Items Tagged With march 2007

I like posting email's or comments from other traders that I receive because I find the information many times insightful and refreshing.  Here's one such email I received yesterday from a visitor that wishes to remain anonymous.

I don't trade the news instantly for the obvious reasons; widened spreads, dodgy broker activities, its just not worth it.   i'll take a position 10 minutes or so after the news is digested.  I'll give you a perfect example of a trade i did earlier this year where i made a lot of money.  When the BOE raised rates to 5.25% the pound went through the roof, over 120 pips (i think)... but look what happened right afterwards a huge selloff - which is clearly, people either

1. taking quick profits
2. people who were short and just got nailed

Using a current example, I'm currently long eur/jpy and have been since Monday.  Yesterday there was a huge selloff because the Bank of China said they won't accumulate more reserves, so all this fear entered the market., I saw my 100 pip profit whittle down to basically nothing.  But I didn't get out, because I relaxed and asked myself:

1. Is this enough to alter the outlook?
   
2. Does this change the fundamentals right now?
   
3. Will hedge funds/banks etc. give up their carry trades for this?

I said no, the EUR/JPY is now back up to its prior levels.  I could have been wrong, sure, but at least it was my decision not the decision of a moving average/stochastics etc.  The reason why i don't like moving averages in particular and a lot of technical analysis is that while yes they can work, you gotta remember big banks/hedge funds have these tools as well.  They know how the small guys trade.  They have the capital to push prices down knowing a MA cross will occur, and then they will just reverse and continue the trade in the fundamental direction.  My biggest problem as a trader are entry points.   I work really hard on technical analysis but honestly, I suck.  Technical analysis is not useless don't get me wrong.  I've been checking that Ed Mamula blog and I'm sitting here like "is this guy for real" cause that's crazy and very admirable.  I'd say on a fundamental basis I'm right 80% of the time.  Economics in Forex is not hard.  The sick reality of Forex is that you need capital and lots of it.  The worst feeling in the world is being right but still losing money.  Look at your losses.  How many times would you have been right if you just could afford to have bigger losses.  I mean if you're wrong, you're wrong.  I'd suggest really looking at your losses (not those Lien & Boris ones) and ask yourself, was "I right" fundamentally... one/two days later. 

In the New Market Wizards, they interview Bill Lipschultz, one of the most famous currency traders ever.  He said something so eye opening i never thought of.  Think about an investment bank... they get an order to buy 300 million euro/yen, they fill the order at a huge spread (profit right there), the order goes through, knowing an order of that magnitude will move the market, they take the same position and piggyback.  Front running is LEGAL in Forex.  Think about that concept.  Like i said, I'm not so successful at this that I can do it for a living (I WISH).  I love the markets but know where i stand in the big picture.  I know my orders don't reach the interbank market and I know i'm trading against my broker.  I do my best and get really frustrated when I was right but my capital can't sustain my positions.  I'd say maybe to improve your returns always focus on three things:

1. INTEREST RATES - why do you think the pound has been so choppy...because there is no clear indication anymore about interest rates.  Look at the Aussie dollar recently at 10 year highs... Why?   Keep raising int.rates indicating more could be on the way.  Look at the euro... talk of 4.00% maybe more.
   
2. WATCH CNBC (I'm serious) Like i mentioned previously, I made a killing shorting the yen at the end of February.  Technical analysis did not matter, nothing mattered.  It was all over the t.v., in the newspapers;  "the world is coming to an end!!!" Risk aversion blah blah... It was the first time i ever traded the eur/jpy cross but i didn't care that i had no history with the pair.  It was the easiest bet this year.  I just wish had the capital to trade gbp/jpy as well.... 
3. Maybe try making a decision (keep a chart) of in your mind what the currency's should be doing based on your fundamental analysis.  Once you come to a decision stick with it, until you feel the fundamentals have changed.  Fundamentals do not change from some random news headline, or report.  They change over time.  For example, right now i will NEVER short eur/usd.   I don't care if it goes all the way back down to 1.29.  I will only BUY.  If you're asking the question, should i buy/should I sell, you shouldn't be making a trade, period.  Last week, the easiest pair to trade was usd/jpy.  Why???  On CNBC, they continually talked about how if the DOW is moving up, it must because the yen is weakening and vice versa.  I really do believe the only advantage of investment banks have over us is:

1.  They have more capital
2.  They know when big orders are being placed
3.  They have the luxury of knowing where orders are

Look at the eur/jpy, gbp/jpy, aud/jpy, nzd/jpy crosses this week, the calm is back.  There's worries about subprime but equity markets have been up most days.  Carry traders want their interest.   Don't lose sight of that, until you read about another massive selloff in Asia, or about a few mortgage lenders in the states actually going under you, should buy these currencies against the yen.

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. 

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.

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.

Since I had such a terrible forex trading month in February, I've had to do some thinking over the last week to re-evaluate my trading.  What kind of things have I been thinking about? Let me give you a quick brain dump right now.

1. My comfort level with the GBP/USD is getting increasingly better and better.  Obviously no one can predict what direction a currency is bound to head but I feel like I've been able to determine the correct movement of the GBP/USD to a certain extent.  Now I just need to find out how to profit more from this.  Maybe I need to be more instinctual in my trading and go with the feeling. 
   
2. On the other hand, I am totally uncomfortable with my stop loss levels.  I received one comment about my poor choice of a 1:1 reward/risk when I trade the GBP/USD.  His answer was simply to use a 15 pip stop and 30 pip target which would give me a 2:1 reward/risk.  Unfortunately I think this is much easier said than done.  I've had enough experience over the past 18 months to know that a 15 pip stop with the GBP/USD is suicide.  You need to pick a less volatile currency pair if you want to use a 15 pip stop, like the AUD/USD.  My problem is that I have a full-time job and I don't have the luxury of trading the European session.  Therefore I cannot incorporate a more complex stop loss strategy.  I don't know what the answer to all of this is.  I'm fully aware that in order for my h-system to be profitable in the long run, it needs to win more than lose.
3. Due to visitor comments on this site, I'm more intrigued with the possibility of opening an account with FXDD.  Doing this would allow me to use expert advisors with Metatrader.   I previously turned the h-system into an expert advisor so the only additional work that would have to take place would be if I incorporated a different stop strategy. 
   
4. Part of the reason my performance from last month looks so bad is because I hastily used the h-system on the GBP/CHF and GBP/JPY.   I lost my focus.
5. March has started off better, I'm currently up 114 pips.
6. I'm not going to pressure myself as much to add another system using other currency pairs.  I'll continue to search for a new system because I enjoy the challenge but my focus should remain on the GBP/USD.  As I state in #1, if I can continue to increase my comfort level with the GBP/USD as much as possible, this may be the answer to success. 
   

Piptopia, Rob Booker's site has a short post that says to do one thing right instead of getting tangled up with multiple financial instruments, indicators, time frames, and trading systems.  I've said this in the past and that's why I was concentrating on 1 currency pair and 1-2 trading systems associated with this currency pair.  But what happens when this system doesn't work anymore in the current market conditions? This is probably where patience comes into play.

I'm in the situation right now where my trading system isn't working out like it once was but I am sticking with it and trying to remain patient.  At the same time, I'm trying to explore other ways of trading and to be absolutely honest, don't know where to begin.  This has happened in the past to me, a period of confusion that sets in and takes me over.  I'm not trading recklessly but I feel frozen, unsure of anything.  My patience is being tested as I start to move away from my primary currency pairs to other currency pairs and multiple time frames.  I'm searching for something, anything but maybe I just need some time away to regroup.  Should I trade short-term or long-term, should I trade just the GBP/USD or start incorporating new currency pairs, should I try discretionary trading again or stick with system trading, should I....  What to do.  I wish I knew at this point what to do but one thing I do know is that I shouldn't jump in and start trading with this uncertainty hanging over me.  I'll continue to put trades in based on my systems but I'm not about to do something rash that would threaten my account balance.

When this confusion has happened in the past, some people have recommended that I just start trading in my demo account but I always felt that I couldn't take my demo account serious enough for it to be much help.  If I start using my demo account this time around, I'm not sure if anything will be any different.  Maybe I should consider trading smaller lots but this is just throwing away money at the expense of trying new things.  Therefore I'm going to try something new to see what type of involvement I can get from others to make trading more competitive and perhaps, more meaningful.  I've set up a FXContest on Oanda in which anyone can be a part of.  Quite simply, as long as you have a demo (FXGame) account with Oanda, you can join the contest.  FAQ's regarding the contest can be found at https://fx2.oanda.com/mod_perl/fxcontest/fxcontest.pl?rm=help#q6.  If you already have an FXGame account, it's as easy as going to the "Forex Project Contest 1" and joining.  You can do this at https://fx2.oanda.com/mod_perl/fxcontest/fxcontest.pl?rm=contestDetails&contestId=130.   If you currently don't have an FXGame account, they will instruct you on creating one and then you can join the contest.  The contest is slated to begin next Sunday, March 25th and will end 2 weeks later.  Performance is based on portfolio return.  They talk about this more in the FAQ's link above.  

I don't know if this is of interest to anyone but if it is, feel free to join.  I thought about offering some sort of prize that goes to the winner but I'd rather wait to see what type of involvement the contest gets first.  

Lastly, I just want to give credit to Booker's post that's mentioned in the first paragraph; you can find it here:  http://www.robbooker.com/blog/2007/03/20/do_one_thing_right.php

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

I received the following comment this evening regarding my pip calculation method.  He says:

"Most traders don't count multiple lots in with their pip total.  You use it to calculate profits, but not to calculate pips. If that was the case, I would have had over 40,000 pips last month."

I have to claim ignorance here.  I don't know how most traders calculate pip total.  I've seen it done both ways especially if they use multiple targets with multiple lots.  Nevertheless, I do agree with this poster and I don't want to be misleading in my calculations.  Therefore I am changing the language of my posts and also my trade history and performance statistics.  

This is an example of how I was calculating in the past:

If I went long the GBP/USD 3 lots at 1.9400 and closed the entire trade at 1.9430, I would have said that I gained 90 pips. 

This is an example of how I will calculate going forward:

If I went long the GBP/USD 3 lots at 1.9400 and closed the entire trade at 1.9430, I will now say that I gained 30 pips.

So I will now how to talk more about the amount of money I gained or lost instead of stressing how many pips I gained or lost.  I'm going to work in the next couple of weeks on adding more performance graphs to the site like equity curve, monthly profit/loss %, rolling monthly profit/loss %, and daily profit/loss %.  This is what chaffcombe does on his site.