No Cost Trading

I haven't traded individual stocks in over two years.  At one point I was concentrating a majority of my efforts in learning to trade the stock market.  I may be interested in getting back into the stock market in addition to trading forex but the question is, is this a bad time to do so? Considering the bull market we've had going for years now, I'd be a bit hesitant to start now.  Contradicting my last sentence, according to secular market trends (a long-term trend lasting anywhere from 5 to 25 years) we've been in a bear market since the year 2000.   Previous bear markets lasted 16 years (1966-1981), 5 years (1937-1941), 4 years (1929-1932), and 20 years (1901-1920).  Bull markets lasted 18 years (1982-1999), 24 years (1942-1965), 4 years (1933-1936), and 8 years (1921-1928).  Timing is difficult and when everyone is screaming, "we've reached the top" a lot of times this just isn't the case. 

For instance, I bought a house back in 2003 when the financial news outlets were warning home buyers that the prices couldn't go much higher.  I sold the house over 3 years later with a decent profit.  I didn't care what they were saying about the housing market because all I cared about was that the timing for me at that given moment was ideal.  I had the down payment, interest rates were low, and I was at the stage in my life where people typically buy homes (family, tax purposes, etc.) So my deciding to get back into the stock market will be for reasons of my own and not necessarily of the so-called experts.  Like I said earlier, I may be hesitant but we'll see.

The whole point of this post was to mention a stock broker that offers $0 trades.  From what I've read, a lot of the larger brokers may be moving towards this business model in the future and will try making money on other services.  The broker is Zecco.  In addition to their $0 trades, they also have no minimum balance required.  They were also mentioned in a column yesterday on USA Today.  Some of you may already have heard about Zecco but since I've been out of the stock market game for a while, I found it very appealing.  The next question would be where to find a low cost charting provider.  There's tons of free market data information on the web though as long as I'm not trading stock intraday but I'll continue to look further into this also.   

Popularity: 2%

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:

1. Entering before the candle closes is a big NO-NO unless #2
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.

Popularity: 2%

Top Market Moving Indicators

Like many Mondays, tomorrow probably won't be moved by the very latest economic release because there really aren't with 1 exception. At 9 a.m. tomorrow, the TIC report is released.  This report measures demand for US assets and could be yet another nail in the dollar but I'll be watching just to see if this is a report that would move the market in the future.  See Kathy Lien's study that puts TIC report at market mover #9 for first 20 minutes after release and #3 for the entire day.

I'm going to be releasing my Economic Release PDF again this week with comments.  It looks like Wednesday (US CPI) and Thursday (Bernanke Speaks) are possible US session movers and there are a couple of other important non-US releases like the BOJ Interest Rate Statement on Friday (1 am EST.)

In much of my reading, I stumble upon useful bits of information.  There was a study by Kathy Lien, an FXCM strategist, of the top market-moving economic indicators for the Dollar during the first 20 minutes following a release and for the rest of the day.  These are ranked from highest average pip range and are only for the EUR/USD.  Considering other pairs like the GBP/USD react more to these economic releases, the average pip range would be much higher.

First 20 minutes

1. Unemployment (nonfarm payrolls) 124 p
2. Interest rates(FOMC) 74 p
3. Trade balance 64 p
4. CPI 44 p
5. Retail sales 43 p
6. GDP 43 p
7. Current account 43 p
8. Durable Goods 39 p
9. TIC data 33 p

Daily

1. Unemployment 193 p
2. Interest rates (FOMC) 140 p
3. TIC data 132 p
4. Trade balance 129 p
5. Current account 127 p
6. Durable goods 126 p
7. Retail sales 125 p
8. CPI 123 p
9. GDP 110 p

It is interesting to note how the importance of economic reports actually changes over time.  For instance, here is FX Dealer importance of Economic Data as of 1997 and as of 1992.

As of 1997 

1. Unemployment
2. Interest rates
3. Inflation
4. Trade balance
5. GDP          

As of 1992

1. Trade balance
2. Interest rates
3. Unemployment
4. Inflation
5. GDP 

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FOMC

For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent.

Economic growth has been quite strong so far this year. The
Committee sees growth as likely to moderate to a more sustainable pace,
partly reflecting a gradual cooling of the housing market and the
lagged effects of increases in interest rates and energy prices.

As yet, the run-up in the prices of energy and other commodities
appears to have had only a modest effect on core inflation, ongoing
productivity gains have helped to hold the growth of unit labor costs
in check, and inflation expectations remain contained. Still, possible
increases in resource utilization, in combination with the elevated
prices of energy and other commodities, have the potential to add to
inflation pressures.

The Committee judges that some further policy firming may yet be
needed to address inflation risks but emphasizes that the extent and
timing of any such firming will depend importantly on the evolution of
the economic outlook as implied by incoming information. In any event,
the Committee will respond to changes in economic prospects as needed
to support the attainment of its objectives.

Voting for the FOMC monetary policy action were: Ben S. Bernanke,
Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack
Guynn; Donald L. Kohn; Randall S.
Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M.
Warsh; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a
25-basis-point increase in the discount rate to 6 percent. In taking
this action, the Board approved the requests submitted by the Boards of
Directors of the Federal Reserve Banks of Boston, New York,
Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis,
Minneapolis, Dallas, and San Francisco.

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Volatility this Wednesday, Thursday, Friday

I've been trying to keep on top of economic announcements because they are at the core of the Rob Booker channel trading strategy.  I've created an Economic Announcement PDF with notes that were modified from material provided by Rob Booker.  

According to the calendar, we can expect volatility in the market on Wednesday, Thursday, and Friday this week.  Before then, traders may be sitting on their hands waiting for Bernanke's announcement on Wednesday afternoon. 

 Forex Economic Calendar 08/05/2006,14:43 561.15 Kb

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May 2 CFTC Report

I've been reading more about the Commitment of Traders Report and how knowing not only non-commercial positions but commercial as well can assist in longer term trades.  For those of you that don't know what the Commitment of Traders report is, let me tell you.

Some of this information was provided with assistance from Alexander Elder's book, "Entries and Exits"

First, the report is really the only way for private traders to get an idea of the volume for each currency pair.  Each week (Wednesday), the Commodity Futures Trading Commission releases the number of open positions, short positions and long positions in a given commodity.  These positions are given for 3 groups of traders, hedgers, big traders, and small traders.   "Savvy COT analysts compare current positions to historical norms and look for situations where hedgers, or the smart money (big traders) and small traders… are dead set against each other.  If one group is heavily short while the other is heavily long, which one would you like to join?  If you find that in a certain market the smart money is overwhelmingly on one side, while the small spec are mobbing the other, it is time to use technical analysis to look for entries on the side of the hedgers."

Currently, I only provide non-commercial positions or small traders.  You can read more about how to use just this information by going to http://www.forexproject.com/forex_volume

In the upcoming weeks, I am going to start providing data and graphs for all 3 groups of traders.  I just have to put my programming hat on and find the time to do it. 

Popularity: 2%

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.

Popularity: 4%

Magdalena Speaks About Her Forex Experience

I like to post some of your comments sometimes because I find them so beneficial to my learning process and know that they can do the same for you.  This is an email I received from Magdalena yesterday.  I can totally relate to her comments because we are at similar stages.  Maybe you are to.

I started learning about Forex last October and was totally amazed for two reasons: The whole concept of trading FX seemed so perfect and natural that I felt like I discovered the best way to make a living there is. My master thesis was on hedging foreign currency transactions in international trade yet it has not occurred to me until then you can actually make money yourself trading forex. I blame it on the fact that I got my master's in Poland and my home town university's curriculum missed a lot of practical and useful information, since I refuse to admit that it's probably me being a dummy and it never dawned on me before.   After an initial immersion into the market I opened my first demo and doubled it within a month without much effort and occasionally missing trading days. I didn't have any strategy whatsoever, I went with my gut feeling and basically after a while, my way to trade would be to open (I only traded EUR/USD) 2 positions on the same currency just in different directions waiting for each position to make a 10 pip profit. I didn't use any stops based on an assumption that what goes up must come down and vice versa - pretty naive thinking for someone who has degree in finance. It worked beautifully for a while though. Then came December and a couple of big loses that I had to take which pretty much ate all my profits from previous month. This is when I decided to actually learn something and went on a crazy search for a Holy Grail. I guess we all do that at some point Hundreds of websites, offers and promises. The only reason why I didn't buy any system or program is because  simply couldn't afford it. But I kept on looking and got every book from the local library that something to do with trading. And after a while I got to a point where I didn't know anymore what works what doesn't and worst of all I stopped trusting my own judgment. I was dazed and confused.   Then I bought Raghee's book and all of the sudden realized that there is no perfect system. That you can chose basically any strategy and if you have the discipline (the hardest part of it all !!!) to stick with it, you will become successful. So this is where I am at now… Trying to train my eye to see set ups as described in the book and get my personal feel for the market. So far I have found that I get some pretty good trading ideas, however my execution sometimes is not up to par.   I could ramble on about my trading experiences for hours since no on around me shares the interest…Right now I trade a small mini account just to get the feeling of the real account and hope that within next few month I will have enough to open standard account and will be consistently making profit.       Talk to you soon,     Magdalena

Popularity: 2%

Rob Booker Week 2

I'm counting this as a new week even though I didn't sign on with Rob Booker 1 on 1 training until late last week.  

I got up early this morning (4 a.m. EST) to look for setups specifically in the GBP/USD.  The real move happened earlier than this between 2:00 a.m. and 3:00 a.m. so I kind of missed it.  I really don't know what to do if there is a large move like this before I wake up.  It kind of makes me feel like there's no way I can just jump in and feel at flow with the market.  There may be a way of trading after this or this may be one of those times when you just sit on the sidelines.  There was a time when I jumped right in the market just to be in it but I didn't feel any urge to do so this morning.

I haven't heard much from Rob in the past couple of days.  I saw him online this morning but he was off before 11 a.m.  He has previously stated that he tries to stay out of the market on Monday and just concentrates on trading the rest of the week.   

It's tough for us full-timers to find enough time to trade during the more volatile times the market has to offer.  I will continue to try to get up early for the European session but I almost think that 4 a.m. may be a bit too late.  If I find out that this is the case, I'll try to do what I have to trade the US session at 7 a.m.  I have to be at work by 9 a.m. so I don't know if it is a viable alternative to trading the European session.   I can always look for setups between 7 a.m. - 8:30 a.m. and if I enter a trade, set the appropriate stop loss and limits before going to work.  I can then manage the trade if my position is still open from my Treo.  I can either do this or get a job working 2nd or 3rd shift.  This isn't something I would ever do but it may be an option for you.

Popularity: 2%

Day traders find new outlet in foreign exchange wagers

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I am posting this article from last year because this is the actual article I read back in July 2005 that first exposed me to the unknown world of Forex and actually drove me to the bookstore within an hour to find out more.  It was originally published in the Wall Street Journal and I'm happy to have found it.  

By Craig Karmin and Michael R. Sesit, The Wall Street Journal

At an hour past midnight, when he gets home after working as a disc
jockey for a New York City classic-rock station, Marc Coppola checks
the market and starts trading.

Having lost $750,000 trading stocks after the technology-stock bubble
burst in 2000, his appetite for shares is greatly diminished. Instead,
he is joining thousands of other individual investors by betting on the
global currency markets.

Mr. Coppola, brother of actor Nicolas Cage and nephew of movie director
Francis Ford Coppola, earlier this year pocketed about $1,400 on a
$60,000 bet that the euro would rise against the dollar. In March, he
reversed course, betting $40,000 that the euro would fall. Once it
slipped to $1.30 from $1.31, he cashed in half of his investment, then
soon after closed out the rest.

"I got scared out of the trade," Mr. Coppola says regretfully. "I
should have said, 'the euro is going lower' and rode it down to the
$1.20 area."

[Click READ MORE to continue]

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Popularity: 2%

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