Forex 12.23.2009

Category | Columns & Articles
How Often Do You Do It?
Posted on August 29, 2009.

Is it 12-15 times a day?  Or just 3-4 times a day?
Maybe just once a day, once a week or once a month?
One of the things that attracted me to Forex was hearing about the acquaintance of a colleague who quit his job, moved into trading Forex full time after several years of trading successfully part-time.  His seed capital for full-time trading was $10,000.  His position size never varied.  His average return was $30,000 per month.  He took the excess out as self-payment, put it into other investments, and continued to trade with his $10k seed capital only in play.  Smart man.
One of the great joys of Forex is that just a little goes a very long way.  A trade well-timed, well-executed, on the cusp of a wave, is all it takes to keep your account balance looking healthy and growing daily.  Just a 5% return per day builds up in a hurry.  Over the space of one month, using the same position sizing for each trade, your return on investment is 100%.
Establishing a profit percentage per day target, whether it’s 2%, 5%, 10% or more (let’s try not to be greedy), is one means of helping to focus your attention on the task.  When you reach your profit % target, put your tools down and go home, enjoy life, your job is done for the day.  Tomorrow is another “work” day, there’s always another train leaving, another wave coming tomorrow.
Choosing the right time of day and the right set of circumstances to execute a trade is important.  Riding the wave in and out at market’s most liquid times, the moments of greatest potential velocity, helps.  This occurs at the beginning of the Europe session (from 6am London time), the beginning of the US session (from 7am US ET), the overlap of the Europe/US sessions (when the Dow is trading) and as the US session closes.
Exercising the discipline to only trade when the deck is stacked as much as possible in your own favour, matters.   One way to help with this is to write up a trade entry check-list, print it out in large letters, and stick it in plain view right next to your trade station.  Before you hit the trigger, have you met your entry criteria?
This is a sample checklist below (the one I use for my trading style and signals, design your own to suit).
Trade Entry Checklist
1. Oscillator on floor or ceiling across 15M, 5M and 1M time frames.
2. Candles have good supporting evidence (wicks, hammers, engulfing).
3. Is price at Support/Resistance? Check fibs (daily and hourly).
4. Check Futures data (red or green? Price going up or down?)
5. Check News data due.
6. Check USD/JPY fibs and oscillator.
7. Check USD/CHF fibs and oscillator.
8. Check 50% retracement levels.
9. Review of daily, hourly candles.
10. Review of EMA’s.
11. Check time of day.

The 4 Stages to Forex Profitability
Posted on August 29, 2009.

Becoming profitable in Forex is a process – like any other profession, it requires competency training.
The process of training the mind and acquiring the necessary TA and market skill to obtain competence and trade successfully takes time. Psychology’s competence matrix (often used in both education and change management disciplines) has much application to trading. This article looks at how the sequence applies to the process of acquiring trading competence, trading profitability and account balances during each phase. It also provides an approximate time frame for each stage.
Stage 1. Unconscious Incompetence – Losing Money – Minor Red Account
In the unconscious incompetence phase, we don’t know yet what it is that we don’t know (aka ignorance is bliss.)
Sitting in the Forex saddle for the first time is exciting, but it’s also precarious. Some traders manage to make good progress on the first live debut, but eventually the knowledge vacuum and pressure of live trading takes over causing higher levels of risk-taking, compounding the losses problem. At this stage the trader may also be embracing unrealistic grandiose expectations or have an exaggerated self-assessment of their trading prowess, the type of projections that are not anchored in realities.
This is called the unconscious incompetence stage. The trader “thinks” they have the required knowledge and strategy to make Forex work for them (from demo trading) but don’t yet know what it is that they don’t know – about the market and about themselves as traders. Market has a way of letting the trader know what the knowledge gaps are, fast.
Approx. Time Frame: 0-3 months.
Stage 2. Conscious Incompetence – Still Losing Money – Deeper Red Account
In the conscious incompetence phase, the trader has arrived at the point of recognizing the knowledge gaps – we know for certain now that we don’t know enough.
In this phase, the trader sees what they are doing wrong and what the knowledge gaps are, but has trouble fixing the problems. The account at this stage keeps getting redder as losses accumulate. This evidence is highly confronting, things are not going to plan.
This is the stage where the trader needs to make a conscious choice to begin seriously working on themselves and their trading system. It’s also the point where many new traders quit. The trader becomes fully and acutely aware of the many nuances of the market. The TA that looked so reliable in demo is failing far too often in the heated environment of live trading. Acquiring experiential knowledge of precisely how this market works; what can go wrong; how the trader’s judgement can be clouded; trading discipline; locating a TA system and trading routine that delivers the goods – these themes become the primary challenge. The trader has an important choice to make – meet the challenge and get across the issues, or quit.
Approx. Time Frame: 3 – 6 months.
Stage 3. Conscious Competence – Breaking Even – Account Holding Steady
The conscious competence stage arrives when the trader has begun addressing trading problems and started refining their trading system and personal discipline to a greater level of precision. Respect for risk is at a peak (thanks to losses and red numbers up to this point.) The trader takes great care in opening a new position, doing everything necessary to maximize the chances of success and reduce the risk of loss. At this stage, the trader is reluctant to let profits run, preferring to take profit, while confidence and knowledge builds.
Conscious competence is arriving – we now know with increasing certainty that we know how to do this – trading is starting to look very do-able, there’s a light at the end of the tunnel. The trader is getting it right with increasing frequency. Confidence is building. The trader’s brain is in the process of being programmed to trade successfully. The trader is working hard, thinking carefully and fully, applying rigorous care to every trade. This is the most lengthy, time intensive and effort intensive phase of the competence matrix.
The trader is no longer losing money, but also not making much money either. The breaking-even phase is nevertheless a huge achievement, and the essential precursor to the final stage.
Approx. Time Frame: 6 months to 3+ years.
Stage 4. Unconscious Competence – Making Money – Green Account
The final stage of the competence matrix is when the account begins to put consistent positive runs on the board. The trader begins to make money regularly. Trading profitability has shifted from having to think / work hard at it, to a stage of being clinical and instinctive. The red account begins to claw back drawdown and then turn green. When losses have been fully recouped, this is when the trader knows they have graduated and are ready to trade in a professional sense.
In this phase, trading successfully and profitability has become a much more automatic process – one that continues to evolve with an increasingly higher success rate. The trader recognizes the entry set-ups automatically, has the detailed knowledge, skills, discipline and market experience to make the right decisions at the right time. Trading begins to seriously work for them.
Trading profitably has become second nature. The trader’s brain has been successfully programmed to trade with accuracy and precision. The trader has acquired a level of instinctive professional competence.
Approx. Time Frame: 12 months – 5+ years.
Summary
Building up the credit balance in the trader’s personal knowledge bank is an essential precursor to building healthy trading accounts. Programming the mind to trade is part of the process of acquiring competency.
Experienced traders who have come through the school of hard knocks process often lament “if only I had known in the beginning what I know now, and still had the same funds available, how different things might now be.” Hindsight is a wonderful teacher. Make some allowances for the competency learning curve.
While there is no hard and fast rule about the time sequence for each phase of acquiring trading competence (since this is entirely dependent upon the trader’s personal capabilities), there is nevertheless, a distinct process that every trader goes through. Plotting where you are in the competence matrix at this present moment in time can provide a realistic indication of what is left to accomplish and how long it may take.

Position Size: The Holy Cow of Forex Trading.
Posted on August 29, 2009.

The cowboy approach to trading Forex is a wonderful recipe for inviting disaster, but many new traders do often attempt this as a means to the “Get Rich Quick” dream. What they invariably get instead, is a blown account (and one happy broker who now has their money).
A broking house related in an article recently that one of their most successful traders is a “balls to the wall” kind of guy. He began with a $1 million kitty, trades very large position sizes, and regularly pulls in the kind of numbers that make your head spin. He frequently changes his mind, flipping from long to short and one currency pair to another within seconds, which apparently drives his trading partners crazy. Large position sizes do it for him. Recommended? Absolutely not! (Let’s remember that brokers have their own agenda to work.)
It’s very hard to believe that this guy “began” trading Forex for the first time with $1 million and automatically succeeded. Far more likely he earned his stripes elsewhere on a much (MUCH) smaller account for a period of several years, then moved into a larger account using the broker relating this story, which is where this trader’s story “began” for the broker concerned.
Another trader within my acquaintance recently related the story of his transition from demo to live. He made a classic mistake, demo trading on a $100k account (because he liked the hit of seeing the zero’s spinning around), having a great time. Suggestions that demo trading the amount of his anticipated live capital was essential, went unheeded. He then went live on a $10k account, and promptly blew it up. He refunded a second time with another $10k, blew that one up too. Now he is trading a micro-account, and finally the lesson has sunk in – trade small to start with – give yourself room to get through the apprenticeship without the damage.
The big difference between demo and live is just one word – pressure. Some traders can handle the pressure, others can’t. Small position sizes accomplish several important things –

• Small position sizes are the optimum way to contain the pressure. Small position size, small pressure. Big position size, big pressure. This is a critically important tool for managing the emotions of trading.
• Small position sizes make allowance for the knowledge vacuum, the “what don’t I presently know about this, that I need to know” factor.
• Small position sizes link in to the “Less is More” approach. A little trade at the right moment, goes a long way. In Forex, it doesn’t take a big position size to make a big return on investment. A small trade, well placed, can deliver big returns.
• Small position sizes guarantee preservation of your account capital, and as such are the  primary tool for insuring yourself against losses.
• Small position sizes ensure market longevity. No money, no trading.
Many experienced traders recommend small position sizes relative to the size of the account (not more than 2%) and regardless of market experience, for good reason.
Position size is however contingent upon two things. First, the level of risk the trader is comfortable with and second, the level of proficiency the trader has. Some traders are comfortable with high levels of risk, but under-estimate the second part of the equation, their proficiency.
If the trader is good at what they do, has a strong track record of success, an increased level of risk-reward can be a legitimate strategy. Some experienced/professional traders risk up to 20% of their account seed capital per total open positions (usually trading a basket of currencies simultaneously). The premise is that Forex is a speculative high risk instrument, it’s not the place for the bread and butter money of other investments, risk is the business du jour – as a successful professional trader they have literally “earned” the privilege to trade higher levels of risk.
The end purpose of longevity in the Forex market is to gain mastery of the instrument, to trade it with a high degree of accuracy and proficiency, accumulating consistently successful trades. Making it through the apprenticeship to reach the success objective is made possible by one thing, managing position size well.
Position size matters. Regardless of account size, trading style or market experience, it’s the key to unlocking and maintaining long-term success. In the early stages especially, it’s the key to survival.
Small position sizes also give the trader room to grow gradually into a place of comfort in coping with the pressure that comes with trading larger numbers as the success rate improves.
Safe and happy trading.

Recovering Forex losses
Posted on August 29, 2009.

Finding yourself all at sea in an ocean of losses can happen all too quickly.
A new trader friend, a successful businessman, wisely opened his first live Forex account with $500. He had spent 6 months researching the market, and trialling different strategies at length on demo until finding a method that he believed consistently profitable. Within a month of going live, he had converted his $500 into $2,200. This was quite an achievement, especially for a first “outing”.
A few weeks later, I ran into him again. Things were not going so well.  His early success had given him a false sense of confidence. Believing he had the formula right, he started to take on greater levels of risk (larger position sizes) and in more volatile currencies (Yen pairs).   When the losses began to kick in, he attempted to cover the losses as many new traders do, by increasing his position sizes further. He related that because it was just a mini-account, he found it difficult to treat it in the same way as he would a larger account, he felt more comfortable taking larger levels of risk because the actual money involved was not huge. It was unfortunately, just a few short weeks before his fantastic start had come completely undone. Blown account. Back to square one.
Being able to treat a mini account with the same respect and discipline you would a larger account is a necessary bridge to success.
Account Drawdown
The issue with drawdown is the compounding factor – and the subsequent level of profit the trader needs to generate in order to recoup the loss. This table illustrates why keeping drawdown as low as possible is so important.
Original Acct. Amount
Acct. Balance
Percent Loss
Percent Profit Required to Recoup

The above data is for information only.
$1,000
$900
10%
11.1%

$800
20%
25.0%

$750
25%
33.3%

$600
40%
66.6%

$500
50%
100.0%

$250
75%
300.0%

$100
90%
900.0%
As shown on the chart, the drawdown problem compounds at a fierce, almost suffocating rate.   The profit percentage required to recoup losses grows exponentially with each losing trade.   When the account is deep in the red, recovery becomes extremely difficult. It is not however, mission impossible (although it may certainly look that way).  It will take a much longer period of time (patience) and a very consistent string of positive trades to recover the losses.
The “Usual” Quick Fix.
Once a trader begins to take losses, the first response is very often an attempt to fix the drawdown problem by taking higher levels of risk.
Let’s think for a moment about what this approach does. Backing our own judgement, we’ve had a few, usually quite a collection, of losing trades. So then, to fix the problem, backing our own (already proven dubious) judgement again, except this time, increasing (sometimes doubling) the stakes in order to fix the problem, we launch the next trade (this is usually where prayer comes in).
The “increase the stakes” approach to addressing drawdown is not trading, it’s gambling.
The Other Quick Fix.
Another way that traders often seek to address drawdown is by re-funding the account with much higher amounts.  Red numbers suddenly look much less red with a nice big green injection of fresh capital   Sounds good, except, there’s a minor technical hitch. The skill needed to get it right this time (instead of wrong) has not yet been proven. Until it is proven – the trader’s ability to put one positive trade on the board after another, the outcome to re-funding much higher amounts will very likely be exactly the same, more and much greater losses. This is especially so if the “raise the stakes” gambling ethos is still at work in the trader’s mind.
The Right Fix.
The objective with trading is not to make a truckload of money in a hurry.  The objective is to put consistent positive runs on the board (regardless of size). Putting one foot in front of the other, and repeating the process so that your account continues moving forward, one step at a time, not back.   Developing this skill needs to become the #1 focus of each and every trade, because it is this same skill that will both recover drawdown losses and put the trader on the road to long term success.
Re-funding a mini account with further small amounts may be a necessary and valid response (there is a limit to how low an account can go before it is not worth your while), just keep any re-funding amounts small not big.  Once trading a mini account successfully, the mini can then become the seed capital for a larger account, or the trader can then add fresh larger capital amounts (because the proven track record required for success has already been laid down, the hard evidence of this being the profitable mini account).
Red numbers remind us of our failure.  The emotional response to it is an urge to obliterate the evidence, to replace the confrontational nature of it with something more positive.  Resist the temptation to take the easy way out.  Use the red numbers and the urge it generates to motivate and train yourself in the skills you will need for the long haul.  Learn to swim through the ocean to dry land, one stroke at a time.
Recovering losses occurs in exactly the same way it happened, but in reverse; it also happens in exactly the same way that your account will grow and remain solid into the future – one successful (disciplined) trade at a time.

MY FIRM WIN/LOSS DAILY LIMIT IS 100.00 IN EITHER DIRECTION NO QUESTIONING THIS: I MUST HONOR IT!!! THIS IS A CARDINAL RULE!
DONT TAKE LESS THAN A 2%, 5%, 10% or a $50.00 PROFIT!


!!!!!FOREX MARKET CLOSES AT 4PM FRIDAY AND OPENS AGAIN AT 4PM ON SUNDAY!!!!!
****SLOWEST TIMES FOR TRADING ARE 12:30P-3:00P DO NOT TRADE THE SLOW TIMES FOR NOW***
MOST ACTIVE ARE 7P-8:10A
*****DO NOT TRADE FROM 4:30PM TO 6:30PM******

GOAL#1=MAKE 100.00 PER DAY FOR 90 DAYS THEN STOP...OR 3 TO 5 TRADES PER DAY AT 3 TO 5 PIPS EACH.
Addendum to goal=2500.00 per month=83.33 per day=
day 1=9.10.09=110.53
day 2=9.11.09=116.56 met goal at 6:07am the hard part about it is leaving the monitor...do i stay in or continue?short for the monthly goal of 2500 early or walk away for a breather?stayed until 10:18am to close out again at 448.40 profit for the day...

Day 3 accidentally left a position open over the close of the w/e fortunately it gapped down, which was the direction that i wanted it to go, usd/jpy=90.31 was were i sold 100,000.00 for a profit of 330.41.
Day 3 goal met...walk away for a while...go to the gym...perhaps get back in later on tonight...fj
:~) 9.13.09

d1=goal met...89 more to go...fj
DAY 4 9.14.09
TOOK OFF WORK TO TRADE: GOT ABSOLUTELY HAMMERED BY 1. TRADING TO CLOSE TO MARGIN CALLS BY BUYING 250,000.00 EUR/JPY; EVEN THOUGHT IT EVENTUALLY MOVED UP 100 PIPS IN MY CHOSEN DIRECTION THE MARGIN REQUIREMENT KICKED ME OUT BEFORE I WANTED TO GO THUS CONFUSING RE ENTRY AND DESTROYING THE REST OF THE DAY...1500.00 LESSON LEARNED: DO NOT TRADE TO CLOSE TO YOUR MARGIN CALLS; I GOT GREEDY AND ALLOWED MY EMOTIONS TO BEGIN TRADING. I PAID 1500.00 ON ANGER FILLED TRADES TRYING TO "GET EVEN WITH WHAT I HAD LOST" THIS IS A GAMBLER'S MENTALITY AND NOT A TRADER WHO TRADES WITH RULES. IN THE FUTURE STICK TO MAKING A SLOW 100.00 PER DAY AS A GOAL. HAD I STUCK WITH THIS ORIGINAL PLAN I WOULD HAVE BEEN ROUGHLY 7 DAYS AHEAD OF MY GOAL...MY ACCOUNT WAS APPROX 1850.00 AND IS NOW 300. I WILL DEPOSIT 333+126+1200(FROM ROTH)APPROX 1650 PLUS 300.00 IS APPROX 2000.OO TO RE-FUND THE ACCOUNT AND RESTART W/O EMOTION AND A FIRM 100.00 PER DAY GOAL...I MUST STICK WITH THIS GOAL FOR 90 DAYS TO LEARN DISCIPLINE BEFORE CHANGING IT...FJ 4:24PM
Forex trading hours, trading time:
New York open 9:00 am to 4:00 pm CST
Tokyo open 6:00 pm to 3:00 am CST
Sydney open 4:00 pm to 1:00 am CST
London open 2:00 am to 11:00 noon CST

TRUST YOUR PROFIT LIMITS
TRUST YOUR STOP LOSSES


http://applet.efxnow.com/frxc_sys/fxgui.html?platform=0&type=1&loginbutton.x=36&loginbutton.y=12


use 14:100 ratio on stop loss/take profit

http://www.tradingacademy.com/forexclasscontent.htm

Some traders prefer not to trade on Fridays for this and other reasons (including the Quad Witching* every quarter) related to volatility and unpredictability ahead of the weekend.

Special Regular Events
Non-Farm Payrolls (NFP). is the premier event in the Forex monthly calendar, reported on the first Friday of each month. It is often characterized by high volatility (100 pips +/-) that frequently goes in one direction first (on immediate data release) but often retraces with equal force in the other direction.  Potentially a very lucrative trading opportunity.  Check your broker spreads before trading, spreads often widen considerably during this event.

http://www.forexfactory.com/calendar.php

Quad Witching
The day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. Quadruple witching days occur on the third Friday of March, June, September and December.  Volatility in the currency market can result due to traders closing out or adjusting positions to meet cash contract obligations due that day or to re-position for the new contract period.  Something to note and forward schedule in your diary.