Studying in Advance for Next Week

Booker has me a lot more attentive to upcoming Economic Releases and the trade opportunities that can arise.  Therefore, taking 1 day at a time, I took a look at the Global Economic calendar for Monday, April 24th to see if any pairs may exhibit volatility due to any releases.   It generally looks like a light day with NO economic releases out of the United States.  The UK does have a couple of releases at 4:30 a.m. EST including Retail Sales (month over month), Public Finances, and Money Supply (month over month.)  Last month during the retail sales announcement, the GBP/USD moved about 30-35 pips following. 

Therefore, I will plan on getting up at 4:00 a.m. Monday morning to look for a trade opportunity in the GBP/USD using short-term charts (15 minute?)

I'll be going through more of Rob's lessons this weekend and will keep everyone updated on my progress.

I hope everyone had a great trading week.   Have a relaxing weekend. 

No Plan, No Trade

I’ll admit that I’m a bit discouraged by the uncertainty of my trading plan or lack thereof.  Whenever I do try to develop one, I just get overloaded with information to the point where I don’t even know where to begin.  Therefore, this week I have not been trading much.  The only trades that I placed were generated by my Dooku trading system that I have already lost confidence in due to the weak backtesting results it generated on data from 2000-2003. 

So where does this leave me? I’ve actually been getting more involved at my full-time job lately.  I don’t know if this is an ominous sign that my Project is failing.  I know that I’m just a little down on myself right now.  I have to realize that I’ve only been doing this for about 9 months now and my journey has really just begun.  I’m going through the same learning process that a lot of traders who are now successful traders have gone through.  I’m also going through the same learning process that a lot of traders who have since failed have gone through.  What keeps me going is that I find trading to be such a rewarding experience and I enjoy it immensely.

I’m not a quitter and I know that I’ll continue to grind it out to see where this takes me.  What do I need to do to get back in the right mindset?

1.    Continue to develop a simple trading plan, either mechanical or discretionary.  I’m leaning more towards a discretionary plan right now.
2.    Put more time into analyzing multiple time frames of currency pairs.  What may help is for me to pretend I’m a currency strategist and each day write up my own thoughts.  At the end of each day, review my prior thoughts to see how well I did. 

These are really the only 2 ideas I can brainstorm right now.   For all of you that are just starting to explore the world of trading, don’t let my discouraging thoughts seap into your minds.  Just realize that you too will go through this and it’s all just part of the process.

Dooku Reversal

Sticking with my trading system to start the week off has paid off.  Dooku generated some realized profits this morning when I closed out 2 positions +$1000.  I have since reversed 1 position that Dooku generated after the exit. 

Trading with a plan is so much easier than trading without a plan.  Where the emotion was so evident before, now it just isn’t as much of a factor.  I still don’t know if this trading system is the answer to making a consistent profit but I like the feeling that having a plan gives me. 

Do Trading Systems Work?

I’m staying on the trading system subject today because I was reading a transcript of an interview performed yesterday between FXSTREET and Markus Heitkoetter, President of Rockwell Trading.   The subject was "Trading Systems: Do They Really Work?"

Markus’ most important comments follow:

• - Like all other ventures, "having a plan" will give you an edge
• - A trading system consists of a set of rules; in it’s simpliest form a trading plan (or system) has entry and exit rules.  More sophisticated trading plans include position sizing and money management
• - You MUST have a trading plan to succeed
• - At a minimum your trading plan should consist of entry and exit rules
• - The 2 types of exit rules are stops (to protect your capital) and profit targets to realize profits
• - The "lack of the trading plan" is the No. 1 reason why traders fail
• - The easiest way to follow a trading plan is to automate it
• - Trading with a system removes emotions from trading
• - If you’re looking for trading action, don’t choose a trend-following system.

Here are the top six reasons why traders fail:

1.    Lack of a Trading Plan
2.    Lack of Discipline to Follow the Plan
3.    Failure to Control Emotions
4.    Failure to Accept and Limit Losses
5.    Lack of Commitment or stop trading using your system after the first loss
6.    Over-Trading

Trading a system helps you overcome the top six mistakes

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)

What Markets Am I Going to Trade?

This is a continuation of my trading plan.  I have added a link to the left main menu called My Trading Plan.  You can view the latest trading plan at any time by clicking this link or going to http://www.forexproject.com/trading_plan/ 

The second question I will ask myself is "What Markets Am I Going to Trade?"

I will be trading the Foreign Exchange market only.  Specifically I will be looking to trade the EUR/USD currency pair only until I can develop a consistent trading strategy.  Once I become more comfortable trading the EUR/USD, I will slowly integrate more currency pairs into the mix.  I will allocate 100% of my fund to trading forex.

This year, I want to look further at trading the following:

·         Mini-sized Dow (YM)
·         E-mini S&P (ES)
·         E-mini Nasdaq (NQ)
·         E-mini Russell (ER)
·         Soybeans (S)
·         Mini-sized gold (YG)
·         Corn (C)
·         Wheat (W)
·         Crude Oil (CL)
·         Mini Crude Oil (QM)

Week 14 Performance

As I mentioned a couple of days ago, this week was especially hard on me.  I lost $3000 to drop my 14 week earnings to +2500.  There are a couple of major adjustments I’m going to make going into week 15.

1.    Finish a preliminary test plan that at least details 1 trade setup

2.    Stop trading multiple currency pairs.  I’ve been trading and trying to study about 8 different currency pairs.  I feel like this is definately too much for me to handle and most would not recommend a beginner to do this.  I will try to study and trade the EUR/USD ONLY since it is considered to have the most volume.  I will slowly try to incorporate some more of the major pairs into my trading plan as I get more comfortable with the EUR/USD.

3.    Back test, back test, back test.  A couple of months ago I was really interested in back testing trading strategies but lost interest after several attempts proved to be very unprofitable.  I have since started using Metastock with esignal to backtest moving averages.  Metastock has an optimizer function that will go through all combinations of moving averages and return the most profitable combinations.  My goal will be to first to find the most profitable moving averages for the EUR/USD.  I will try to correlate the moving average pairs to produce the most profitable 3 moving averages. 

I’ve already started performing #3 and I currently have Metastock performing backtesting on over a years worth of 1 hour interval data.  It’s very CPU intensive and will take about 4 hours.  It’s currently half way done and so far the best EMA pair is the 7/75.  The 7/75 EMA’s actually have some impressive results over the last year on the 1 hour EUR/USD chart. 

Here is an exact description of the backtest:

Buys/sells when a moving average of 7 periods goes above/below a moving average of  75 periods. 

I also have it factoring in the broker fee and have set the results to buy/sell 1 lot.

Here are the results:

70 profitable trades with average profit of $355.86 per trade.
Highest profit was $1020 and the most consecutive profitable trades was 12 

15 unprofitable trades with average loss of $972.67 per trade.
Highest loss was $2180 and the most consecutive losing trades was only 2 

Over 1 year, if you followed this trading plan by buying or selling 1 lot each trade, you would have profited $10320.00. 

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

Week 13 Losses

I’ve already gone into the reasons why I think this week was unprofitable.  The main reason was due to my exit of profitable positions before my limits were triggered.  I exited many positions this week just to take the quick profit however small it was.  I noticed afterwards that these positions would have moved more in my favor if I had not exited early. 

I made a total of 19 trades this week, winning 10 and losing 9.  My average trade profited by 32.1 pips which if you take into consideration I’m trading 3 lots, it’s really only about 10 pips per trade.  That is not good.  My average losing trade was 54 pips or 18 pips per lot.

I lost a total of $1827 this week bringing my 13 week total to +5519.  So I am still in the black but if you average my total profit over 13 weeks, it’s only about $425 a week.  

So I have work to do this weekend.  I need to develop a more systematic approach to entry and exits.  I don’t have a true trading plan and a lot of my setups are random and sometimes come from feeling.   This will be a work in progress.

Preserving Capital

Greg made a comment regarding a trader that interests me:

Two books worth their time: Market Wizards, and The New Market Wizards. One of the traders interviewed made the observaton that on any given day trading is probably luck, but if the trader is consistently winning over time, it’s not luck. Another trader said the whole purpose of entering a trade was to preserve capital (he has never had a losing month.)

Entering a trade with the purpose of preserving capital is an interesting way to go about things.  I will probably read more about this in the upcoming days. 

For next week, I think I will change my exit strategy which may help with my early exits.  Instead of entry of 3 lots and exit of 3 lots, I will start to use a multi-lot exit strategy, one in which is probably based on multiple targets.  This will definately require more management per trade but if my worry all along has been with giving back profit, this may help curb it a bit.

This weekend I will also be working on formally drafting a real trading plan.  I will post sections as they are completed.

Next Page »