Step by step, inch by inch, pip by pip

Well, I need a couple more weeks and a bit more discipline but I am beginning to sniff potential. I have a small target per day and then I try to be very conservative once I have achieved that. I am entering with a basic 3 to 1 risk reward model, quite small positions, which if I make 6-8 plays a day requires me to only have a 50% success rate.

I do keep breaking my own rules....and going for the big one....I need to stop this....its very annoying to spend good thought getting to a destination and then bad emotion to throw it all away....not just a truism for trading that methinks.

I stumbled up a great site with heaps of grea info and this fantastic top 10 rules for FX trading

The 10 Rules1. Never Let a Winner Turn Into a Loser
2. Logic Wins, Impulse Kills
3. Never Risk More Than 2% per Trade
4. Trigger Fundamentally, Enter and Exit Technically
5. Always Pair Strong With Weak
6. Being Right but Being Early Simply Means That You Are Wrong
7. Know the Difference Between Scaling In and Adding to a Loser
8. What is Mathematically Optimal Is Psychologically Impossible
9. Risk Can Be Predetermined, but Reward is Unpredictable
10. No Excuses, Ever
This is taken from : http://www.investopedia.com/university/forex-rules/

Until later, pip pip

Some light at the end of the tunnel

Well the downward trend of my sorry account continues. But there is hope. Overall I have traded more wins than losses, just my losses were BIG ones. I have been playing 1 or 2 weekly plays (eg EURUSD going for 100 pips down and 300 pips up over a 5 to 10 day period. And this looked really good....until some big news hit, in this case it was Spain and Portugal went bazooka's and may go into fiscal crisis. This caused a massive swing and stopped me out.....it always feels personal when this happens as the stopping out is often right at the tip of a trough. Its not personal, the market doth not know me.

However I have made about 7 or 8 shorter plays (3-4 hours using the 15 minute charts) where I have won 80% of them. This is predominantly due to a combination of factors. I am using both Fundamental and Technical principals for my orders, I have a money plan and an exit plan. I shall explain further :

I have been watching the AUD JPY pair closely over the last 2 weeks. There seem to be multiple powers aligning (remember I am an FX idiot, this is simply my learnings and thoughts, do not without your own research and belief take this as a hot tip)   :

1) The JPY is being actively supressed by the G7 (legal market manipulation....shakes fist)
2) Japan and Libya have settled down, well not really, but the 'theatrical' shock of it all has....and the market has priced this in (to some extent). AUD is a bit of a prospectors currency, thus in times of risk aversion (war, massive natural disaster etc) people flee from the AUD, this to some extent has diminished this week.
3) The AUD is a commodities play, when commidities do well....the Aussie does well

That being the case I have been doing the right thing and following a trend. I have with this used some very basic TA, looking for the reversal trends as a way in and a way out of the trend, taking short term profits, rather than leave my order running for 5 days with a 300 pip target and 100 pip stop loss (which has hurt me). The problem with the very long plays is I have to risk too much of my measily account. Whereas if I chase the short term wins, I risk less and of an evening I can make more than the gross swing by playing all the reversals.

So the entry point is on a typical buy signal after a retractment, the exit point is on simple sell signal at the end of a surge. In both cases I wait for confirmation (missing a bit of profit). I then run a 30 pip stop loss and a 75 pip take profit. Once I hit 30pips of profit I tighten my loss so I cant loose.

If I am actually watching the trade (as in not eating or looking after my pesky children, working etc etc) I look for signals of change and close the order). Otherwise I let it run.

So far 8 trades, 6 wins and about 200 pips of profit, almost making up for my 2 big losses. I will persevere with this approach over the next week and report back.

The graph below shows me following a trend and jumping in and out on signals (and in each case waiting for confirmation)

Till next time, pip pip

Stoploss or die !! and MT4 - MQL

I was trying some 'scalping' this week, this is where you try to make short term 5, 10 or 15 pip quick gains only grabbing small gains but frequently. It obviously requires you to be 'at your terminal' to do this.....all was going well until in a blink of an eye one of my trades crashed 100 points (on news...or indeed speculation by senior EU bods on the nature of the nuclear leaks in Japan). In a moment I was open to a $300 loss on a 3 point trade.....this thankfully came back mostly, but wiped out most of my small gains and added to my so far downtrending balance.

The lesson....even when scalping make sure you put in an emergency stop loss, even if its a good distance from your initial position.

In other news I managed to get my first expert advisor working, this is a programmed algorhythm where you automate your trades. I have got a few working where I actually make profit to....unfortunatly on too few trades to be practical.

Using the MT4 trading tool and the MQL language you create a small program that tests the market EVERY TICK (this is many times a minute). You can inspect standard metrics, like bollinger bands, moving adverages etc and even inspect previous bars on the chart. Then automatically place, modify and close orders.

Here's a clip of what the code looks like :-->

while (iLoop != 0)
{
dDelta = (Close[iLoop]-Close[iLoop+1]) * 10000;
   dDeltaAggregate += dDelta;
   if (dDelta > 0) iUpTrend++;
   if (dDelta < 0) iDownTrend++;
iLoop--;
}

This loop simply compares the closing value of one bar to another (the previous one) and counts the number of bars heading in either an up trend or a down trend. You can then test your advisor over months or years of previously recorded trade data. This generates you a report which you can use to see if your trades would be successful. A great resource for coding tips is here : http://docs.mql4.com/index (and also in my links).

Below is an example of the testing tools output, in this test result, my system made 20 trades over 3 months (on one currency pair over, so in theory this would be about 200 trades over 3 months). It retuned a small profit. This is enough to use a system (yet) and would also need an extended amount of forward testing, where I would run it for weeks or months on my demo account against live data.

Great fun doing this and also very edumacational, till next time, pip pip

                                                          Click on image to expand the report

MT4 - Indicators and Expert Advisors

My live trading activity has almost stopped as I try to learn more and more about the Foreign Currency Exchange and if I can make money from it.

I spent the weekend learning how to code in MQL4 the C++'esque language used by the popular trading platform MT4. MT4 is available as a trading platform through most leading brokers. It is a powerful charting tool with a heap of indicators. More excitingly (for me as a computer nobby person) is the fact you can program your own indicators and indeed program your own Expert Advisors.

An Indicator is something that you can use to see a general trend in the market. There are long established "industry standard indicators" that are based on averages, volume, mathematical algorithmic curves etc etc.

I decided to learn all about reversal patterns this weekend. These can be applied to any timeframe and are basically a set of identifiable patterns that indicate a current trend is about to reverse.

As such, I wrote myself an advisor that would :

• identify a trend (I could define a trend as x number of consecutively climbing or descending close prices), identify a signal (interrogate the current trading window and look for tell tale signs of a reversal).
• discern an entry point (as well as top and limit exit points)
• identify confirmation that the predicted trend was reversing

Not bad for 22 hours programming !! while my lovely daughter tortured me by playing non stop Justin Beiber, Glee and High School Musical in the background....not what I would consider 'thinking music'. I must at some point untie her and let her back out of the cupboard.

Now, I want to take this indicator and turn it into an advisor. An advisor will, based on a set of conditions, place an order for you, manage the order and report the outcomes.

Once you have developed an advisor you can "back test" it on historical data, this involves running your advisor from some start point in the past and seeing how it would have worked.

If you get a good result from this, you can then forward testing by letting your advisor automatically place trades on your demo account and see how it goes in 'real life'.

Im not even sure if I believe a system can be written, after all there are alot of smart cookies out there and I would imagine anything I have thought of has already been tried, however the process I am going through teaches me an awful lot and is great fun.

One issue of backtesting is you keep tweaking your system until you show profit, this then results in you creating a system that can "predict the past". Which is possible not much use :) Hence the need for forward testing.

Ill post up some screen shots of my indicator and some links to MQL4 programming guides later.

Till next time, Pip Pip.

Fear freaky Friday

Ive slowed my trading right down, indeed I have 4 longer term (target returns over a week) postions in now. Where I am just trying very low cost positions to play long established trends. 3 ascending and one in a channel, where the price fluctuates between a long established (5 days) support and resistance points.

So, whats this Freaky Friday thing. Well, the first friday of each month is when the US Employment figures are released. This is one of the most influential news items (on an expected schedule) that effects the US $.

This month experts (economists...aka modern day witches) had predicted US jobs creation to come in at about 190k, and there or there abouts it did. So what would one have expected the market to do. I was watchng the USD v the GBD, EUR and AUD.

So....the US employment figures more or less matched market expectations. One would therefore expect little impact. In fact....the dollar inially dropped about 50 pips against everything...then almost instantly reversed this and was about 50 pips up against most things (a 100 pip swing)....it bounced around here for a while then over the next few hours all currencies moved up against the dollar and in many cases hit short term highes !!!!

Not what the causal observer would guess.

And this is where the market is a beastie. Obviously, the expectations had been loaded into the matket, the forcasts are available to anyone and the fact it was a generally very good outcome (given the previous months dour 20k new jobs) it was no more than expected.....as such business more or less continued as usual in the previous trends.

However, as the week went on, and some weakness in the Euro currencies (and china production figures dropped) all of a sudden the subtle strengthening of the US dollar began to tell. And across the board each time news came in, the US dollar moved from a position of strength where as the Euro currencies all seemed brittle to any weak news.

Interesting stuff.

On a side not, I am going to investigate some different trading platforms and some tools that allow you to programatically look for signals. Not sure if I would ever be a system man, but I know when you look into these things you accidently learn a bungload.

Till next time. Pip Pip

It appears I dont know much at all...but....

For me and the way my mind works, using a demo account was great for learning the mechanics of trading, terminology, pairs, etc etc. But I couldnt really apply the discipline this Forex melarkie seems to need. So I jumped into (small fry...all things relative) live trading. And to date, havent really done very well at all....and even if I had I suspect it would just have been blind luck. I thought I had thought about stuff, formulated strategies etc, but when money (and thus human nature) kicked in, Im pretty sure my current knowledge is best described as uneducated guesswork or even simply gambling.

Now, to be honest, this is still quite entertaining and sounds alot cooler than saying I was betting on which way the clouds would blow today or the toss of a coin.

However, I am still resolved to put effort into this FX and try to arm myself with knowledge and understanding.

I have been hunting around forums a bit to see whats out there....and there is ALOT. Now I have been working on computers since installing Noah's Animal Loading System and am a big fan of forums. I am also a pragmatic chap and know that on the interwebs there is lots of poo for each nugget of gold.

I have found one forum though that is knee-deep in good discussion, tips, details and discussion.

Its called Forexfactory.com. Now it contains forums on the trading pairs with all sorts of people making all sorts of claims, guesses and stating all sorts of systems. On the internet, who knows, you could be talking to a genius turning over thousands a day....or a muppet...like me. However there are two threads in there that are indeed gold (and perhaps many more.....theres alot of threads). These threads are valuable not only for their advice and opinion (which one must measure themselves) but more so for the topics they make you think of :

This thread is a beginners guide to FX and is a great read : http://www.forexfactory.com/showthread.php?t=39514

This thread is a well...its alot...but its like a nice place for nubblets, like myseld to learn some things about trading http://www.forexfactory.com/showthread.php?t=2331

Enjoy

Weak One !!

So the end of the first week and almost 40% down, to the naked eye this doesn't look to good, indeed to the fully dressed eye it doesn't look to good !

However the second half of the week was in fact much better with 2 days showing profit. So why the loss. At first I blamed it on the Middle East, seems only fair. But to be honest it was a case of paying the price for poorly educated placing of positions.

My main issues were really around to much of a high expectation, coupled with too tightly coupled stop losses, meaning even if I was right I was getting stopped out of positions that ended up where I expected them to go. I was also entering at the wrong time and trying to some extent to predict change. This is silly early on when your knowledge is basically poor. I have, as I initially intended started to look for a more conservative approach of following a trend.

I'm using a combination of fundamentals (news) and technical analysis. To expand on this, most trading platforms will provide you with a news feed, that lets you know when announcements will come and provides you with enough information to discern the red and green lights such an announcement might have on a trading pair. So with my more successful trades I have been finding a fundamental that will send a pair in one direction (eg Libya causing concerns over oil supply sent money to a safe harbour, which in the land of currencies is the Swiss Franc, this I believe is based on the fact that in good times and bad, we will consume chocolate.).

Once I have established a fundamental I look for an entry point, I am using very basic TA, looking for pull backs in a trend as an entry point, comparing the 2hour chart, 1hour chart, 5min chart to detect this and then entering on the 1 minute chart. This allows me to be quick enough to get in at a good point and at the same time be quick enough to execute to a plan.

When I stick to that I do well.

I fail when, I place a position because its after evening meal and I have sat down at the computer and its time to place a trade, so I look for things that aren't there and make bad decisions. I need to stop doing this. Hence the title "weak one" because that is what costs you, poor discipline.

Despite being disappointed that I cant yet socialise with the rich and famous after a whole week of being a Foreign Exchange player, I seeing more and more, how the value of investing time to learn and refining your understanding can improve your prospects, like, well just about everything else in the world.

The upside of Forex trading is, its very easy to get into, no high entry costs, cheap fee's per transaction (that scale to your smaller positions) and no real infrastructure needed to trade...just a half decent computer and net connection. Although I already feel the need to have at least 6 monitors.

I am going to write up a post on how I have been using Trailing Stop losses and where I see there value.
Till next time.