Items Tagged With september 2006

I received the new issue of SFO Magazine (Stock, Futures, and Options) yesterday and I've found this issue well worth reading. 

Particularly, one article asks the question, "Is Home-based Trading For You?" Even though this is exactly what I'm striving for, sometimes I forget that there is a lot to take into consideration before even thinking about taking the plunge.   Have you thought about it?

When I first started trading last year, I remember giving myself 1 year to start trading full-time.  Some of you who had been doing this longer pointed out that I wasn't being realistic.  I wanted to remain optimistic so I stuck to it but eventually did realize that it was absurd to ever think it could take me only 1 year.  In this article, the author states that you should count on at least 4 years of practice or part-time trading.  You are jumping into a world dominated by professional killers.  You have to be ready.  

Are you Realistic?

I am.  I know that day trading isn't a get-rich-quick scheme.   No seminar or special offer on the internet is going to help you. 

I also realize that the learning curve is steep and like I've said before, the longer you can survive during the first few years, the better chances you have of making it.  Allocate a certain amount of money that you know you'll lose.  Think of it as the cost of educating yourself with market experience.  Don't blow it all in a month because if you do that, you'll be out of the game and have no way of getting that all important experience. 

You cannot underestimate the amount of time and practice that learning how to trade takes.  Trading Forex has consumed a lot of my time but I love the challenge and enjoy learning how to trade.  If you don't have the dedication, rethink if you want to ever day trade.

If you do take the plunge, are you ready for the limited social interaction at home you will receive.  I understand this and I'm ready.  I also have an option of finding a trading partner and trading out of a small office.

Can You Handle Being Wrong?

Robert Deel, a teacher who has tutored some 30,000 individuals and professional traders has found that some of the worst trading results have come from doctors, lawyers, engineers, and dentists.  Intelligence isn't the only necessary characteristic that you need for success.  You need to handle the fact that you will be wrong quite often and most likely more wrong than you will be right.

Deel found that younger traders often show a better trading record than seasoned MBA's.  Younger traders don't want to quantify every move by backtesting and second guessing.  They jump in and if they are wrong, they get out.  

Do You Blame Others For Your Failures?

Don't.  Take responsibility for your losses so that you can fix them and learn from them.

If you want to read this article, you can subscribe for free to the online edition or print edition at:

http://www.sfomag.com/subscribefree/subscribe.asp  

There exists the CFTC or Commodity Futures Trading Commission which has jurisdiction and authority to investigate and take legal action to close down a wide assortment of unregulated firms offering or selling foreign currency futures and options contracts to the general public. In addition, the CFTC has jurisdiction to investigate and prosecute foreign currency fraud occurring in its registered firms and their affiliates.

There is a lot of interesting information on the CFTC (Commodity Futures Trading Commission) website, one of those things being a spreadsheet of net monthly capital statements for all Forex brokers. The important information in this spreadsheet are the Adjusted Net Capital and Net Capital Requirements which is the amount of capital each firm possesses in excess of minimum set by regulators. By looking in this spreadsheet, one can make assumptions of the financial stabilility of their broker.

You can find the spreadsheets at http://www.cftc.gov/tm/tmfcm.htm

You can also visit their website at http://www.cftc.gov/cftc/cftcbeforetrade.htm.

An even more beneficial site is provided by the National Futures Association which provides the Background Affiliation Status Information Center where you can lookup Commodity Futures Trading Commission (CFTC) registration and NFA membership information. This information is contributed by NFA, the CFTC and the U.S. futures exchanges. This is an excellent site to find out if your forex resource is reputable.

http://www.nfa.futures.org/basicnet/

You can find this and more useful answers to your questions in the Forex Knowledge Base.

I first wanted to answer a question that I've been getting, "Are You Still Trading?"

The answer is "YES." Last month I traded very lightly due to a busy full-time job schedule and other personal issues.  One thing that ate up a lot of time was putting my house on the market.

This week I've had some time to trade and have managed to capture some pips.  http://www.forexproject.com/My_Trade_History/

Specifically on 5 trades, I've profited 54 pips or $539.20 mostly from my EUR/JPY trade on Labor Day that netted 42 pips.  Today we got most of the currency movement during the European session so I took what I could get during the U.S. session which was 17 pips from a short EUR/USD trade. 

After trading for about a year now, I still don't see trading full-time on the horizon.  What I do realize more and more is that searching over and over for the perfect system or any system for that matter is not that important.  Don't get me wrong, I am currently testing 3 different systems but I'm not looking for perfection.  I'm just looking for a slight edge.  What I've found during my journey is that if I stick to a system that has a well defined set of rules and sound money management, my losses are controlled.  If I told you that this system was profitable, I'd probably be doing this for a living but the reality is that most times in the medium-term, the system breaks even or loses a bit.   I attribute part of this to the fact that I've been trading 1 lot positions.  In the coming weeks, I will be opening an account at Oanda where I can trade in any size that I want and I will take advantage of this by having different profit targets and objectives.  It isn't that first lot or profit target that can make you successful, it is the subsequent lots that have higher profit targets and the trailing of stops that can make all the difference.

I've explored a system called Alba (http://pippinainteasy.blogspot.com/2005/07/alba-track-record.html ) and I can pretty confidently say from talking to others and from looking at trading logs that this is over the long run a profitable system.  This is accomplished due to trading in three lots.  Once the initial target is hit, two lots are closed and then the position is trailed by the high of the last candle.  Only when the high of the last candle is hit is the last position closed out.  This last lot can be more profitable than the first two is why I brought this system up to begin with.

In addition to sticking to the rules and the sound money management, it is important to not allow your emotion to affect the rules of your system.  Another important thing is to have realistic profit expectations.  I've been guilty in the past of trading a setup on a 60-minute chart and looking for a 50 pip profit or more on the first and only lot.  I don't do this as much anymore. 

I see more than ever that the reasons you enter a position (either a moving average cross, channel break or whatever) aren't what's important.  If your system says to enter on a channel break, then do it but have realistic stop-losses and profit objectives in place.  Bend your rules only after you've decided that an additional tweak can make a difference.   I've heard from profitable traders that a trader with sound money management fundamentals and no emotional attachment to their positions can turn any arbitrary system into a winner.  

The last thing I want to say is that I'm constantly approached by advertisers and as you can see, I've taken some offers specifically from FXCM and GFTForex the last 2 months.  I would be crazy to not take these offers.  It certainly isn't a ton of money but it pays the bills that accumulate from having a totally dedicated server to host this site.  

I'm leaving to Atlantic City tomorrow for 4 days for a golf tournament so I won't be around to trade.  Have a great rest of the week.  Talk to you when I get back.

See yesterdays frustration post! I went short on the GBP/USD with my stop at 1.8951.  The bid high reached 1.8951 this morning before doing the exact same thing as yesterday and declining.  My profit targets would have been hit.  2 days in a row.  The good news is that at least I lost less on this trade than yesterday's.   The bad news is it looks like this trade would have been more profitable than yesterday's.  Right now it would be a 130 pipper. 

Is my stop loss too narrow? Do I need to increase my risk by widening the stop loss? I think I have to re-think my stop loss strategy.  Things could be worse I guess.  My strategy was "narrowly off" in what could have been two profitable trades.  I know it's easy to say "what could have been" but I did get the direction right.  

I still keep the "Forex Volume Report" or as it is formally called, "The Commitment of Traders Report" up-to-date.  The report is released once a week by the Commodity Futures Trading Commission.  If you want to view the breakdown of the data or links to resources on how to take advantage of the report, visit http://www.forexproject.com/Forex_Volume/. 

I've heard differing opinions on whether the COT report is actually useful except in instances where there is data that suggests that there is extreme positioning in a currency.   Currently there is extreme short positioning in the Japanese Yen as evidenced by the graph:

You can see that the number of short positions (in red) are at an extreme level, a level higher than at anytime during the past year.  You have to wonder if there are anymore Yen sellers out there or enough to push the USD/JPY higher.   You can also see that the long positions (blue) are slowly increasing.  

I have to admit that I'm an avid reader of just about any "legitimate" forex content that I can get my hands on.  If a new forex book is published, I'm one of the first to read it.  I know some people think that one book is good enough but I just enjoy reading. 

I ordered Raghee Horner's new book "Thirty Days of Forex Trading: Trades, Tactics, and Techniques" from buy.com last week and received the book yesterday.  I've always enjoyed Raghee's commentary, webinars, and also her previous book, "Forex Trading for Maximum Profit." Here's a partial description of the book on Amazon:

...she shares her experiences in this field by chronicling one full month of trading real money. First, Horner introduces you to the tools of the forex trade, and then she moves on to show you exactly what she does, day after day, to find potentially profitable opportunities in the forex market.

The introduction of the book is a Raghee brain dump of her trading methodology.  She talks about her main indicator, the Wave, support & resistance, fibonacci numbers, the MACD, and pivot points.  She also gives a general overview of the forex market and also how to execute trades using a particular platform.  My problem with this chapter is that I feel she is trying to endorse certain products in a way similar to James Dicks' in his book "Forex Made Easy."  I don't know if Dicks' is a scam artist but I've heard he is a bit shady.  Raghee attempts to push an introducing broker where she probably gets a cut of the spread.  This just turns me off so I just skipped over this crap.

The remaining 30 chapters of the book are a rough trading journal broken up into 30 days.  Let me get into the good first.

I thought that I knew everything there was to know about how Raghee traded but reading through her trade journal produced some additional information I had never heard from her before.   One such thing was how she traded during the news or hot zones as she calls them.  If she gets a setup opportunity before an important news release, she doesn't ignore it.  She will take the trade and then use a 60-second stop once the news is released.  She does this by getting rid of any stop orders she may have and then she waits for the 60 seconds to expire after the news release.  She still mentally keeps the stop in her head and if after the 60 seconds, the price is below her stop in a long trade or above her stop in a short trade, she will exit the trade.  She does this to clear out the emotion typically exhibited during the first minute after an important news release.  If after the 60 seconds have expired and her stops were not hit, she will once again set a stop order at the levels she had them at before the news release.

Raghee really likes the use of fibonacci retracement or extension for her profit targets.  A rule she uses in conjunction with figuring her profit targets is the 10-12 pip rule which says that if a certain support/resistance level is within 10-12 pips of her entry, she will ignore this level and use the next level.   So if you entered long at 1.3012 and the .618 fibonacci level is at 1.3019, this level is not used as a profit target because it is only within 7 pips of her entry.  She will use the next level, the .786 fibonacci as her 1st profit target.

What didn't I like about the book? There were a couple of things, one of those being that I feel like she didn't really address money management in her journal.  She does mention it in the introduction but never mentions whether a trade had proper risk/reward for entry.   The charts were also pretty hard to follow because many times they weren't on the same page that referenced them.  They were also in black and white.  I don't know much about publishing but for $85.00, you would think that all or some would be in color.  (I didn't pay $85 which was retail, I paid about $50) If they weren't going to color the charts in print, they really should have included a picture of every chart on the CD that comes with the book.  I thought including the color charts on CD would be common sense but obviously not.  The CD just contains some videos similar to what you will find in her webinars.

While I found her explanations for trade entry, stop and limit placement satisfactory, I found that she didn't mention the end result of most of her trades.  Only if a trade opened and closed on the same trading day did she sometimes mention it.  I was constantly asking myself, "What happened to the trade she made yesterday." This may have been by design but I just felt like her trades could have been much more organized.  She could have numbered each trade and at the least, included the results of each and every trade on the CD or in an appendix.  

With the good comes the bad and I don't want to give everyone the impression that I didn't enjoy this book.  I read it in under a day so I must have enjoyed it! I just felt like it could have been much more organized.  I don't regret buying it because I did learn some important lessons from it, hopefully lessons that I can use in the future.  

If I had to give this book a rating from 1 (worst) to 10 (best), I would give it a 6. 

If you're interested in reading more about the book or buying it, go to Amazon. 

After almost 2 weeks of trading my plainly named system, the "H-system", I've received mixed results.   Results looked great after week #1 but since then, I've suffered 3 straight losses on Monday, Tuesday, and today.  So far, this system has 5 wins and 5 losses but I'm still up 109 pips or $1090.  

I said earlier that I may need to reevaluate my stop loss strategy which I am now doing.  The last 2 losing trades could of easily have been wins instead of losses.  To address this issue, I've decided to tweak my system a bit.  I've widened my stop loss and have moved it to the next level of support and resistance.  Whereas before, I was setting my stops at the 2nd level of support/resistance, I am now moving it to the 3rd level of support/resistance.  This will on average increase my stop loss by 6-10 pips per lot and therefore increase my risk.  I will only be using the 3rd level of support/resistance for the early morning European session where these spikes are happening.  If the US session opens and I'm managing an open position, I will move the stop loss back to the 2nd level of support/resistance.  If a trade is initiated during the US session, I will continue using the 2nd level of support/resistance.   

So I've increased my exposure a bit and I'll just have to wait and see how it turns out.