No Spectacular Returns

Blah, blah, blah…  Yes, once again I'll mention the fact that I'm in a transition personally and only time will tell me how much I can dedicate to trading.  There is no question that it is one of my top priorities as it has been for almost two years.  Unfortunately I've had to trench myself into my full-time job and give it the attention that was lacking.  I'm sure a lot of you also have to find a balance between work, play, family, and trading.  No matter what though, I have a passion for forex trading and I think if you do too, this gives us as good of a chance as anyone at doing this for a living.  

This month has been anything but spectacular.  I'm actually happy to be ahead, albeit by only 6 pips.  I'm happy that I've started to track particular moves and trades more closely in an attempt to try to optimize my current systems.  I've also been able to organize myself more from a trading and non-trading perspective.  I've recently found Google Calendar to be an indispensible tool in this endevour.  I also have a lot more personal space at my new house so it's nice to walk over to my desk and quickly look at my charts even though I still mainly use my laptops for trading.  

I went into a tangent about falling behind in my technical analysis studies and also about the need to learn more but I'm back to my philosophy of keeping it simple.  A couple of you had some good things to say about keeping trading simple and I just needed to hear it to come back down to where I belong.  Ed Mamula once again had a good comment:

I absolutely agree with the comments that are encouraging us to keep it simple.  Having more technical indicators to look could possibly increase our confidence, but beyond a certain point, it really doesn't increase our accuracy.  I've heard it said many times that a man with one watch always knows what time it is and a man with two watches can never be sure…  

You can visit his blog, Book Smart and Battle Scarred.  It seems like he's had some success trading the GBP/USD with a system of his called the Cable Glider. 

Have a good weekend.

Has Anyone Tried This Broker?

Anyone that works in the financial industry has heard of Deutsche Bank but for those of you that don't, it is one of the bigger financial institutions.  I'm wondering if anyone has tried the demo or real forex trading accounts.  I never hear about them when looking for forex broker options but I mentioned back in May, 2006 that they had launched a platform for retail traders.  At that time, the minimum required to open an account was $25,000 but they have since lowered it to $5,000 so it may be a more viable options for smaller traders.  You can find out more about them and also sign up for a demo account at  http://www.dbfx.com/index.html.  I'm going to check out the demo in the near future.

A Fable About Trading

I received an email from Rob Booker today and he is having his publishers send me a free copy of his book, Adventures of a Currency Trader: A Fable about Trading, Courage, and Doing the Right Thing.  As always, I'll give immediate feedback once I've started reading it.  Here's a quick summary of his book:

This book explains in a simple, down-to-earth
manner how any individual can implement a conservative, consistent
trading system in the foreign currency market and, in so doing, become
a financially independent currency trader.  Written in an informal,
engaging style, the author Robert Booker traces his own path from job
frustration to profitable currency trader.  He provides readers with
simple strategies for making money every day in the currency market
without risking a large amount of capital.  He emphasizes the
importance of implementing the trading system in a methodical and
disciplined fashion and of avoiding emotional responses to the
market.  Throughout the book are profiles of traders trained by the
author and who exemplify key aspects of trading success.  The book is
both technical and motivational.  It provides techniques for
consistently making money in the currency market and it provides
stories of ordinary people who are using those very same techniques to
trade successfully.

March Profits

I've managed to pick myself up from last month's disaster and gained a little confidence today after both my h-system and reversal trades profited 60 pips total.  I was able to jump on and off for the downward momentum in the European session and then jump back on and off for the upward momentum during the US session.  I'm currently up 36 pips or a return of investment (ROI) of 5.4% for the month of March.  I've decided to take Ed Mamula's advice on calculating profits for reporting my progress here.  If you want to check out Ed's post titled, "Pips vs. Percentages Part 2" you can do so by browsing to http://edmamula.com/2007/03/09/pips-vs-percentages-part-2/    

I've started my trading reorganization plan by rewriting the rules for the two GBP/USD trading systems I use.  I've also redone the trade tracking spreadsheets  I use to store more detail.  I realize that I need to keep more detailed records regarding my trading systems so that they can continually be optimized.

As for all of the other technical analysis I wanted to learn more about specifically fibonacci, chart patterns, and carry trades, I'm not going to pressure myself to look into learning these any further at this point in time.  I received a comment from Motu of Auckland, New Zealand who got my mind back on keeping it simple:

I think we're all guilty of thinking if we knew more it would make us
better traders. But IMO that is a dead end road. Some really successful
traders use very simple stuff.  Have a read of "The Logical
Trader" by Mark Fisher…his ACD system is a nice blend of statistics
and discretion…plus he still uses it (see thelogicaltrader.net for a
book excerpt) – and it is very simple to use.  Alternatively, Phil McGrew's stuff really works….and I'm certain Phil is the real deal in terms of trading himself.You
mention "it's strange that I spend so much time optimizing and
organizing this website but I don't translate this over to my forex
trading and studies."The reason for this IMHO is that site
maintenance it is not as stressful as trading! On the other hand,
trading profitably is incredibly boring…or should be. I think many of
us would be better off leaving our money in a portfolio of carefully
chosen CTA's…

Thanks Motu.   

I am going to continue reading Nicole Elliot's book on Ichimoku which I could possibly use for position trading the USD/JPY in the future. 

Avoid Online Forex Pitfalls

Brian Dolan, Director of Reseach at Gain Capital (FOREX.COM) wrote an article in the March 2007 issue of SFO Magazine titled, "Trading Mistakes.  Avoid Online Forex Pitfalls."  

This is from the vantage point of a long-time employee of a forex brokerage so I've decided to post this information.  I've heard most of the pitfalls before but not from the broker perspective.

1. Overtrading – Why would a forex brokerage discourage overtrading?  According to Brian, Gain Capital look at a trader from a long-term perspective and if traders fail, they lose the potential volume that a successful trader could have generated.  He breaks down overtrading into two forms:
1. Trading too frequently
2. Trading too many positions at once
2. Overleveraging/Under-funding – Overleveraging means that you have entered into a position that is just too large relative to your available margin balance.  Under-funding is not having enough margin to support your position size.  Once again, the discouragement from Forex brokers to be overleveraged or under-funded is from a long-term profit standpoint on their end.  There is no question that these pitfalls will be major reasons for a trader failing.
3. Trading Without Stop Loss Order/Moving Stop Loss Orders – We've all heard this before.  Some of you have mentioned that you use a visual stop loss and others like myself set hard stops.  I've found in the past that a visual stop doesn't equate to that most of the time in my trading.  I was tempted when I first started to trade to just ride it out, a recipe for disaster.
4. Trading Around Data Releases – Moves during data releases can be violent and unpredictable.  Some brokers raise the spread (Oanda) and other broker re-quote (FXCM.)  I've stayed away from trading the news.  I've tried it but unfortunately didn't have a lot of success because of my inability to focus due to having a full-time job. 

There are no secrets given by Brian in this article, just common sense.  It's still helpful to hear it again.

What Am I Studying?

I have definitely been sidetracked for some time now, preoccupied with only particular GBP/USD forex trading systems.  Due to this fact, I feel like I've disregarded other aspects of technical analysis that may one day turn out to be useful.  This started about 6 months ago after my first full year of trading, where I found myself sitting in front of my computer staring at charts for what felt like forever.  I don't know if it was burn-out or if I just felt like these other forms of technical analysis required discretion, something that I wasn't successful at.  it could also have been that I was looking for instant gratification after months of hard-core learning. 

I'm not sure where my trading will be next year or this year for that matter but I feel the need to start concentrating on some of these neglected areas.  It's strange that I spend so much time optimizing and organizing this website but I don't translate this over to my forex trading and studies.  I feel very disorganized and sometimes behind in what others have learned in an equal or shorter period of time.  I've said this before but I'm going to try to put together a list of things that I want to study and learn more about.  I want to continue with my GBP/USD trading systems but I also want supplement other things into the fray.  Just off the top of my head are:

1. Ichimoku specifically on the USD/JPY.  I'm still reading the new ichimoku book that was sent to me but I've always been interested in this indicator and I want to explore it further
2. Chart patterns
3. Money Management
4. Carry Trades
5. Divergence
6. Fibonacci

These are only a few but I think the key as I said previously is to get organized and try to create a learning schedule so that I can become more adept at forex technical analysis.

Charting From a Different Perspective

I was reading DailyFX's weekly trading lesson today and doing so pushed me to exploring something entirely off the subject.  But first, let me talk a bit about the lesson content.  The lesson was on head and shoulders chart patterns.  I certainly have read enough about chart patterns, head and shoulders being one of them, but I've actually never traded this chart pattern.  The lesson is short and basic and if you don't know much about the pattern, you can read the lesson at http://www.dailyfx.com/story/strategy_pieces/weekly_trading_lesson/Weekly_Trading_Lesson__Head___1173715146697.html.

The example the author gave pertained to the EUR/USD on a 1-hour chart.  The head and shoulders pattern is actually still in play as I write this.  In looking at the picture of his chart, I could clearly see the two shoulders and head.  I then went to my Metatrader charts and opened the 1-hour EUR/USD but I could not see the pattern.  Here's what I saw when I opened my charts:

 

 

 

 

 

 

 

 

I don't see the head and shoulders, do you?  Call me stupid but I never thought about getting a different perspective by changing the zoom level on my charts.  I usually only zoom out at the most one level on my Metatrader charts.  But yet again, I never really thought about zooming out further.  Yes, I feel like quite the amateur but here is what the same chart looks like zoomed out two more levels:

 

 

 

 

 

 

Do you see it now? It isn't perfect but it's pretty evident.  

Ichimoku Charts Book

Harriman House, publishers of finance, business, economic, and political books were nice enought to send me a free copy of "Ichimoku Charts: An Introduction to Ichimoku Kinko Clouds" which I received last week.  The author is Nicole Elliott, a trader for Mizuho Corporate Bank.  I had seen Nicole's name before when I regularly visited the Mizuho bank technical analysis research website.  You can find the links for this and other recommended sites at http://list.forexproject.com.  I found this site very unique in that it was the only technical analysis site where I've seen the exclusive use of ichimoku.  So I started reading the book last week and my first impressions are that it's refreshingly unique material, challenging, yet rough around the edges.  The author is a trader and not unlike me, probably not a trained writer.  In addition, I think she may be European so I cannot relate to some of the non-trading terms she utilizes.   Like I said before, a lot of the information contained in the book is totally new to me so I have yet to grasp a lot of it.  Overall, I'm intrigued and looking forward to reading it further.  When I have time to allow the information to marinate in my head, I'll be sure to pass it along.  Let me leave you with the main elements explained within the book:

1. candlesticks
2. 9 and 26 day moving averages
3. the Cloud and its size
4. Chikou Span
5. long term wave count
6. short term wave count
7. the Wave principle
8. price targets
9. time principle 

I can't fully review the book until I'm finished so I'm hesitant to recommend it but if you are really interested in learning more about the elements above now, you can always buy the book at  http://www.harriman-house.com/pages/book.htm?BookCode=22962

Forex and Tax Reporting

It's getting close to that time of the year again… reporting taxes to the IRS for all of the traders in the United States.  

I wrote a couple of posts a while back about this subject which includes links to further information.  

Tax Information for Forex Traders

Tax Implications of Trading Forex

Calculated Pips Continued

It seems like the subject of how best to quantify a winning or losing trade is a hot topic.  There were a couple of differing opinions.

Two people agreed on the following example
If you buy 2 lots at the same time and you sold the first lot for a 10 pip profit and the second lot for a 5 pip profit, you could report a profit of 7.5 pips.  Pip Heaven believes this way works because we are interested in trading performance, not the exact amount of money you made.

Chad thinks that the best way to standardize performance regardless of account type is to report a profit to loss ratio.  His example explains why.   If a trader with a mini-account (10K) profits 30 pips on 10 lots, he can say he is +300 pips.  If a trader trading with the same risk but 1 standard lot (100K) profits 30 pips, he can only say he is +30 pips.  Both the mini-trader and the standard account trader profited the same amount of money, $300. 

Chad's example makes a lot of sense and clearly points to the faults in my pip calculation.  Though this is the case, I had standardized this way of calculating my performance therefore on a month to month basis, it still worked in telling me whether I did better or worse than other months.  So regardless of whether your method is believed to be right or wrong, if you are consistent in how you calculate performance, the results from any method should still tell you what you want to know.

Overall, most people agreed that using percentages are the best solution including Simon, Ed Mamula, Hermann, and molbio1.

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