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]
Week 17 Performance
I have nothing to report this week because I didn’t make a trade. As I said in my previous post, in between everyday responsibilities and being sick, I didn’t have any motivation to sit in front of a computer screen.
If you don’t trade, you can’t lose but you can’t win either. I want to mention an excellent NEW article I read this week regarding money management. Before I give the link, there was some pretty powerful substance to this article that I want to post:
Put two rookie traders in front of the screen, provide them with your best high-probability set-up, and for good measure, have each one take the opposite side of the trade. More than likely, both will wind up losing money. However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money – despite the seeming contradiction of the premise.
Note that a trader would have to earn 100% on his or her capital – a feat accomplished by less than 1% of traders worldwide – just to break even on an account with a 50% loss. At 75% drawdown, the trader must quadruple his or her account just to bring it back to its original equity – truly a Herculean task!
I would recommend you check out this article. It really does drill home the money management principle.
Dooku Forex Trading System
I started to work on multiple trading systems over the last week or so and realized that I was falling into the same trap of trying to do too many things at once. I decided this weekend to work on my first trading system more. The first thing I did was give it a cheesy name so that I can distinguish it from all the others. I have named it Dooku. You can figure out on your own where I got this one from.
This system was previously being tested on hourly charts with a risk reward of 1:1. It tested well with a 50 pip stop loss and a 50 pip profit target. The first thing I wanted to do was to get the risk reward to 3:1. I successfully accomplished this and Dooku tests very well on the hourly charts with a stop loss of 75 pips and a profit target of 225 pips.
I will forward test this system this week and going forward to see how it performs. From my backtesting, it has never had a losing month. I will forward test this with real money and 1 lot each trade. I will use a 75 pip stop and a 225 pip profit target. I will trade only the GBP and EUR. From my calculations, this system will generate an average of 20 signals a month for each currency pair.
Week 15 performance
This week was my 4th straight losing week. I lost $1220 this week which drops my overall profit over 15 weeks to $1243. Even though my P/L isn’t looking good as of late, I really am not discouraged. I have the confidence and determination to continue onward and I have the belief that I will be successful. I am just going through the stages of learning and if it costs me money to learn, so be it.
This week I used my first self designed trading system and followed through on every signal it gave me. Unfortunately it is a range trading system and the EURO had some pretty nice gains against the dollar this week. Therefore, my trading system did not perform well. I will continue to use it. I will stick by my hours upon hours of work.
38 steps to becoming a trader
Brian mentions that this has been on the internet for years but it’s the first I’ve seen of it. It’s pretty good. I can and you should also be able to relate. Thanks for the info Brian.
38 steps to becoming a trader
They are as follows:
1. We accumulate information – buying books, going to seminars and
researching.
2. We begin to trade with our ‘new’ knowledge.
3. We consistently ‘donate’ and then realize we may need more knowledge or
information.
4. We accumulate more information.
5. We switch the commodities (products) we are currently following.
6. We go back into the market and trade with our ‘updated’ knowledge.
7. We get ‘beat up’ again and begin to lose some of our confidence. Fear
starts setting in.
8. We start to listen to ‘outside news’ and to other traders.
9. We go back into the market and continue to ‘donate’.
10. We switch commodities (products) again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get ‘over-confident’ and the market humbles us.
14. We start to understand that trading successfully is going to take more
time and more knowledge than we anticipated.
MOST PEOPLE WILL GIVE UP AT THIS POINT,
AS THEY REALIZE WORK IS INVOLVED.
15. We get serious and start concentrating on learning a ‘real’ methodology.
16. We trade our methodology with some success, but realize that something
is missing.
17. We begin to understand the need for having rules to apply our
methodology.
18. We take a sabbatical from trading to develop and research our trading
rules.
19. We start trading again, this time with rules and find some success, but
over all we still hesitate when it comes time to execute.
20. We add, subtract and modify rules as we see a need to be more proficient
with our rules.
21. We feel we are very close to crossing that threshold of successful
trading.
22. We start to take responsibility for our trading results as we understand
that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and
our rules.
24. As we trade we still have a tendency to violate our rules and our
results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and
trade.
28. Our trading results are getting better, but we are still hesitating in
executing our rules.
29. We now see the importance of following our rules as we see the results
of our trades when we don’t follow the rules.
30. We begin to see that our lack of success is within us (a lack of
discipline in following the rules because of some kind of fear) and we begin
to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about
ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes
boring, but successful)
and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always
dreamed of.
Most traders will identify with this list and should be able to place
themselves within these steps. Keep in mind that very few people progress
through these steps in an orderly fashion. Developing your trading skills is
an iterative process. For example, you may reach Step 13., find that
although you were making money, your basic premise for trading was flawed
(you might have been benefitting from the bull market, rather than your own
trading prowess and then have been rudely awakened when the market entered a
bear phase) and you may drop back to Step 4. and start ‘climbing’ the steps
again. Having the proper mindset, attitude and psychological makeup becomes
increasingly important as you progress through the steps. The focus of the
earlier steps is on external issues, i.e. developing proficiency in the
mechanics of trading while the focus of the latter steps (particularly from
Step 30, on) is on internal issues, i.e. improving ourselves mentally and
psychologically, maturing as traders.
Designing a Profitable System
Thanks to Greg for a great post. Read this.
I believe anyone can design a profitable system, as long as one understands market principles, what goes up, must come down faster. Twice as long to go up and half as much time to come down. I believe that if I am short the market, I need to trail my stops tighter to lock in profit than when I am in a long position. As for as my original stop, all my systems risk the same amount — small. I use to believe that the 3% rule was nonsense with a $10k account. But in the S&P and currencies, I daytrade with less than 2%. I simply cannot get wiped out that way and my profits are at least twice as much the risk in the S&P when trading one contract.
How much am I going to make? I am asked that repeatedly. I can always tell how much experience a trader has by that question. It is not what you make that is important, but what one does not lose. After I have a profit of so many pips in a daytrade, the most important ingredient to my trading takes place, the break-even stop. I have not read any books giving much attention to this concept. What a stressless (for the most part) feeling it is after I am at break-even.
The best way to trade is to find something simple, that works most everywhere and then become very consistent in your approach. Develop your own system, test it, then stick with it. Other people’s systems may work well for them, but probably will not be compatible with your psychological make-up."
* * *
From Successful Anonymous Trader:
You simply cannot have any confidence if you do not have a method or way of identifying trades along with money management guidelines. You’re lost in the woods, so so speak. I was there for many years. What did I do? This may help a lot of you:
I threw out 99% of all the crap I learned about oscillators, divergences, Elliott Wave, cycles, timing, seasonals, Gann, pitchforks, volume, Fractals, RSI, stochastics, overbought/oversold (this is a good one–the stock indexes, currencies and cotton for example everyone said were overbought and topping in February and March this year). Look at what they did. Needless to say, I don’t pay any attention to this anymore either, etc., etc. The list goes on to infinity almost. I went back to the basics. I went back to simple chart patterns, (a simple moving average and trendline now and then for a visual aid.)
I came up with a low risk money management plan and put it together with trading with the trend and, presto, an effective and time tested trading plan. The plan is simple and has worked since trading began and will last me a lifetime. What a relief not to have to spend countless hours every night trying to find a ndw way to trade. I am sick and tired of that after 7-years.
I believe at becoming an expert at one market nd its behavior and then putting all your skills and energy to work in a concern(traded) manner. Get good at that market and trade the heck out of it. Increase your size over time and you’ll make more money with less effort. There are lots of professionals that do this. Look at some floor traders or locals that stay in the pit for many years trading one market exclusively.
One thing that I have learned this year, is that I am trying to cut back on the number of trades I take and be more selective and not trade in congestion as much as I did before. I miss some good trades out of congestion, but I save myself a lot of mental energy, buy myself some more free time during the day, and get better and more profitable trades.
My attitude is changing now to one or two good trades, and that is all I need to make my week ( a triple or a home run, so to speak). There are plenty of them during any given week.
Trading is fun. Once you have a method and money management in place, it allows you to concentrate on trading and not on searching and researching. That gets old and frustrating. Make it your goal to find a simple method for next year. One thing that you can hang your hat on will last you a lifetime. Trading is simple. Remember that it’s the Execution or Implementation of your trading plan that is the bigger challenge.
Most people make finding the method a big challenge. That is because there is so much junk thrown at traders. They feel like a child in a candy store and have to try every doodad in the place. When they are done, they are sick and never want to see another candy store (trading gizmo) again. They could have had the palin piece of milk chocolate at the front of the store (simple method price patterns) which would have done everything they desired and fulfilled all their needs.
I wish to all a great new year. I hope some will be able to end their journey in search of the holy grail or indicator that will turn their life around. Search for simplicity. You will be surprised what has been right under your nose all the time, right there in front of you on the chart or price bars. Pay attention to what they say they will will tell you everything. You need to listen and get to know them. It can be that simple.
Commodity Traders Club News (1997)
Another tough week
I had a pretty good CAD trade before my 3rd lot closed out this morning but I missed the bigger move upward. No need to be greedy though. Other than that, I’ve had a pretty bad week.
I cannot say that there haven’t been traces of impulsiveness but generally I’ve been following my stop loss and limits. This is a good thing. 1 mistake that I have made was making 2 trades because of the advice of others. This is where I lost a majority of my money this week. There is no problem with taking the advice of another if you also did the research and study. But what I did was blindly go with what 1 other person recommended. I’ve been receiving John Carter’s newsletter this week during a 2 week trial and his latest recommendations didn’t work out. This isn’t a knock on him because you obviously have to expect losses. What hurts more to me is that I was not in control enough of myself to make my own decisions. The only decision I made was to read a newsletter and place a trade exactly as it was written. If I didn’t want to do any thinking, I shouldn’t have been trading.
What’s done is done. I always preach to myself to make my own decisions and live by them. You cannot expect to make money by listening to a newsletter here and a newsletter there. That’s a good way to lose your money and fast. If I subscribed to John Carter’s trading room or was an avid follower of his newsletter, I might expect better results.
One exciting thing this week has been the development of my 4th custom indicator. Just like every indicator, it is just a derivative of price but it is suited to my preferences. I can’t say much more because I don’t know if this indicator will work out yet. I’m still testing it but the results look promising so much so that it surprised me. I have a firm belief that there is no holy grail. I understand that. But there is a system that you can create that will work in certain market conditions that will consistently make money. With my programming experience, it is my thought that if I can create such an indicator, it can be totally automated. This doesn’t mean that I don’t want to study charts. Supplementing this with a steady money making system is like having another employee working next to you making trades and money for you. You have to give it direction but generally it works primarily on its own.
Stick to your Trading Plan
Here’s a post by Lloyd on his blog at http://tradingforaliving-assess.blogspot.com
American trader and hypnotherapist Robert Krausz argues that 75% of trading depends on your psychology and claims that hypnosis can be used to control your emotional state to maximise your trading performance.
However, he stresses on the importance of having a trading plan at the first place!
Here are the 5 basic tasks necessary to become a winning trader and my personal takes:
1. Develop an analytical methodology
– For myself, I read fundamental news and run technical analysis
2. Extract a trading plan from this methodology
– I set up short-term swing trades (1-3 days), always try to pick good entry and exit prices
3. Formulate rules for this plan including money management
– Take profits while ahead, find the best place to get out on bad trades, not relying on stop loss
4. Back-test the plan over a long period
– Start trading small positions and allow mistakes
5. Finally, stick to the plan
– Having confidence and keep practicing till perfect
I took a beating today
I took quite a beating today knocking my profit/loss down into the red. I’m down $1300 this week. As my losses started piling, I started to let my emotions get the best of me. Today has really made me scratch my head and wonder what I’m supposed to do now. Yesterday I was stating how in the flow with the market I felt and how everything on the charts was making sense but today really knocked me for a loop. I look at the charts and it’s almost like I’m looking at another language. Now nothing seems to make sense.
I have to say that I could kind of see this coming. Do you want to know what my biggest mistake has been this week? It has been my inability to let my positions run their course. I’ve been foolish on every trade this week. I’ve found that I’m not even setting limits most of the time and when I do set limits, I totally disregard them. I’m entering on a setup on the 240-minute chart and exiting on a 5 minute just for a little profit. Today I gave up quite a lot in profit because I just wanted a little bit. Then I was willing to let 1 trade go 50 pips lower before closing it out. My money management has been poor and I’m paying for it literally.
I will have to learn from these mistakes and move on. What’s gone is gone. I should actually feel lucky that I’m not down more.
No wonder I’m starting to salivate at the thought of paying $1000 for an online seminar. They must reel you in when your most vulnerable. Help. 
John Carter on ABC News
John Carter was on ABC Money promoting his book, "Mastering the Trade" and talks about Making a Living As a Day Trader.
His 5 tips:
1. trading is simple, but not easy
2. trading should be boring, like factory work
3. be aware of your own emotions
4. the market reinforces bad habits
5. don’t focus on the money, focus on executing trades
You can check out the video at Making a Living as a Day Trader
