Two things trouble the would be successful forex trader...when to get in, and when to get out. We look at the charts and are tempted to think a certain pair is cheap. But could it get cheaper? Is it cheap just because of the recent downtrend, and is the trend likely to continue when I get on? Should I get on going long, because it is cheap and must turn around soon, or should I get on in the direction of the current trend and ride it lower? These questions plaque a traders entry every day. But if that isn't bad enough, many traders never plan their exits in advance, and so once in, the agonizing starts all over. If it blows through a stop, oh well, just a plain and simple agony there. But what if t starts becoming profitable? Then the pain really begins for some traders. Should I get out now with a small profit? Should I take half of the table and let the other run? What if it runs a long way, and I could've had all that other profit had I left the trade all on? But what if it turns around and reverses and I have left the whole trade on and I lose my profit entirely? It's enough to make a person's head explode (and it will if you let it). This is why it is important to remember that the most important space to conquer, is the space between your ears. The market doesn't even know you exist. Its not out to "get you", though sometimes it seems like it, when it takes out your stops by a couple of pips and then reverses. Or when it just misses exiting you at your profit target only to retrace and give back your trade. The only funky stuff going on in the market is actually in your head. This is why you must get control in there. Set rules. Set targets. Set stops. Realize that when you enter the market, NO ONE knows where it is headed next in the short term. You look for your good entries based on the support and resistance of the trend we talked about yesterday. If your entry is bad and you get stopped, its strictly business. It doesn't mean you're a bad trader. If your system for entries is proven, you just have to know that sometimes you'll take your lumps. Just like that little position we entered in the sterling earlier this week. It was a high probability entry, but the flip side of the coin is that there is some probability it will fail. That one did. But our next one is paying off in spades now.
When I talk about middle of the road profits, or median targets, what I mean is this. All forex currency pairs trade around median ranges over 30-60 day periods. They will overshoot in one direction only to snap back the other way once the market gets too far overextended. When trading for those snap backs, aim for the middle of the price action over the last period. Then get out. Is it likely to continue moving in your direction? Yes. Should you care? No. You have to set boundaries. And learning to set them with profit targets is a real key to maintaining your sanity in this business. Perhaps you prefer using a trailing stop. Great. Then use it, but don't cry over profits lost when the market retraces to take out your stop. Set your goals, and be happy to reach them. Then get out. Leave some profit for somebody else. All traders have to eat. We all have to pay our bills. Once you reach your goal, be satisfied. Remember bulls make money, and bears make money, but pigs get slaughtered. Set your rules, and stick to them!
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Wednesday, June 30, 2010
Tuesday, June 29, 2010
Forex Trading: Support and Resistance
In the trading of the forex market,w e established early on that the only real way to trade it profitably is with the longer term trend. Trade In the direction of the trend, and become a specialist in one currency. Learn it's movements, it's quiet times, it's volatile news releases...everything you can about it.
But also remember, learning everything you can about a currency and it's actions and reactions isn't a 30 day process. It isn't a 90 day process. Give yourself a year minimum of studying it every day. Certainly use historical charts, but you have to be trading it on a regular basis to get a good feel for the pair. And you have to use real money. Demo accounts only help people think they are good traders. There is no way to account for the real fear and greed that fills a traders heart when his own cash is on the line.
So having established that trading with the trend is the only way to go, the next thing that is crucial to remember is that you don't want to try to get in on the beginning of a trend. It is next to impossible to find when a currency turns a corner (except in hindsight when it looks so easy), so always let your trend establish itself before entering.
Once the trend is underway, the next logical question is that of when and where to enter. For the answer, we will look to support and resistance. If the trend is down, we want to enter at resistance. If it is up, we want to enter at support.
For instance, our recent sterling trade is short, as you can plainly see the direction on any weekly chart of the GBP/USD. Recently we came up to a weekly resistance level. This provides a reasonable place to enter, as the resistance is strong and well established. Where will it go from here? No one knows. That's why you always have a contingency in play. Either a stop loss, an offsetting trade as a hedge, another entry at the next resistance level, something to expand your advantage in the market.
But what is the best kind of support or resistance? And how many are there? Let's see:
Horizontal S/R
Diagonal S/R
Fibonacci S/R
Big Figure S/R
Old Resistance/New support
New Resistance/Old Support
Each of these deserves a decent treatment, and we have talked about some of this before. But it always bears repeating! For slower markets, I prefer horizontal S/R. For faster markets, I prefer angled trendlines. For breakout markets, I like the Fibonacci grids. For profit targets, I like the big figures. All this has come to me over years of trading trial and error. And especially narrowing down my trading to certain pairs. It is no secret that I like the euro, pound and aussie.
Study your support and resistance levels for your preferred currencies. You are nearly guaranteed to fail without this knowledge in your arsenal. But don't simply rely on back testing, that can only do so much. You have to put the trading plan it work in real time in real markets with real money. Just keep your leverage small until you have the experience you need to feel comfortable. Even then, don't get too comfortable. The market is like a pet lion...there's always a ferociousness just below the surface. And if you are careless, it will get you.
Also, remember this as a practical point. Support and resistance is not at a "pip". It's at a range. So if a swing high is established at a certain point, remember that the market may respect that, but will probably only due so within a certain range. If your swing high is 1.5100, and you put a stop loss at 1.5101, you haven't really given the resistance level the respect it deserves. You probably need 25 pips or more, in the case of overshooting for which the market is famous. So don't try to get your S/R down to the pip. A 50 pip range or level is better.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
But also remember, learning everything you can about a currency and it's actions and reactions isn't a 30 day process. It isn't a 90 day process. Give yourself a year minimum of studying it every day. Certainly use historical charts, but you have to be trading it on a regular basis to get a good feel for the pair. And you have to use real money. Demo accounts only help people think they are good traders. There is no way to account for the real fear and greed that fills a traders heart when his own cash is on the line.
So having established that trading with the trend is the only way to go, the next thing that is crucial to remember is that you don't want to try to get in on the beginning of a trend. It is next to impossible to find when a currency turns a corner (except in hindsight when it looks so easy), so always let your trend establish itself before entering.
Once the trend is underway, the next logical question is that of when and where to enter. For the answer, we will look to support and resistance. If the trend is down, we want to enter at resistance. If it is up, we want to enter at support.
For instance, our recent sterling trade is short, as you can plainly see the direction on any weekly chart of the GBP/USD. Recently we came up to a weekly resistance level. This provides a reasonable place to enter, as the resistance is strong and well established. Where will it go from here? No one knows. That's why you always have a contingency in play. Either a stop loss, an offsetting trade as a hedge, another entry at the next resistance level, something to expand your advantage in the market.
But what is the best kind of support or resistance? And how many are there? Let's see:
Horizontal S/R
Diagonal S/R
Fibonacci S/R
Big Figure S/R
Old Resistance/New support
New Resistance/Old Support
Each of these deserves a decent treatment, and we have talked about some of this before. But it always bears repeating! For slower markets, I prefer horizontal S/R. For faster markets, I prefer angled trendlines. For breakout markets, I like the Fibonacci grids. For profit targets, I like the big figures. All this has come to me over years of trading trial and error. And especially narrowing down my trading to certain pairs. It is no secret that I like the euro, pound and aussie.
Study your support and resistance levels for your preferred currencies. You are nearly guaranteed to fail without this knowledge in your arsenal. But don't simply rely on back testing, that can only do so much. You have to put the trading plan it work in real time in real markets with real money. Just keep your leverage small until you have the experience you need to feel comfortable. Even then, don't get too comfortable. The market is like a pet lion...there's always a ferociousness just below the surface. And if you are careless, it will get you.
Also, remember this as a practical point. Support and resistance is not at a "pip". It's at a range. So if a swing high is established at a certain point, remember that the market may respect that, but will probably only due so within a certain range. If your swing high is 1.5100, and you put a stop loss at 1.5101, you haven't really given the resistance level the respect it deserves. You probably need 25 pips or more, in the case of overshooting for which the market is famous. So don't try to get your S/R down to the pip. A 50 pip range or level is better.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Friday, June 25, 2010
Forex and Making a Living
Everybody seems to want to know how to trade these days. Everywhere I go folks want to talk about it, whether I am there in an official capacity or not. While very few understand the concept of foreign currencies, all of them seem to have this same vague idea of people who never work, sit by a computer all day and make it into a money machine laptop ATM.
They associate it with freedom, an easy lifestyle, and unlimited wealth.
But the real truth is, for the 95% of traders who lose their stake in this market, it is hard, frustrating, and impoverishing to whatever extent they fund their accounts. Trading for a living is great, if you like trading. If you like wood working, and think you can augment your wood income with trading money, you're probably on the wrong track. Trading isn't for everyone, and certainly daytrading is for very few. Now the trading we do here at www.thefxtradingmasters.com can be done by almost anyone. But it does mean you have to set aside the time to learn, to read, to execute your trades. Also, making money at forex is a fairly different creature from making a living at it. I have for a long time been a strong advocate of making money and having a source of income besides your trading. Personally, I am a clergyman, and that was my calling in life long before I was a trader. I serve a wonderfully warm, family oriented parish in Baltimore, MD. Will I ever get rich there? Not monetary terms. But I have riches there which will far outlast this life. Nevertheless, I can simply live off of the salary they kindly give me for serving them. That also frees me up for other pursuits. Many of you know I also run a construction business. And I run the mentorship program. And I have my own personal trading. All of these, funnel together to create multiple income streams into a nice living. But I can't be a Rector at Faith Church forever. Nor do I want to run a construction company forever. I can do mentoring for a long time, and look forward to that, and even after my voice has given way and I can no longer preach the Gospel, I can still type and teach by way of the Internet. Only when I am finished with all of these other things will I truly be trading for a living. Only then will it be my sole source of income.
Having another income stream, whether it is a regular 9-5 job, or an Internet business of some sort, also takes the pressure off your trading game. Although I rarely have losing months anymore, when I do, it is not a big deal. I don't want to be trading with scared money. "Scared money always loses". So when you calculate what you need to make a living, another source of income is always helpful.
If however, you are ready to go it alone, and trade only for living, then you must set some realistic goals, and begin with a realistic lump sum.
Starting with your budget, let's assume that you need $5,000 monthly in order to achieve or to maintain your current lifestyle. In order to create that amount out of the forex market, you would need a lump sum of $100,000. It is true that aggressive trading could make more (easily more), but you're retired now. You don't want to spend your whole life at a computer. So a steady process of 5% is fairly reliable if you have practiced for a number of years, and are comfortable around the forex. If you need or want more or less, simply increase or reduce your trading stake.
Also, that should not be the only 100,000 that you have! At that point in your life, you'd like it to make up a portion of your portfolio only. Depending on how much you love trading, and how much you want to do it, will depend on what amount of your resources you want to allocate. But by no means would I put every penny into active trading.
Now if you are a good trader, and an active one, there is nothing more to be done to make 10% over 5% except for a bit more watching and strategizing. At The FX Trading Masters, that's what we shoot for. Some months we don't get it. Other months we get more. But you want a good even keeled approach to this, otherwise you will become the "scared money". A longer term perspective, and lower leverage, will get you much richer, than the other way around.
Trading for a living? It can be done, and it really is possible. But first, ask yourself if that is what you really want.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
They associate it with freedom, an easy lifestyle, and unlimited wealth.
But the real truth is, for the 95% of traders who lose their stake in this market, it is hard, frustrating, and impoverishing to whatever extent they fund their accounts. Trading for a living is great, if you like trading. If you like wood working, and think you can augment your wood income with trading money, you're probably on the wrong track. Trading isn't for everyone, and certainly daytrading is for very few. Now the trading we do here at www.thefxtradingmasters.com can be done by almost anyone. But it does mean you have to set aside the time to learn, to read, to execute your trades. Also, making money at forex is a fairly different creature from making a living at it. I have for a long time been a strong advocate of making money and having a source of income besides your trading. Personally, I am a clergyman, and that was my calling in life long before I was a trader. I serve a wonderfully warm, family oriented parish in Baltimore, MD. Will I ever get rich there? Not monetary terms. But I have riches there which will far outlast this life. Nevertheless, I can simply live off of the salary they kindly give me for serving them. That also frees me up for other pursuits. Many of you know I also run a construction business. And I run the mentorship program. And I have my own personal trading. All of these, funnel together to create multiple income streams into a nice living. But I can't be a Rector at Faith Church forever. Nor do I want to run a construction company forever. I can do mentoring for a long time, and look forward to that, and even after my voice has given way and I can no longer preach the Gospel, I can still type and teach by way of the Internet. Only when I am finished with all of these other things will I truly be trading for a living. Only then will it be my sole source of income.
Having another income stream, whether it is a regular 9-5 job, or an Internet business of some sort, also takes the pressure off your trading game. Although I rarely have losing months anymore, when I do, it is not a big deal. I don't want to be trading with scared money. "Scared money always loses". So when you calculate what you need to make a living, another source of income is always helpful.
If however, you are ready to go it alone, and trade only for living, then you must set some realistic goals, and begin with a realistic lump sum.
Starting with your budget, let's assume that you need $5,000 monthly in order to achieve or to maintain your current lifestyle. In order to create that amount out of the forex market, you would need a lump sum of $100,000. It is true that aggressive trading could make more (easily more), but you're retired now. You don't want to spend your whole life at a computer. So a steady process of 5% is fairly reliable if you have practiced for a number of years, and are comfortable around the forex. If you need or want more or less, simply increase or reduce your trading stake.
Also, that should not be the only 100,000 that you have! At that point in your life, you'd like it to make up a portion of your portfolio only. Depending on how much you love trading, and how much you want to do it, will depend on what amount of your resources you want to allocate. But by no means would I put every penny into active trading.
Now if you are a good trader, and an active one, there is nothing more to be done to make 10% over 5% except for a bit more watching and strategizing. At The FX Trading Masters, that's what we shoot for. Some months we don't get it. Other months we get more. But you want a good even keeled approach to this, otherwise you will become the "scared money". A longer term perspective, and lower leverage, will get you much richer, than the other way around.
Trading for a living? It can be done, and it really is possible. But first, ask yourself if that is what you really want.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Wednesday, June 23, 2010
Forex and the Using The Edge Of Leverage
The definition of leverage means to apply multiplied forced to something. Leverage has the idea of a mechanical advantage of some type...such as in using a lever. "Give me a lever long enough and a fulcrum strong enough and I will move the world." Anybody remember who said that? (Of course, I believe he said it in Greek, so it wasn't exactly like that, and that is also your first clue!)
The science of leverage offers us a few good insights into successful trading. Leverage gives a man an advantage. Whereas, without it, he his limited in his capacity to move large objects, with it, he can moves things many times larger than himself. He can also control the direction the object goes if he does so with some carefulness.
In trading, we always are looking for an advantage. ALWAYS. Trading without an advantage is like rolling a heavy rock uphill. Not only is is amazingly difficult---but it is very likely to return right back down over top of you once you let it go. Most of us have had that experience in trading. If we were on video, I'd ask for a show of hands. But we have taken poor trades, against the trend, or at the end of an exhaustion, only to see the trade start our way, then roll right back over us. Dazed and confused we get up, look at the losses in our account, and scratch our heads in wonder.
Trading good set-ups, like rolling a rock down hill, is far easier. And there is very little chance that he rock will return to run back over you as well. So I repeat, we are always on the lookout for advantages: better risk to reward scenarios, good trends with an entry on a pull back to support or resistance, reliable chart patterns that offer us shorter stops.
But one advantage we always have is the use of leverage. Now in science, we usually figure that the higher the leverage, the better. After all, you can accomplish more work with higher leverage than lower. Right? But that's not what I mean in trading terms. Higher leverage is ALWAYS WORSE. IT IS ALWAYS MORE DANGEROUS. If there were some way I could imprint that on the back of your hands so that when you sit down to the keyboard to begin trading, that would be the first thing you see, I would do it. A man or woman will never allow themselves to become a good trader if they use high leverage. It may work for a time, but will eventually blow up your account. THERE IS NO WAY TO AVOID THAT.
But leverage is helpful, in that it can really assist those getting started, and those who will use it in an advantageous and judicious manner. One of our basic trading rules is that a trader should not leverage his account higher than $1/pip for every $10,000 in account. This is fairly straightforward math. A nice 50 pip move will generate $50 off of a $10,000 account. That is 1/2 of a percent. Multiplied out over a month, that is 10% return monthly. A nice 100 pip move turns into 20% monthly. Of course, we can't do that every day. Sometimes decent set ups aren't there at the times of the alert. Or we miss the trade because it has already started to move before we got to the computer. Other trades are just plain losers, so we are out 50-100 pips. So it is unwise to simply multiply what you can easily make each day over the entire month. One must allow for down and negative days as well.
But be that as it may, low leverage will keep you from blowing our your account. And it will keep you in the game while you keep learning how to make 10-20% monthly. This is entirely possible. And so are even bigger bonanzas. Just a few weeks ago, in my private trading account, I topped 30% in 5 days. That was wonderful, but it should not be my goal. I can guarantee that if I started working for that each week, I would begin to lose money. Why? Because I would quit using my advantage. I would stay in trades too long hoping for a bit more. I would enter questionable trades. I might even be tempted to move my stops to give a trade more "room". Instead, I will just take it as a gift from God, let it add to my balance, and know that a week will come, (which just happened) that I will have a losing week. And I'll need those extra profits to smooth out my profit curve.
So always remember, one of your advantages is that you can trade small. Let it keep you in the game. Let it build your skill. Because good traders are NOT born. They develop. You can develop this skill. But only through the discipline of trading low leverage. After a few years, you can increase it if you like. But keep a close eye on your balance. If it starts to deteriorate, you'll know why. Better be on your toes to change that leverage back!
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
The science of leverage offers us a few good insights into successful trading. Leverage gives a man an advantage. Whereas, without it, he his limited in his capacity to move large objects, with it, he can moves things many times larger than himself. He can also control the direction the object goes if he does so with some carefulness.
In trading, we always are looking for an advantage. ALWAYS. Trading without an advantage is like rolling a heavy rock uphill. Not only is is amazingly difficult---but it is very likely to return right back down over top of you once you let it go. Most of us have had that experience in trading. If we were on video, I'd ask for a show of hands. But we have taken poor trades, against the trend, or at the end of an exhaustion, only to see the trade start our way, then roll right back over us. Dazed and confused we get up, look at the losses in our account, and scratch our heads in wonder.
Trading good set-ups, like rolling a rock down hill, is far easier. And there is very little chance that he rock will return to run back over you as well. So I repeat, we are always on the lookout for advantages: better risk to reward scenarios, good trends with an entry on a pull back to support or resistance, reliable chart patterns that offer us shorter stops.
But one advantage we always have is the use of leverage. Now in science, we usually figure that the higher the leverage, the better. After all, you can accomplish more work with higher leverage than lower. Right? But that's not what I mean in trading terms. Higher leverage is ALWAYS WORSE. IT IS ALWAYS MORE DANGEROUS. If there were some way I could imprint that on the back of your hands so that when you sit down to the keyboard to begin trading, that would be the first thing you see, I would do it. A man or woman will never allow themselves to become a good trader if they use high leverage. It may work for a time, but will eventually blow up your account. THERE IS NO WAY TO AVOID THAT.
But leverage is helpful, in that it can really assist those getting started, and those who will use it in an advantageous and judicious manner. One of our basic trading rules is that a trader should not leverage his account higher than $1/pip for every $10,000 in account. This is fairly straightforward math. A nice 50 pip move will generate $50 off of a $10,000 account. That is 1/2 of a percent. Multiplied out over a month, that is 10% return monthly. A nice 100 pip move turns into 20% monthly. Of course, we can't do that every day. Sometimes decent set ups aren't there at the times of the alert. Or we miss the trade because it has already started to move before we got to the computer. Other trades are just plain losers, so we are out 50-100 pips. So it is unwise to simply multiply what you can easily make each day over the entire month. One must allow for down and negative days as well.
But be that as it may, low leverage will keep you from blowing our your account. And it will keep you in the game while you keep learning how to make 10-20% monthly. This is entirely possible. And so are even bigger bonanzas. Just a few weeks ago, in my private trading account, I topped 30% in 5 days. That was wonderful, but it should not be my goal. I can guarantee that if I started working for that each week, I would begin to lose money. Why? Because I would quit using my advantage. I would stay in trades too long hoping for a bit more. I would enter questionable trades. I might even be tempted to move my stops to give a trade more "room". Instead, I will just take it as a gift from God, let it add to my balance, and know that a week will come, (which just happened) that I will have a losing week. And I'll need those extra profits to smooth out my profit curve.
So always remember, one of your advantages is that you can trade small. Let it keep you in the game. Let it build your skill. Because good traders are NOT born. They develop. You can develop this skill. But only through the discipline of trading low leverage. After a few years, you can increase it if you like. But keep a close eye on your balance. If it starts to deteriorate, you'll know why. Better be on your toes to change that leverage back!
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Tuesday, June 22, 2010
Forex and Trading Perspectives
It seems I have hardly gotten any writing done this last week, and indeed judging by the entry dates, I am absolutely right. My apologies for being so reclusive, but as many of you know, I was hit with a virus that brought me to my knees.
I rarely get sick, and that is a wonderful blessing. But sometimes we take our blesings for granted. Generally, I might get a little sniffle or slight cough, but this time I got the full treatment: a sore throat that was somethin akin to swallowing shards of glass, a cough that sounded like a herd of small hippos at play and a lack of appetite that cost me 6 pounds. It also cost me something else, we ended up with back to back negative trading weeks. I really hate that! Trading is hard work, and takes loads of concentration. But when a trader feels bad to begin with, then dopes him/her self all up on medicine, it can be a real recipe for disaster. A fuller statement of this idea would be; don't trade while you are drinking heavily, while emotionally upset, or while tired. All those things really affect your judgement. They certainly affected mine.
But that's not really the only perspective that I had in mind for today. As you all know, we are headed into the summer doldrums here in North America, a season of time when trading slows down, ranges often become tighter for days on end, and the waiting can be sometimes painful. But I am a big believer in low intensity trading. As it is, trading is intense enough, after all, your money is on the line. So anything that can be done to reduce the intensity is only going to make it much more enjoyable. And frankly, the more enjoyable your trading is, the more profitable it will be.
But in today's lesson, let's take in hand the persectives that come from the different time frames. As you all should know by now, I am a huge believer in longer term time frames. "The shorter your time frame, the faster you will be parted from your capital."
You must always have enough to trade another day. The longer your time frame, the more time you give yourself, to learn the important lessons of trading. If you blow up your account, you'll never get to the important lessons.
I have often thought of the forex as a herd of traveling elephants. There are several key analogies. Obviously, when they are running through your town you don't want to get in the way. However, if they are traveling the way you are going, you can hop on and get a very fast free ride. And...the best place to observe them, is from a safe distance.
But the problem for many traders is that when they see the dust and hear the noise of all the action in the market, instead of standing back to take a look at the stampede that is going on, they have this sort of innate idea that they will be better able to tell what's happening if they just get a little closer. So they keep shrinking their time frame, getting closer and closer to the noise and the action. But one should use a little common sense. You can only get so close to the stampeding herd before "WHACK!", and you are another casualty of the market.
I say, better to stand back and get the lay of the pack. You'll be able to better see where they are bunching together, where and why they are slowing down, you'll get a better idea of the direction that they are heading. And you won't put yourself at risk. Because after all, the market doesn't really care how close you get. It doesn't really car that you and your account are going to get demolished. It doesn't give anymore thought to you than those raging elephants do. And sadly, your outcome will be the same.
So stand back. The forex market is every bit as dangerous as a stampeding herd. Get your perspective before you get too close. There is a limit as to how close you can view something,before you can't make it out at all. Trying to examine an elephant on a molecular or atomic level will tell you nothing about the dangers you are facing. So it is that viewing the markets on a pip by pip, or 1 minute, or 5 minute chart and so on will provide some fascinating stuff to see, but it will not make you a richer trader. And it could lead to signifacant losses.
Keep everything in perspective!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
I rarely get sick, and that is a wonderful blessing. But sometimes we take our blesings for granted. Generally, I might get a little sniffle or slight cough, but this time I got the full treatment: a sore throat that was somethin akin to swallowing shards of glass, a cough that sounded like a herd of small hippos at play and a lack of appetite that cost me 6 pounds. It also cost me something else, we ended up with back to back negative trading weeks. I really hate that! Trading is hard work, and takes loads of concentration. But when a trader feels bad to begin with, then dopes him/her self all up on medicine, it can be a real recipe for disaster. A fuller statement of this idea would be; don't trade while you are drinking heavily, while emotionally upset, or while tired. All those things really affect your judgement. They certainly affected mine.
But that's not really the only perspective that I had in mind for today. As you all know, we are headed into the summer doldrums here in North America, a season of time when trading slows down, ranges often become tighter for days on end, and the waiting can be sometimes painful. But I am a big believer in low intensity trading. As it is, trading is intense enough, after all, your money is on the line. So anything that can be done to reduce the intensity is only going to make it much more enjoyable. And frankly, the more enjoyable your trading is, the more profitable it will be.
But in today's lesson, let's take in hand the persectives that come from the different time frames. As you all should know by now, I am a huge believer in longer term time frames. "The shorter your time frame, the faster you will be parted from your capital."
You must always have enough to trade another day. The longer your time frame, the more time you give yourself, to learn the important lessons of trading. If you blow up your account, you'll never get to the important lessons.
I have often thought of the forex as a herd of traveling elephants. There are several key analogies. Obviously, when they are running through your town you don't want to get in the way. However, if they are traveling the way you are going, you can hop on and get a very fast free ride. And...the best place to observe them, is from a safe distance.
But the problem for many traders is that when they see the dust and hear the noise of all the action in the market, instead of standing back to take a look at the stampede that is going on, they have this sort of innate idea that they will be better able to tell what's happening if they just get a little closer. So they keep shrinking their time frame, getting closer and closer to the noise and the action. But one should use a little common sense. You can only get so close to the stampeding herd before "WHACK!", and you are another casualty of the market.
I say, better to stand back and get the lay of the pack. You'll be able to better see where they are bunching together, where and why they are slowing down, you'll get a better idea of the direction that they are heading. And you won't put yourself at risk. Because after all, the market doesn't really care how close you get. It doesn't really car that you and your account are going to get demolished. It doesn't give anymore thought to you than those raging elephants do. And sadly, your outcome will be the same.
So stand back. The forex market is every bit as dangerous as a stampeding herd. Get your perspective before you get too close. There is a limit as to how close you can view something,before you can't make it out at all. Trying to examine an elephant on a molecular or atomic level will tell you nothing about the dangers you are facing. So it is that viewing the markets on a pip by pip, or 1 minute, or 5 minute chart and so on will provide some fascinating stuff to see, but it will not make you a richer trader. And it could lead to signifacant losses.
Keep everything in perspective!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Friday, June 18, 2010
Forex and Losing Weeks
As is sometimes bound to happen, all traders go though dry spells in terms of successful trades. The fact is, not all trades work out, and more often than not they seem to come in bunches together. How you perceive and handle these will be of great importance to your long term success.
Remember, no business can be successful when it is only tried for a month at a time. And if you don't treat your trading like a business, it will not be successful. But for many new traders, this seems to take the "romance" out of it. The excitement is gone, and they find it boring. I suppose they end up saying the same thing about many other avenues in life; work, hobbies, relationships. The problem with many people is not their lack of desire for something better, it's their lack of desire to work at it.
They would prefer to treat the Forex as a gigantic lottery ticket. But when it doesn't pay out as they think it should, their ready to ditch it and move on to their next "ticket". Often this is true of their systems as well. They stick with them for the 30 day free trial, but at the first sign of problems, they are ready to bail-out. A couple losing trades, and they are back on the hunt for a new guru.
Such traders will never find success. It will always elude them. Not necessarily because they would have been bad traders, but because they never gave themselves the chance to find out!
It is important to note that all traders are trading off of the same information. We have the same government reports, interest rates, and press conferences. We are all looking at the same charts, and seeing the same patterns.
Last week we saw two triangle patterns in the euro. The first one paid out nicely. The second turned into a stop loss. Why? Simply because the market is not identically the same time after time. Many times it is. Triangle patterns have a 70-80% success rate according to some. But sometimes they just don't produce the intended results. At that point, instead of breaking out to the upside, other traders were looking to weakness to fall through the rising trend line. It was the weakness which prevailed that day. Does that mean it was a bad trade?
Not at all!
It was a good trade, even though it was a loser. We followed our parameters, looking for continuation in an uptrend. What I am trying to say is that good trades can be losers, too. It is up to us at that point to shake it off, knowing that sometimes that is exactly what will happen. There's no going back to it to re-examine the pattern and say, "if only I had seen this, or done this."
Generally that kind of retrospection is more dangerous than helpful. It leads you to doubt your system, and makes it very hard to trade. No system is perfect. And if there was a perfect system, there are no traders which are perfect. Put together imperfect systems with imperfect traders, it's a wonder any of us ever make money.
But you have to stick at it. See it through. Sure---feel free to make improvements, or add new indicators. But once you have a good system, don't try to re-engineer it. Don't try to tweak it indefinitely. When losses come, just take them as the inevitable part of the life of a trader and move on.
DON'T GIVE UP!
Trading for a living really is possible.
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Remember, no business can be successful when it is only tried for a month at a time. And if you don't treat your trading like a business, it will not be successful. But for many new traders, this seems to take the "romance" out of it. The excitement is gone, and they find it boring. I suppose they end up saying the same thing about many other avenues in life; work, hobbies, relationships. The problem with many people is not their lack of desire for something better, it's their lack of desire to work at it.
They would prefer to treat the Forex as a gigantic lottery ticket. But when it doesn't pay out as they think it should, their ready to ditch it and move on to their next "ticket". Often this is true of their systems as well. They stick with them for the 30 day free trial, but at the first sign of problems, they are ready to bail-out. A couple losing trades, and they are back on the hunt for a new guru.
Such traders will never find success. It will always elude them. Not necessarily because they would have been bad traders, but because they never gave themselves the chance to find out!
It is important to note that all traders are trading off of the same information. We have the same government reports, interest rates, and press conferences. We are all looking at the same charts, and seeing the same patterns.
Last week we saw two triangle patterns in the euro. The first one paid out nicely. The second turned into a stop loss. Why? Simply because the market is not identically the same time after time. Many times it is. Triangle patterns have a 70-80% success rate according to some. But sometimes they just don't produce the intended results. At that point, instead of breaking out to the upside, other traders were looking to weakness to fall through the rising trend line. It was the weakness which prevailed that day. Does that mean it was a bad trade?
Not at all!
It was a good trade, even though it was a loser. We followed our parameters, looking for continuation in an uptrend. What I am trying to say is that good trades can be losers, too. It is up to us at that point to shake it off, knowing that sometimes that is exactly what will happen. There's no going back to it to re-examine the pattern and say, "if only I had seen this, or done this."
Generally that kind of retrospection is more dangerous than helpful. It leads you to doubt your system, and makes it very hard to trade. No system is perfect. And if there was a perfect system, there are no traders which are perfect. Put together imperfect systems with imperfect traders, it's a wonder any of us ever make money.
But you have to stick at it. See it through. Sure---feel free to make improvements, or add new indicators. But once you have a good system, don't try to re-engineer it. Don't try to tweak it indefinitely. When losses come, just take them as the inevitable part of the life of a trader and move on.
DON'T GIVE UP!
Trading for a living really is possible.
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Monday, June 14, 2010
Forex and Next Euro Targets
"Everybody is wrong when the trend changes." This is an old saying in trading, and is well worth noting. It first means that if you are trading following the trend (which you better be) that your trade will be a loser when the trend turns on you. Not much you can do about that. You might as well try to stop the ocean tides from turning. But there is also a more subtle meaning that evades less experienced traders. That is, trends seldom turn on a dime. In a bearish trend such as we've had in the euro since the end of '09, the price action will make several false bullish hints at a turnaround, before actually pulling it off. Even then, the downtrend may not be completely over. So you must always be careful about committing to a direction until it is clearly established.
We noted in the day's trade alert (just go to www.thefxtradingmasters.com to sign up) that the euro has put together it's first string of multi consecutive up days in over 2 months. That speaks a good deal about the underlying risk appetite that is creeping back into the market, and is reversing some of the safe haven US dollar buying that has been going on.
And while I would expect that risk appetite to continue for at least a few more days, it doesn't necessarily mean that the euro bear has gone into hibernation. From here, at 1.2245, we are just bumping up against the 200MA on the 4H chart. Price action has stayed below here since mid April. Breaking this barrier would be pretty significant. We should note, this is the first real attempt to do so.
Beyond this level, we have resistance at 1.2320, 1.2350 and 1.2450. That last figure is also the 161.8 extension of the move from the current low.
On the news docket this week we have a few big ticket items. Tuesday will bring the CPI (inflation data) from the UK, while Wednesday will present their Jobless claims and employment rate. We'll also see US housing data, permits and new starts, which while generally considered to be level 3 data, has been known to cause big moves in the absence of any other news, and especially f the results deviate in a significant way from what is expected. On Thursday we will have the US CPI data, and see if rising prices caused the sales slump last month.
That should do it for today. Let's see what the market brings us.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
We noted in the day's trade alert (just go to www.thefxtradingmasters.com to sign up) that the euro has put together it's first string of multi consecutive up days in over 2 months. That speaks a good deal about the underlying risk appetite that is creeping back into the market, and is reversing some of the safe haven US dollar buying that has been going on.
And while I would expect that risk appetite to continue for at least a few more days, it doesn't necessarily mean that the euro bear has gone into hibernation. From here, at 1.2245, we are just bumping up against the 200MA on the 4H chart. Price action has stayed below here since mid April. Breaking this barrier would be pretty significant. We should note, this is the first real attempt to do so.
Beyond this level, we have resistance at 1.2320, 1.2350 and 1.2450. That last figure is also the 161.8 extension of the move from the current low.
On the news docket this week we have a few big ticket items. Tuesday will bring the CPI (inflation data) from the UK, while Wednesday will present their Jobless claims and employment rate. We'll also see US housing data, permits and new starts, which while generally considered to be level 3 data, has been known to cause big moves in the absence of any other news, and especially f the results deviate in a significant way from what is expected. On Thursday we will have the US CPI data, and see if rising prices caused the sales slump last month.
That should do it for today. Let's see what the market brings us.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Subscribe to:
Posts (Atom)
