Before you place a single trade.

Read this entire book.

Ok, it’s not really a book, more like a booklet considering it’s mostly pictures and a 12 point font, but great information none-the-less.

I can’t stress enough the idea of trading in small sizes with a lot of reserve capital so you can take advantage of a more attractive price even if you are already in a trade.  Also, take your time when planning and executing a trade, if you “miss” the opportunity, don’t rush the next one, just be ready earlier. Patience will turn into $$’s faster than rushing.

I am constantly surprised by how many traders can gain/lose 30% of their account in 5 pips or less. Such large swings have to stressful or euphoric and will make it nearly impossible to remove emotion from the decision-making.  When I gain or lose 1% on a trade, sure, I am happy or disappointed, but it won’t affect my decision to open or close the next trade.

I have a post in the works that talks about probability and the uselessness of a 3:1 risk/reward ratio, I think it’s brilliant, but then again I also have a degree in Commercial Art and not Statistics and Probability.

Enjoy your weekend everyone! Oh and follow me on Twitter.

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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.

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.

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.

Yes, it is 2011!

Happy New Year!  This is going to be a GREAT year! You have to believe it to achieve it, say it again… “This is going to be a GREAT year!”

Ok, I am done with my super cheesy motivational speak for now.

In all seriousness, I am so happy that it’s 2011 because every year gets better.  There is always something new around the corner and everyday that I wake up is an opportunity to change my life and others lives around me.  The question becomes not “if” there is that opportunity, but when you see it, will you recognize it and how will you capitalize on it?

This is me wishing you the best and hoping you and I can take every chance we get to make this world better.

Talk to you soon!

My take on a decent article…

http://blog.currensee.com/2010/08/five-observations-from-wealthy-traders/

Check this out…then read my commentary below.  I also left this for the author, but it hasn’t been approved yet to go in the comment section.  I want to elaborate on a few of these points so I think I’ll take #4 and #5 and break them down into 2 separate posts.  As for #’s 1, 2, and 3, see below.

Nice article, just some thoughts I’d like to share if you don’t mind. Points 1, 2 and 3 are contradicting. I agree with point 1, but subsequently don’t agree with 2 and 3. I have several ideas I would like to discuss – which I will do over at my blog for any of those interested in reading my ramblings.

#1 is important, don’t trade until you understand this. Otherwise, you might as well play Russian Roulette with 5 rounds instead of one, this is how bad you will get burned…

#2 frustrates me as a successful trader. The statement of “They stopped trying to pick tops and bottoms years ago” is a cop-out for not putting your reputation and money where your expertise as a trader is. Now, I may have stopped picking the exact bottom or top but I do pick an area where there is a better statistical chance it will either go up or down. When you stop picking areas where the market is going to turn or stall, you stop trading effectively. How do you make money in real estate? You buy at a discount and add value, wait for an opportunity and sell at a higher price than you paid (hopefully enough to cover the fees and taxes). You bought that real estate at a level that you thought was the lowest it was going to go, not on its way up (and if you did, you secretly picked a top, just one that wasn’t near your purchase price…). Trading is just like the real estate deal, if you don’t buy at a discount (or sell at inflation when shorting) then you are just waiting to go broke. If after the real estate deal the property values keep dropping do you sell it? Or, do you continue to add value waiting for the market to turn because something in your RESEARCH told you that this was a good investment. The trick here is do your homework, cut your teeth on some tough trades and make a trade…if you’re not sure, don’t take the trade. You have to pick up or down, I don’t pick either one until I see a discount (hint – discounts hang out near the areas of tops or bottoms).

#3 is much simpler, if a trader plans his trade as state in #1 then he has allowed for a certain amount of “Win” and a certain amount of “Loss” or drawdown so the statement of “They are patient with winners – and ridiculously impatient with losers” can not be true. They must be patient with their PLAN and let it work itself out in the event of a loss or gain.

Sorry if this got long, but I am going to elaborate more in a place where I don’t feel guilty for wasting space. Thanks!