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

Popularity: 4%

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: 3%

Currency Trader Expo

I wanted to mention that FXCM is hosting a Currency Trader Expo in New York on June 3rd and June 4th.  I've heard of this before but I just got something in the mail about it so I decided to take a closer look.  

It looks like there will be a lot of traders/authors that a lot of us have heard of including Rob Booker, Alexander Elder, Jack Schwager, Kathy Lein, Boris Schlossberg, Steve Nison, and more.  Most of the workshops are free (40 of them) except for a four that are under $200.   The schedule looks packed with some great stuff.  

I will certainly be attending for 3 reasons:

1. I want to see the faces behind the words of these "successful" traders
2. It may help in improving my trading
3. I am 8 miles away from it so it's convenient

If you cannot make it, I will try to be your reporter.  I'll take pictures, notes, and whatever else I can.  We still have a couple of months to go though so I'll remind everyone beforehand.

Read more about the currency trader expo

Popularity: 3%

Most Volatile Pairs during Asian Session

Before I dive into this post, let me tell you that from everything I've read and watched from Rob Booker (and from everything he has directly told me) it doesn't seem like the Asian session exists to him.  Now he hasn't told me this exactly but he seems to concentrate his effort on the NY Session from 7 am EST - 11 am EST.  I told you earlier today that when he was working full-time, he was trading the European session and he did tell me yesterday that you will get a lot of trade opportunities from 4 am EST.  So from the information I've gathered, I'd have to say he recommends trading during the hours of 2 am and 11 am EST.  

What about the Asian session?  For those of you that work in the United States or Canada or anywhere close to the Eastern Time Zone, the Asian session gives us a chance to actually trade when we get home from work without having to get up in the early morning hours with 1/2 a nights sleep to trade the European session.   

I will ask Rob if he recommends trading the Asian session or if any of his student have success doing so.

What I wanted to do in this post was to mention the most historically volatile pairs during the Asian Session thanks to Kathy Lien from FXCM.  Kathy did a good amount of research on this subject and I thank her for the information though I have asked for absolutely no permission to use it.  These PIP ranges are for the time period between 7 p.m. - 4 a.m. EST

Currency Pairs	PIP Range
GBP/JPY	112
GBP/CHF	96
USD/JPY	78
USD/CHF	68
GBP/USD	65
AUD/JPY	55
EUR/CHF	53
EUR/USD	51
USD/CAD	47
NZD/USD	42
AUD/USD	38
EUR/GBP	25

As you can see from the chart above, the best options for risk-tolerant traders during this time period are the GBP/JPY, GBP/CHF, and USD/JPY.

For risk-averse traders, AUD/JPY, GBP/USD, and USD/CHF provide more moderate volatility.

The only problem I see with the risk-tolerant pairs, at least 2 of them is the spread.  The GBP/JPY spread at FXCM is 9 pips, the GBP/CHF 15 pips! The USD/JPY offers the lowest spread on FXCM at 4 pips.

The risk-averse pairs are a bit better spread wise with AUD/JPY at 8 pips, GBP/USD at 5 pips, and the USD/CHF also at 5 pips. 

Popularity: 5%

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]

[Read more]

Popularity: 2%

Inside the Mind of an Elite Currency Trader

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A new book was released last month titled "Warrior Trading : Inside the Mind of an Elite Currency Trader" by Clifford Bennett.  It seems like I've purchased every currency trading book available except this one.  I may go to Barnes and Noble and see if it's available to skim through.  Here is a description of the book:

One of today's leading currency forecasters shows readers how to
develop the focus, attitude, and mental discipline of top traders

Warrior Trading provides traders with a path to trading success by
developing a mentality and emotional framework common to successful
traders. Warrior Trading includes an enhanced discussion of technical
analysis, and an explanation of how global economic forces are changing
and impacting the markets. Filled with in-depth insights and expert
advice, this comprehensive guide explains the importance of
understanding the market's underlying fundamental and technical
reality-letting traders take advantage of those moments when the
perceptions of most traders are at odds with the underlying reality to
score big in the market.

 

Popularity: 1%

April Issue of Currency Trader Magazine is Here

I love this online magazine.  There isn't anywhere else you can go to read a full-length magazine exclusively on Forex Trading.  In addition, the content is all exclusive and hasn't been seen anywhere else.  The April issue was just released 4 hours ago and contains the following top stories and more:

1. Battle of the Bucks (US Dollar vs. Canadian Dollar)
2. Top Forex Traders of 2005
3. Hedging Overseas Investments with the Dollar Index
4. Candlestick Reversal Patterns
5. Understanding Forex Supply and Demand

Content Removed: Download from http://www.currencytradermag.com

Popularity: 3%

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.

Money Management Matters 

Popularity: 3%

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.

Popularity: 3%

Mechanical versus Discretionary Systems

After finally importing 2 more years of intraday data, my Dooku trading system has failed to backtest well using 4 years of intraday data.  Where does this leave me?  In a word, LOST.

I need to investigate furthur the recommended methods to backtest a trading system.  Of course I realize that past results don’t guarantee future results but I need to understand it more.  1 question I need to ask myself is:  Will my system will be totally mechanical or a discretionary system?

Here are some good pros and cons of both:

Mechanical systems

Advantages 1. This kind of system can be automated and backtested efficiently. 2. It has very rigid rules. Either, there is a trade or there isn’t. 3. Mechanical traders are less susceptible to emotions than discretionary traders. Disadvantages 1. Most traders backtest Forex trading systems incorrectly. In order to produce accurate results you need tick data. 2. The Forex market is always changing. The Forex market (and all markets) has a random component. The market conditions may look similar, but they are never the same. 3. A system that worked successfully the past year doesn’t necessary mean it will work this year.

Discretionary systems

Advantages 1. Discretionary systems are easily adaptable to new market conditions. 2. Trading decisions are based on experience. Traders learn to see which trading signals have higher probability of success. Disadvantages 1. They cannot be backtested or automated, since there is always a thought decision to be made. 2. It takes time to develop the experience required to trade successfully and track trades in a discretionary way. At early stages this can be dangerous.

Popularity: 2%

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