Items Tagged With january 2007

There is a new article on Investopedia titled, "Using Pivot Points in FX."  The article shows how to use pivot points in conjunction with the RSI indicator (divergence) and actually introduces some interesting statistics.

Since inception of the EUR/USD, the actual low of the day has been lower than S1 44% of the time.  The actual high of the day has been higher than R1 42% of the time.  For S2/R2, the probability is 17%, and for S3/R3 3% of the time.  Read further for a better understanding.

Using Pivot Points in FX  

Get Daily Pivot Points here

The big GBP/USD move that I was talking about yesterday did happen this morning but I'm a little disappointed with what happened in my Oanda account.  I had 2 orders in last night to go long on the GBP/USD. (h-system)  The 2 lot order was canceled by Oanda.  The 1 lot order was executed and then immediately closed at a loss.  According to Oanda it was a TAKE PROFIT.  A loss of 16 pips doesn't seem like a TAKE PROFIT to me.   If my orders were executed and take profits executed as I instructed, it would have been a 120 pip profit.  The fact is, there was a large spike in the GBP/USD due to the surprise rate hike by the Bank of England.  I'm not sure how Oanda treats these types of things due to this fact but I'm waiting to hear back from them.

BOE Shocks With Rate Hike to 5.25%

I was able to rebound today with a +90 pip h-system trade and a +21 pip Lien Schlossberg trade.  This brought my January 2007 total to +80 pips.  It isn't much but nevertheless, it is my fifth straight month trading forex profitably. 

I want to talk about the trading signal service that Kathy Lien and Boris Schlossberg offer.  I lost 97 pips using their service this month.  In their defense, I missed two of their most profitable trades because I just didn't have the ability to trade at the time.  Even if I would have caught these trades, I still would have been negative for the month.  If I had to estimate it, I might have been down about 30 pips if I could have taken these trades.  Their member area shows that with today's profitable trade, they were profitable by about 30 pips in the month of January.   This performance is under ideal conditions; where I was able to trade at their exact entry and exit points.  This was usually not the case since emails or text messages lagged or the price just slipped.  I didn't follow 3 of their signals, 2 because I wasn't available to trade at that time and another because by the time I received their email to enter the trade, their target was already hit.  Most of their signals require entering at market price so you don't have any prep time whatsoever.  In addition, their signals occur at random times throughout the day and night.  Strangely, they have no qualms opening a trade in the afternoon (US EST) which I would never do myself.  Realistically, although they show a profit on paper, it would have been very difficult for someone using their service this month to show a profit.  I would be surprised if I was wrong.   They rarely had that surefire trade that allowed one to get in, grab profits, and get out.  Their trades tended to take some time to develop, sometimes for better and sometimes for worse.  Although their initial call showed a 2:1 reward/risk ratio, it rarely showed this ratio in the end.  For instance, today's trade call went out with profit target of 55 pips and a stop loss of 30 pips, almost a 2:1 ratio.  Similar to many past trade calls, they sent out a message to close the trade immediately at market before the target was hit.  This particular trade was closed with a profit of 32 pips (under ideal conditions) for a reward/risk of 1:1.  Their risk/reward more times than not worked out to no better than 1:1. 

The point of all of this is not to bad mouth the service, just to make everyone aware of the caveats with forex signal services.   Kathy Lien and Boris Schlossberg are undoubtedly very informed about the Forex market and carry an almost implied trust.   This is a good thing but what I realize more and more is that just because they're well informed doesn't mean they can make money trading.  One month doesn't tell the whole story either but I don't think one should imply that well-known traders who command a certain level of forex celebrity make money trading forex.  I'm not saying that Boris and Kathy don't make money trading forex.  They really didn't this month but they very well might next month.  One thing for sure is that they aren't making a killing from trading forex.  They probably are making a killing selling their signals though.

I promised I would use the service through the end of February, so I will follow through on this.

I've contemplated introducing everyone to my trading system because it's just so easy but I never do because I don't want to be responsible for losing trader's money.  It's also a system that has definitely been used by others in either its current incarnation or some modified version of it.  As I close out the month of January with another H-system win; the system produced 10 wins and only 2 loses this month; I wonder if my success with this system has my thinking skewed.   Is it really as easy as this? Since I've started tracking this system's individual performance, I've had the following success:

• September 2006  +294 pips
• October 2006  +279 pips
• November 2006  -28 pips
• December 2006  +61 pips
• January 2006  +467 pips

These results are produced with a trading system that produces a 1:1 reward/risk most of the time.  Most people would reject this system on this fact alone.  Believe me, I've tried to get more reward out of it but most of the time this trades during the European session (I'm asleep) and I can't squeeze more out of it because I'm not there to do it.  

I think that having a very simple system where I follow a simple set a rules is the way to go.  I do truly believe this but I should also note that I haven't been able to find another simple system in addition to the h-system.   So is it really that simple? The system is simple but finding out if it was viable was not.  It took a lot of time and effort.  Everyday, I learn a little more about it that may assist in making the system more successful.   I do think that profiting from trading can be this easy as long as you keep certain things in check like fear and greed.  Emotional or impulsive trading can really knock you off track and can ruin your entire plan in an instant.  I really don't know what more there is to trading than this.  I have a simple strategy, I follow the strategy taking my gains and losses sometimes consecutively, I try not to let fear or greed enter my mind, and in the end I'm profitable. Is it wrong for me to think that people over complicate trading? I haven't been doing this long enough to come to this conclusion just yet.  I could have 3 consecutive losing months with this system and my entire way of thinking could change.  

Brett Steenbarger, Psychologist and Trader, talks about the four overlooked qualities of successful traders today.  I wouldn't consider myself a successful trader yet but nevertheless, do you or I have these qualities?

1. Constant Desire to Improve -  I truly find trading rewarding and interesting therefore I have this desire to improve.  I want to be successful and I also want my financial well being to be in my hands, not some corporation.  I'm always reading and trying to find a new strategy that may give me an edge.  As long as I have this desire, I feel like my goals can be obtained.
   
2. The Ability to Press Their Advantage - Brett talks about the good traders being aggressive and never shying away from what they see as an advantage.  The lesser traders according to him are quick to take profits and are risk averse.  This ability is something that I am working on.  I feel like I've made some progress since I've developed a more mechanical, written trading plan.
3. Emotional Resilence - Brett states that the great traders have a great attitude about losing.  "They know it's going to happen."  I don't like to lose and I don't have a great attitude about losing yet.  I certainly have made inroads throughout the past year though.  When I first started trading, I lost so often that it totally consumed me.  Now that I can string together some wins, the losses don't seem as bad as before.  Losing doesn't affect me as much as it once did but the bottom line is that it still does affect me to a certain extent. 
   
4. Creativity - Find an edge in an unlikely place.  I feel that I'm creative in my trading but definitely not as much as I would like.  I think that once I can close the gap in knowledge between myself and experienced traders, I may have more time to be creative. 

I had a long position during the European session and was stopped out this morning.  My profit targets "would" have been hit if it were not for the 27 pip spread Oanda had due to the GBP Core CPI announcement.  I'm not complaining, just stating my frustration because in the months trading with Oanda, I've never had issues other than platform crawl.  This could just be a coincidence.  I'm also not making excuses for losing on this h-system trade this morning.  They increased the spread, I was aware that they increased spreads during economic releases, I took my chances, and I lost this time.  My perspective on Oanda spread increases has changed a bit due to an email that David sent me late last week.  He has a very pro-broker view of spread increases.  Though it is pro-broker, I find it hard to disagree with him.  Thanks for the email David.

Another thing I'd like to address is that when you talk about the spread being poor during news releases I think it might be misleading.  This is my take on it: because the FX market is opened 24/7 the majors don't experience what is common in Futures and Stocks which is gapping.  Say overnight Microsoft Vista was hit with a major virus or a major coffee producing country had a major eatrhquake or hurricane or other smilar event the price would probably open at a significantly different price than when it closeed.  All limit and stop/loss orders placed in that gap would automatically be filled at the open price when the Stock Market and Futures market opened.  The poor spreads during news releases isn't soley based on an an abitrary descision by Oanda to increase their profits by raising the spread, its just a reflection of the volitility that comes during 15 or so minutes following the release.  Like gaps in Futures or Equities between market open and close. Remember many other platforms will requote if you try to enter at Market during a news release.

My losses today cut my profit/loss down to +3 pips halfway through January.  This was a lot of work for a lot of nothing monetarily but for experience, this was priceless.  I'll have to fight my way back.  This should be fun....

Oanda credited my account for the 16 pip loss that occurred with an h-system trade yesterday.  It occurred because my take profit order fell within the spread due to major slippage.  When my order executed, Oanda had raised the spread to 20 pips.  I don't like when Oanda raises spreads but if I don't like it, I should make sure that I don't have any open orders during economic releases.   Oanda credited my account but they didn't have to according to the following email:

Yesterday morning at about 07h00 EST the Bank of England announced that it was hiking Interest Rates 25 basis points. This decision surprised the market sending the Pound sharply higher against all major currencies. As the market sought new equilibrium, global liquidity essentially dried up, resulting in large price gaps as prices literally jumped to new levels, in a matter of seconds. This action caused considerable slippage to ensue on your GBP orders. While it is unfortunate that such slippage occurred, these orders were executed in accordance with our execution policy on the price available on our FXTrade servers when the order arrived for execution.

• Ticket 1 was filled by Ticket 2 and was closed by Ticket 3. When 2 was executed, your embedded Take Profit Order fell within the spread, resulting in a loss upon the execution of 3. Due to the unfortunate nature of this circumstance, we have credited your account in the amount of this loss.  This credit is reflected by Ticket 4.
• Ticket 5 was cancelled on a BV:TP (Bounds Violation of your embedded Take Profit Order). This means that the price had exceeded your Take Profit level when it arrived for execution. The server cancelled this order with no action taken, as you had indicated in your instructions that you no longer wished to be in that trade when the price rose beyond 1.9457.

I was reading an article yesterday that posed the question of whether the recessions in the United States are getting milder and milder.  It interested me to the point where I started to look into the factors involved in determining whether we are in a recession or not.  The term recession is used liberally in many conversations yet I never really knew the factors that went into determining this.  I'll try to explain it now. 

What is the definition of a recession? According to the financial press, a recession is defined as two consecutive quarters of decline in real GDP.  There are different interpretations of a recession though. The National Bureau of Economic Research also considers the depth as well as the duration of the decline of economic activity.  They also use a broader range indicators, not just the real GDP.  

What is real GDP? It is the inflation adjusted value of all goods and services produced in a country.

So if you want to find out if the United States is in fear of falling into a recession as defined by the financial press, you could easily look at the data freely available from the Bureau of Economic Accounts at http://bea.gov specifically the Real Gross Domestic Product, Chained Dollars report.  Using the simplest definition of recession, we could look at the real GDP numbers (in billions of dollars) from back in 1990-1991.  The highlighted numbers show the quarters in which we saw a decline in real GDP:

Based on this, we were in a recession from the beginning of the last quarter of 1990 until the end of the first quarter of 1991, about 6 months.   

So are we close to a possible recession?

I'm not qualified to answer that but the real GDP in the US has continued to rise with no decline as evidenced by the below chart of GDP since the end of the third quarter, 2006:

So when was the last recession in the United States as defined by the National Bureau of Economic Research? 

They use a comprehensive method in determining recession and even though there were not two consecutive quarters of decline in the real GDP, they believe the last recession was from March 2001 until November 2001.

Here is a chart that I composed of previous recessions since the Great Depression with possible causes:

There's a new article on Investopedia titled, "Confirm Forex Momentum with Heikin Ashi."  Heikin Ashi is just another way of representing candlesticks.  For instance, instead of using the actual close for the candlestick close, the Heikin Ashi uses the (High+Low+Open+Close)/4 formula.  I read it and threw it on my charts to see if it may be useful to me.   I don't use candlesticks at all in my trading at this point and I don't really see the need to use the Heikin Ashi either at this time.   You can read the article at http://www.investopedia.com/articles/forex/07/heikinashi.asp

Here are my USD/CHF daily charts with and without the Heikin Ashi.