traders … Many get burned out, many peter off and do less, and a few break through the wall and come to a happy place where they feel comfortable and where they can still do things they enjoy (other than trading themselves).

I’m one who likes to take in a lot of information and distill it, yet it seems such a counterproductive philosophy when applied to trading. Maybe I’m trying to prove to myself that I can do this too in my own way, that I don’t NEED the absolute focus and structure advocated by others. I would argue that this is my structure and which provides me better focus. 

Whatever it is, I know it’s all part of my trading journey.

2 Percent Risk with 2R Multiple

I’ve been emulating my real account trades with my demo account for the January forex trading contest.  I’m currently in first place with a return of 11.16%.  After today though, my return will drop 2 percentage points to about 9% since I lost 2% on a trade.  I don’t know if this will be enough to hold on to the lead.  

This is an overview of how I’ve been trading so far in January 2008: 

1. I have been risking exactly 2% on every trade.  No more, no less.  
2. I’ve been using my forex position size calculator everyday when figuring out my trade size and find it very handy.  Some of you have commented the same.  
3. My R-multiple on every trade has been 2R.  For those of you that haven’t heard of R-multiple, it’s really just an abbreviation for reward-to-risk.  2R means my reward-to-risk is 2:1.  
4. I’m not watching my positions so there isn’t any fancy money management going on.  I haven’t once set my stops to breakeven. I’m just letting them ride.  If they hit my target, they hit it.  If they don’t and stop out, so be it.  This is quite different from what I’ve done in the past.  In the past, I’ve been quick to set my stops to breakeven when they move a little in my favor.  The consequence of doing this was typically a gain/loss of zero.  I can’t tell you how many times I’ve moved my stop to breakeven only to see it get stopped out.  Then I have to watch as the price goes back in the direction I was trading where it hits my initial target price.  This to me was more frustrating than losing.  I’d rather stick to my guns on a trade instead of playing it scared. 

I Got A List of Forex Firms That Ceased Operations

I spoke to someone over at the NFA today and they sent me over a current list of forex dealer members who have ceased operations since September 1st, 2007:

American National Trading Corp.
Direct Forex FX
Farr Financial Group
Forex Liquidity
Hamilton Williams LLC
One World Capital Group LLC
Royal Forex Trading LLC (Freedom FX LLC)
SNC Investments, Inc.
Solid Gold Financial Services, Inc.
XpressTrade LLC

This is a list the NFA sent me today of all registered Forex dealers as of December 21st, 2007:

Advanced Markets Inc.
Bacera Corporation
Capital Market Services
CMC Markets US LLC
E FX Options LLC
Easy Forex US Ltd.
Forex Capital Markets
Forex Club Financial Company LLC
Friedberg Mercantile Group, Inc.
FX Solutions LLC
Gain Capital Group Inc.
GFS Securities and Futures, Inc.
Global Futures & Forex Ltd.
Hotspot FXr, Inc.
I Trade FX LLC
IFSCL USA, Inc.
IFX Markets, Inc.
Interbank FX, LLC
MB Trading Futures
Money Garden Corporation
Oanda Corporation
ODL Securities Inc.
Peregrine Financial Group, Inc.
RJ O’Brien Associates Inc.

Trade The News

Good thing there really isn’t any news to trade….

Forex Most Visited Updated

Forex On Top was updated today and is quickly approaching 400 sites.  There weren’t any rank changes in the top 20 but there were elsewhere.

Top 20 Movers

Top 20 Losers

Are We In a Recession?

I wrote an article back in January of 2007 when the press was writing a lot about the impending US recession. How Do I Know If We're In a Recession? Seems like this is still the question one year later.  Based on the last Real GDP report in December, we're not and if we use the financial press definition of a recession, we won't technically find out until after the Q1 Real GDP reports come out.  The NY Times asked this question to six experts and their answers are all over the map including:

1. You can almost hear it pop…
2. The facts say no…
3. Bet the house on it…
4. Not if exports save us…
5. Nobody knows…
6. Wait 'til next year 

Comical in a way… 

Six Steps To Blow Up Your Forex Account

There are a lot of traders out there that have totally blown up their accounts.  I'm one of them.  Unfortunately, I never really knew how quickly this could happen until I actually did it.  Here's a brief synopsis of the events:

1. I'm trading normally, with what I think is sound money management, slowly trying to build on my capital.
2. Win 1, loss 1; win 1, lose 2; win 3 lose 1; win 1 lose 3; this can go on for quite some time.
3. Then a consecutive losing streak happens, 3 in a row, 5 in a row, 10 in a row, who's counting.
4. Emotion get the best of me, I start over-leveraging to try to get back what I've lost.
5. Things get worse and my balance is low.  Let me ride the rest on this 1 trade.  I can make it back. 
6. Kaboom! Margin call.

The last 4 steps can happen so quickly that before you know it, you've totally blown up your account.  Fortunately, I've come back from this smarter.  Instead of a blood gusher, I'm a slow bleeder.  Colin over at Forex Spirit had a rough December.  His 2007 equity graph alone shows how rough.  Check it out, you may learn something.  I think it was an important step for him to actually throw it all out in the open and write about it. 

What to read more about REALLY blowing up your account?

Did Brokers Prepare For NFA Requirement Changes?

I guess we'll find out sooner or later but Forexds has an interesting comment regarding the whole thing:

"I know that many of the small FCM fishes have become IB's to established FCM's in December or sold their books to the likes of FXCM. But ALL of the names you mention in your note have posted the higher capital (I know for a fact that MB Trading and FX Club have). Alpari is a new comer to the US, but very well established in Eastern Europe. The higher net cap requirement of $10m is no surprise to FCM and they've had months to prepare and get the capital in order. You wont get the DEC data from the CFTC site until 6 weeks from now, though."

For those of you that aren't versed in the common acronyms you see in forex, FCMs are Futures Commission Merchants.  IB's are introducing brokers (defined as a futures broker who has a direct relationship with a client, but delegates the work of
the floor operation and trade execution to another futures merchant.)  Some IB's may be fund managers and some could just be considered salespeople, "introducing" traders to a larger broker and taking a commission and a cut of the spread.

How To Take a Demo Account Seriously

It's quite the convenient time for me to mention how the forex trading contest is going considering I'm currently in third place.  I'll remain positive with the thought that I may be able to hold here or move up.  It's not going to be easy considering how well Davor Babic is doing with a return of over 11% in the first 8 days of the contest.  TJ is in second with a return of 8.57%.  Like I said, I'm in third with a return of 6.87%, with Uri right behind at 6.09%.  

2008 has started off very productive for me with the release of http://www.brokerontop.com and the first beta of my position size calculator.  Trading productivity hasn't been too shabby either.  I'm managing to take this FX Game account seriously which I normally do and my real money trading account is currently up about 5%. 

There are a couple of reasons why you may want to consider trading forex using a demo account:

1. To simply learn how to trade Forex for the absolute beginner
2. To forward test additional strategies or systems that you're currently working on
3. To increase your level of confidence especially if you've been in a rut (sometimes it takes some unneeded pressure off)
4. To try out the trading platform of a broker you're considering trading with

I truly believe trading a demo account is just not worthwhile if you don't take it seriously.  If you're an absolute beginner, I can understand if you just start placing trades every which way because there is a learning curve that you need to overcome.  If you've been trading for a while though, you really need to trade your demo account just as if you would trade your real account even if you haven't used real money yet.  Here are some tips on how to do this:

1. Open a demo account with a realistic amount of capital.  Why open a $100,000 demo account if you know you're not going to have that amount of money when you start trading for real. If you can only afford a $500 real mini-account then open a $500 demo mini-account.
2. Risk a realistic percentage per trade (1-2%) and resist the temptation to try something you would never do if this was real money.  Use a realistic amount of leverage.  If you're testing some new money management strategy, you may have to break this rule.
3. Think of your demo account as the only way of gauging whether you're ready to commit hard earned money to trading forex.  If you can't make money trading a demo, then there's a pretty good chance you're not going to make money trading a real account.
4. It's understandable that if you're trying out a new strategy or system, you may be trading more often than if you were trading live but continue to hold true your money management principles.
5. Join a forex contest if you need some competition to motivate yourself.

It's admittedly hard sometimes to take a demo seriously considering your trading monopoly money but I know that if it weren't for demo accounts, I'd probably be long gone from this endeavour.  It's important to practice and this is the one of the best ways to do it.  I would also strongly suggest that if you're just having too hard of a time taking it seriously, open a $200 trading account and trade micro-lots.  I've done this before and found that making just two dollars on a trade can be a satisfying experience.   

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