Drop All of Your Preconceived Ideas of … everything?

Ok, I am not saying that Bear or Bull markets don’t exist or that they don’t have a distinct look to them.  I am saying this, “IT DOESN’T MATTER.”

I have been a self-proclaimed “bear” since, at least, January this year and from about 1.3100 on the E/U.  What’s funny about this is we spent the majority of 2011 above the 1.40 mark.  All I can do is laugh.  Another example is I have initiated 237 short trades and only 23 long trades this year.  How am I not broke you ask?

Simple. Bears make money in Bull markets and Bulls make money in Bear markets.  This is one of the reasons I don’t listen to market commentators or take trading advice from other traders or the recommendations of OANDA or live my life according to a set of rules established my others.  A lot of people would have you believe that you have to be a Bear in a Bear market or a Bull in a Bull market, otherwise, you’ll get caught with your pants down as well as your account balance.

I guess what I am trying to say is this, it’s not the fact that you correctly “read” the trend or deciphered the chart so well that the side you picked was the right one. (When you stop caring if you are right, you’ll know you are on the right track.) The fact of the matter is this, if you get in at the right time and out at the righter time while not letting the market keep any of your money, it doesn’t matter what direction the last 1,500 bars were moving.

I started out as a very “by the books,” money management, risk/reward ratio nut job. I would argue that technical analysis was the only true was to make a dime in this industry, those fundies could go jump off a bridge for all I cared. Then I started listening to what was going on in the world from sources OTHER than traders and news anchors.  I slowly started shifting to a hybrid-method, adapting micro and macro economics into my trade plan.  I would beat the dead horse of having to have a stop-loss and take-profit in place with a 1:3 risk/reward ratio…then I would lose 2% of my account every trade.  I listened to everyone when they said a Martingale approach is suicide.  I listened to people when they said “trade with the trend, it’s the only way to make money.”  I lost money hand over fist for a year and a half.  I couldn’t give it away fast enough.

I gave up trading. I started observing. I really don’t know how to explain it.  A blogging buddy (@andrewunknown) just started a new blog about minimalism trading and he has a much better way with words so I’ll let him describe the theory of it.

Sometimes it is better to do something then nothing.  In other words, stop over-analyzing the situation and make a decision.  Stick with that decision until you see a reason it isn’t valid any more.

What I am trying to say is this, (and I have been beating a dead horse) don’t listen to anyone when it comes to your trading.  Trade what you see based on a system that you have developed.  And if you do start to take any advice at all, take this guys advice first.

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Thank You for the Unsolicited Advice OANDA.

This made me laugh.

I download the reports from OANDA for every month and quarter of my trading.  It is a really nice feature and details all of the $$’s and %’s in one easy to read format.  At the end of the PDF, I noticed something new.  A “Personalized Trading Feedback” letter.  I thought, “Great! Maybe they have something insightful to say!”  I was wrong.  Read the letter below…

Trading without Stop Loss/Trailing Stop

Your open positions do not have associated stop-loss limits. Failing to include stop-loss limits leaves unattended positions vulnerable to exchange rate fluctuations. For example, your trade #xxxxxxx58 (long xxxxxxx units of EUR/JPY) was open for over 4 days without stop-loss or trailing-stop limits and was eventually closed at a loss of 268 pips.

Using stop-loss limits enables you to limit losses to a tolerable amount by setting the maximum you are prepared to lose on a given trade. Trailing-stop orders allow trades to continue to gain in value when the market price moves in a favorable direction, but automatically closes the trade if the market price suddenly moves in an unfavorable direction by a specified distance.

When setting a stop level keep in mind that you should consider the volatility of the market otherwise your stop-loss order may trigger too early on short-term market swings. You can read more about trailing-stop orders at (link)

Adding to a Losing Position

In several instances you opened new trades in a pair in which you already had a losing open position. For example, on Apr 5, 2011 22:16 EDT you executed trade #xxxxxxx63 (short xxxxxxx units of EUR/USD) at 1.425910 while you already had an open EUR/USD short position of xxxxxxx units with an average unrealized loss of 191 pips per unit. The new trade you opened was later closed with a loss of 210 pips.

The practice of adding to a losing position (also known as averaging down) is controversial as this risks available margin. Even though the market may eventually turn around and the open position becomes profitable, this ties up capital and could lead to a margin call.

On the other hand, adding to a winning position (also known as averaging up) is a popular strategy because it ensures net worth of the position is rising as new trades are opened and market continues the momentum to move in trader’s favor. Of course traders must monitor the market continuously and close open positions before a trend reversal leads to an unacceptable loss.

Please do not hesitate to contact us if you have any questions or concerns. Thank you for trading with OANDA.

Kind Regards, fxTrade Team

Don’t get me wrong; I love OANDA, however recently they have been difficult to work with via their customer service.   I didn’t know they were in the business of teaching traders or recommending strategies.

This year alone I have already put my account up 20% (click for verification) in the EUR/USD using the strategies they are telling me not to use.  I am not a conspiracy theorist but I do find it interesting that (in other reports) they advise the use of take profits and stop losses in your trading…hmmmm.  Makes you think.

Here is what I do that they don’t like.

  • I double my position if I am down over 100 pips (not arbitrarily, but at the next S or R area)
  • If my trade is in the negative, but not more than 100 pips down, I only add to my position what my last trade was.
  • If my trade is in the positive, @ +100 pips, I add half of my position.
  • I NEVER use defined stop losses or take profits. I use %’s and feeling to determine when to get out of a trade regardless of profit or loss.
  • I don’t let anyone tell me how to trade. I do it and I learn from it, good or bad.

Still here.

Still alive.  I moved (again.) Started a new job. Got a new puppy (almost a full-time job.) Remodeling our entire house. Way to close to launching a new business. Busy, just like the rest of you.

In case you are wondering, I am still VERY bearish on the Eur/Usd.  For many different reasons.  In fact, even more-so since my several posts in the recent past where I was selling.

FYI – The Philadelphia Union are in first place in the Eastern Conference…GO UUUUUNNIIIOOOOON… #doop

Keep it real. Keep it profitable. Keep it fun.

AUD/USD Outlook.

Below is a brief snapshot of what I am looking at with the Aussie.

A lot going on here, but it really all comes down to how strong you think the US Dollar will perform over the next few months.  My bias is bullish on the Dollar…

Outlook on Gold

Items to note –

  1. Very basic rounded top forming (yellow circle)
  2. Three failed attempts to stay above $1400.00 (top red line)
  3. Break and retest of rising trendline (purple line)
  4. Room to run down before minor support @ 1330ish (middle red line) and then major support @  1260  (lower red line)

However, Gold has defied all odds and all major “Top” calls.  I am short Gold, but I am also being cautious and using only 1/2 a position with an order for the other 1/2 @ 1400.

What ever you decide to do, be careful.

Weekly Wrap up

So it turns out I wasn’t completely wrong, just a little early.  Below are my current positions and closed trades. These are all for the Eur/Jpy…

Open Trades –
1/4 Lot (Long) @ 112.28, TP @ 115.37, No SL
1/2 Lot (Long) @ 111.10, TP @ 112.00, No SL

Closed Trades –
1 Lot (Long) @ 110.70, TP @ 112.60 (Hit), No SL – (+51 pips)
1 Lot (Long) @ 109.60, TP @ 110.25, No SL – (+122 pips)
2 Lot (Long) @ 108.27, TP @ 109.57, No SL – (+64 pips)
2 Lot (Long) @ 107.66, TP @ 108.93 (Hit), No SL – (+144 pips)
1 Lot (Long) @ 109.62, TP @ 110.25, No SL – (-3 pips)

Total pips for the week: +378, adjusted to a standard 1 Lot +543

Answer to Comment in last post

I am not seeing these setups and trends on my charts.

And as you point out, EURJPY has gone short a lot since June 28 0800 EET or so.

What chart time frame shows you the range you describe? I don’t see it. Thank you

Thank you for the comment and question Dave, I am excited to be able to explain what I mean. However, please take a look at the 2 charts I have posted as they are instrumental in my explanation.  In fact, you may want to open them in a new screen or print them out so you can refer to them.

Ok, so the first chart you see (should be the EJ Daily) shows that the EJ has been in a free fall since the end of  October 2009.  That is a bit longer than since June 28th like you mentioned.  The reason I show this is because I am a medium term swing trader, I don’t sell in the middle of a down trend unless I can get a REALLY great deal and an obvious area of resistance.  What excites me about being long right now is that we have been short for so long.  The blue lines on the chart are the areas of  Support and Resistance that I feel are important.  Between the S&R lines of 113.20 (R) and 108.00 (S) is a great deal of “congestion,” even in the middle of the range – if I am going to sell a pair, I am going to do it at 113, but most certainly not at 108.

The next chart should be the EJ 1 hour chart.  The grey part is the range I had mentioned in my previous post – I tried to buy at the bottom of it, but unfortunately for me, price decided to pay it no mind.  So I am in a losing trade, what should I do?  Close it and take it on the chin?  Or find my next area of support that I feel is strong enough to cause a retracement and add to my position (scaling in of course at the pace of doubling my position size).

I hope this helps and I would be more than happy to answer any other questions you might have about my style of trading.  Thanks for stopping by!