Latest progress plus more...

It's good when you make profitable trades, I've made a few the last couple of days which is great for morale... of course when there is a big trend it's probably not that hard to take advantage of it...  One thing I have had a little bit of trouble with is coming in at the end of the big intraday moves, then sweating on it until the next big move which sends it profitable. I've also progressed from the EURGBP which is pretty predictable though the moves are much too slow and too far apart to the more volatile currency pairs, such as EUR/USD and GBP/USD, I'm also having some success with the USD/CAD.

I think that my money management system is probably overly safe, I'm using 20:1 leverage and never risking more than ~0.5% (I don't make it exactly that, though it's always about that or less) of my capital... Will I make massive short term profits? pretty unlikely, though as long as I don't do anything stupid (I probably will) I'm fairly certain that I'll survive and thus far my percentage gain (realised P/L, not including interest earned on the money in my trading account) is more than I would be making with the money in the bank.

In other news, I'm getting a couple of trading books for christmas, They are: The Encyclopedia of Trading Strategies and Professional Stock Trading: System Design and Automation... My wife won't let me open them (only the second one has arrived thus far) until christmas (to keep me thinking about this stuff I've been reading Pairs Trading: Quantitative Methods and Analysis (Wiley Finance), it's a heavy read, though not bad if you don't try to understand the algorithms on your first read through, the information in it is great for technically minded traders), though needless to say, I'll be busy reading and coding in the new year :)

I'm also looking for a good program (did I mention that I'm a cheap bastard?) with which I can test and develop my trading strategies before going live with them. I've posted before about Metatrader, well I'm no longer all that impressed by it. I really wish they had just added a decent scripting language (eg. something like Python) and not made so many assumptions/restrictions about how people can use the scripting language. I'd like to mention a trading program which has been developed in Python, it's called iTrade which looks quite good (for pre-alpha software), if I can't find a good dev/testing environment (read below), I may build one for iTrade.

The latest program that I'm trying to get a demo copy of is QuantDeveloper, it looks like it is a proper dev environment so I'm really looking forward to using it, only problem is they aren't giving downloads anylonger (apparently they're restructuring their business). Traders Studio is another piece of software that LOOKS good, though from the brief look that I had of their site it looks like they're just trying to profit through the creation of addins/trading systems... which indicates that it's not what I'm after, I'm looking for something that a programmer would want to use, and I want to test it out for FREE. If it does what I want then I've got no problem buying it, though what I want is something that is insanely flexible.

My Current Status

I've got some more cash in my forex trading account, still nothing huge, though at least if I do well I might make a little bit more money :)

My current status is that I'm not trading very often, my currency of choice is the EUR/GBP which is not really very volatile... meaning I need to wait a long time between trades. At present I'm waiting for the big upswing, which hopefully this time will go further than the last couple.

During the last few days I've made a few small preemptive buys, though they've been stopped out :( I had a limit buy which was filled at 0.67110, I was hoping that it was placed high enough for it to be on a breakout, though I just managed to catch the top of a spike.

More on Timing

A couple of posts back I wrote about timing, here's a good read on Investopedia about timing.

Progress

I thought I'd update on how my trading is going, since I made my last post, it did swing the way i was expecting which was good, as I made back all my losses and added about 1.5% to my starting capital :D I should mention that I'm using 1:20 leverage, so the 1.5% could be 7.5% if I was on 1:100 leverage, though losses hurt much more as well. My current money management plan is to keep the leverage low until I'm nailing every single move (including the timing).

One thing that I've found quite good for anticipating big moves is this tool from Oanda. It shows you when the major markets are going to be open and then you can anticipate the breakout/down.

Timing is Everything

OK, well maybe not EVERYTHING (you still need to make sure it's going the right way), though it is extremely important when you are highly leveraged.

Since I've started working with real money I've lost money :( Luckily it hasn't been a lot (I'm currently down by 1.44%). The main reason for my losses has been through bad timing and not having the balls to stick by my position when it is going the wrong way. In all cases where I've lost money I was right in my prediction, just out on the timing (I still have one small position I opened 8 days ago which is just starting to come good).

I'm Back

OK, been a damn long time since I last posted. I've been busy looking at other things (CFD's, commodities and sports arbitrage) and doing some reading.

After all that I've made the plunge (I made a SUPER SMALL plunge) and have opened a live FOREX trading account. I say it was a super small plunge because I think I might have set a record for the smallest FOREX investment ever.. I deposited USD$91!!!! (but they took $2.93 in processing fees) I'm well aware that it'll take me a couple of centuries to make my fortune with that large an investment... why $91? it's how much I had sitting in my Paypal account, I'm just going to try it out with live money and see how it goes, when I can prove to myself that my strategies are making me money and the broker isn't scamming me, then I'll work up the courage to shift some proper amounts of money over.

When I was looking for a broker to open a live forex trading account with I did a little bit of research and I found a website called Forex Bastards, they have some great reviews of the different FOREX brokers, I read some of the top rated ones there. Going with what I had already read previously about Oanda and not being concerned with the spreads widening during news I signed up with them. It was a little scary how much personal information they ask you for (an identity theifs wet dream), though I guess they need to do it in order to prevent money laundering etc.

I haven't yet opened any trades, I'm waiting for my setup to come along and then I'll open a trade.

I mentioned that I've been doing some reading as well. It's been in the areas of Statistical Arbitrage and also I've been looking at a method of evolving a computer program called Genetic Programming... my ultimate aim being to evolve a financial trading expert! (it's a long term aim)

Exploring other things

I've been giving my FOREX trading a rest and have been playing with mechanical trading systems which I've developed using languages that I'm happy with (I'm not 100% happy with MQL4). I've mostly been running my mechanical systems over stocks. The stocks that I've been using as my test pool are the ones that Alpari provides in metatrader demo as well as all the current stocks on the Australian Stock Exchange. Unfortunately I've only got access to the Yahoo historical data, so that's what I've been working with. It's very interesting working with the different indicators and candlesticks and testing them across a large range of stocks, it's also interesting how useless some of the indicators are when you run them across a large range of stocks.

I've also become quite interested in the way stocks work in cycles, one that I read about last night was the lunar cycle and how it relates to trading... I haven't yet figured out if this stuff is just a bit of a load of crap, though I'm planning to look into it a bit closer and possibly run some simulations.

What I've been doing

I thought I should make a post on the blog again... since it's been a quite a long time.

I've been paying more attention to trading stocks and GOLD, I made a beautiful trade on GOLD, I tripled my balance overnight! I started with $5k and went short 1 lot which I think is around $1.4k... The next day I woke up and found that my take profit had been triggered right at the bottom of that particular move which has been one of the biggest in this downtrend thus far. My resulting balance was $17k!!! wooohooooo

I've since made a few more trades, some winners, some losers, though nothing anywhere near the same level as my first Gold trade.

If you use metatrader and want to play with commodities, shares (CFD's) and FOREX, I've been using a place called Alpari.

Disciplined or Lazy?

With most things, if you sit around and do nothing it's considered lazy, though I think I'm being disciplined with my trading as I'm not making any trades until I see a high profit situation arise.

I've also been extremely busy with my work, which has kept me out of FOREX trading for the sake of trading trouble. 

Gold Massive Monthly Doji

I've been a bit slack with my FOREX trading ever since the USD started going sideways or gaining a little on the other currencies, I've been waiting for a good trend to establish itself before I take any new positions.

To keep myself occupied I've been really busy with work. I've also been doing a bit of looking at Heiken Ashi since there are a few people searching for it and finding my site, and well there isn't a whole lot of information about Heiken Ashi available online. I went looking for some good screengrabs that I can take for a Heiken Ashi article, and created a metatrader account with Alpari (the details for it are here) so that I can look at some stocks, futures and commodities (the demo doesn't show all, just a few select ones), I was looking at Gold and well it's been going up for the last several years and seems just recently it hit a top, when you switch to monthly candlesticks you can see a very very clear Doji, will be interesting to see the future price direction if that doji gains confirmation as a reversal signal.

Gold Monthly Chart

Gold Weekly Chart

Gold Daily Chart

Since it was Heiken Ashi that I was originally looking at here's the gold daily chart with Heiken Ashi candlesticks, it may not be the best example, though see how Heiken Ashi smooths out the trend so you get better indications of reversals?

Money Management

I've been getting stuck into the book that I recently borrowed and have to say that thus far the chapters that I've found most helpful/interesting have been "Using oscillators to predict trade opportunities" which is written by Tom DeMark andmore helpful from a basics point of view is the final chapter (I've been skipping chapters that sounded boring) titled "Controlling risk with money management techniques" which is written by Courtney Smith.

The chapter by Tom DeMark is interesting in that he introduces some new oscillators which he claims are more accurate than RSI and some of the other oscillators. I'm planning to write a meta trader indicator of some of his oscillators so that I can see if they actually are... On this note, I've been playing with some expert advisor coding in metatrader working with RSI and have to say that I'm running into troubles with RSI calling a low too quickly after a breakdown. The workaround to this is to set a lower stop loss which has problems in that losses are bigger than if the trade timing was just right. When I get around to implementing TDREI and some of his others then I can see if they do perform better.

The chapter which I've found most helpful thus far is the money management chapter. I've always thought about trading as trading in lots and once your lots are gone your finished. He writes about always working with percentages, if you're only ever betting 1% of your capital (at the time, not necessarily your starting capital) then it will take a very long time for you to be wiped out, however if you go in and bet 50% then you'll be wiped out very quickly. One of the issues here is that obviously your profits won't be as amazing as if you were calling it right and betting 100% of your capital.

In the expert advisors that I've been experimenting with I've switched to percentage based lot sizes, and instead of changing my lot sizes based on my recent performance (which most lot size methods I've seen use) I've just been trading 1% of my capital at the time, so as I lose money I bet less and less, until I end up having $10 in my account. I should also mention that a big part of this money management method is to also have your stop loss levels set at the risk level that you have defined in your strategy... I don't think I've done a very good job of explaining that last bit, probably because I need to understand it a little better myself and how to work this into my FOREX trading taking into account leverage etc.

Another Technical Analysis Book to Read

I've finally managed to get my hands on another technical analysis book. Again I borrowed it from the library, though as it was in some far off out of the way library I got them to transfer it to my local library which took ages (I was hoping to have it last week).

The book that I've borrowed is "New Thinking in Technical Analysis: Trading Models from the Masters", by Rick Bensignor. It looks like it should be a beauty, with some of the biggest names writing chapters. Some of the contributors include (in the order they are in the book): 

• Linda Bradford Raschke
• Tom DeMark
• Peter Eliades
• Lawrence McMillan
• Robin Mesch
• John Murphy
• Steve Nison
• Steven Poser
• Bernie Schaeffer
• Courtney Smith
• Kenneth G. Tower
• Larry Williams (after reading the intro about him I'm quite looking forward to reading his chapter)

Hopefully it is a good read, most (except one idiot) of the reviews on Amazon are very positive.

I will see if I can learn anything from these writers and if I do then I'll post it back here :) 

My Trading History #1

I thought it might be interesting for someone to see my trades so that they can see how much of a fool I am. I'll post some followups from time to time.

Easy Come, Easy Go... the story of my trading life

I was quite happy with the way I had been going since I started my "fresh start", and I had made a decent profit (I was up by 33% on my starting capital). The problem is that I think the EUR/USD might have reversed on it's uptren. Unfortunately I made the mistake of buying buying buying to try to decrease my losses on a rebound... The rebound never came and well I'm back where I started! I'm lucky, that my stop losses saved me from being even worse off.

Unfortunately I feel rather stupid as well, since I had my trailing stop for the original trade set to 50 pips though when I saw it coming close I didn't just leave it and get out of the rest of them that I had opened near the top, instead I cancelled the trailing stop and moved my stop losses down a bit! How stupid is that??? Oh well you learn something new everyday :)

I'm happy to say that on my Oanda account which I've had running a few trades which I've basically left and just gone in and moved the stops up a bit every day or two, the stops were triggered and I made a couple of grand on that one, so now I'm up by 8k on that account (it's a 100K account that I've been playing suicide with).

Chart of the EUR/USD reversal.

I'm not certain that it's a reversal (might just be a period of consolidation?), I've opened a short position, though I'm going to attempt to not be quite so stupid this time, the first sign of breakout and I'm (planning to be) outta there.

A new indicator I've found

I've been very bad when it comes to writing about the various technical analysis indicators. The main reason has been that I've been so happy with RSI (yes I do have repetitive strain injury as well, though I'm not that impressed with it), and to a lesser extent CCI (I haven't been looking at it very much lately).

There is a new indicator that I've found which seems to be pretty cool and I will do an analysis of it in the near future (I first need to use it a bit more). The indicator is ADX, it is basically the average of the difference between two DMI (Directional Movement) lines, by looking at the ADX line you can instantly see how much it is trending, and by looking at the DMI lines you can see which way it's trending. From my initial impressions I've found that the DMI lines are actually pretty good for getting signals right near the start of a trend.

Finished reading the candlestick book

I've finished reading the book that I mentioned in this post about candlestick charting. Overall I got a lot of inspiration from it and really looking forward to putting some of the techniques mentioned into practice.

I was a little disapointed with the multi line patterns, not because of how they were presented more simply because they really seem to be just candle addition to create a single candle. I was rather expecting some kind of magic from them.

One thing which I forgot to mention in my previous post was the need for confirmation. When you see a candlestick pattern you need to have confirmation from the following candle(s). Your trading strategy will dictate how much confirmation you require, though it is a VERY valid thing to remember when looking at candlestick patterns. I may at some point outline some of the patterns and give the details of the confirmation required, though until then there is most likely a lot of information you can find online.

She also reinforced some things such as needing to use candlestick charting as only one component of your overall trading strategy and that as traders we need to get rid of all emotion in order to be successful... that last point I think will be the hardest and most likely the thing that makes the majority of people fail as traders.

Amazing what a couple of good trades can do

It's really interesting analysing my emotions when I have good trades and bad trades, I think that ideally I shouldn't be allowing emotion to come into it at all, just get on with the job of finding and making profitable trades.

When I've been making profit then I'm all happy and really keen on trading, the fact that the weekend comes around annoys me, You can probably also tell because when I'm interested I post quite regularly here. However when I've been unsuccessful and have been losing money then I'm ready to give it up and lose all interest in trading FOREX.

I think I definately need to work on the emotional side of things, so that at all times my thinking is clear and isn't clouded by the fact that my balance is negative. 

Right on Cue

I mentioned yesterday that there is a spike when the US wakes up, well right on cue today I made over $900 within an hour :D That is not to say that I opened my position at the right time, I had my money tied up from about this time yesterday so it was really $900 in a day, though just so happens that the profit all came within an hour.

I find it ironic that the rest of the world is more or less undecided about the value of the USD, though the american's appear to be selling it like crazy! 

I've closed my positions and will open some new ones when this spike falls back down (assuming it does).

Good System to Profiting?

It's actually a strategy that I thought about back when I first started experimenting with FOREX, and lately I've been starting to wonder if it's a good method of profiting from timezone differences. It revolves around the Americans doing a LOT of trading, so if you have a fair idea of where the market is going to go, you open your positions just before the American markets open and then when they open you get a nice big rise (assuming you thought they'd send it up).

It appears to have worked a bit the last few days that I've been looking.

I will analyse it for a bit longer and see if I can use it to my advantage. 

I am a chicken

I know that I said I was going to hold my aussie dollar position long term, though well I'm a chicken and I got greedy, after it suffered for a day it has finally climbed again and well I was just too much of a chicken to not take the profit while it was there, so I cashed out for $300 or so. What makes me happy is that for once my balance is ABOVE where I started!!!

I was a little bit scared because of the book that I've been reading about candlestick charting, I saw a fairly good hanging man coming up and I didn't have the bank to wait for confirmation (which is probably rather stupid on my part), I think I'm also seeing some resistance just a little above where I went long before (at least on short term charts, see below).

I may open another small position on it to see if it actually does work medium term. 

Learning About Candlestick Charting Patterns

Because I don't like to spend money I go to visit the local library to find reading materials, the latest book that I've borrowed is proving to be an absolute gem. The book is The Secret of Candlestick Charting, by Louise Bedford. It is quite strongly targetted at stock inveseting in Australia though I've managed to learn a quite a few patterns which appear to be applicable in FOREX as well.

Let me post a couple of charts which illustrate some candlestick patterns which I've found. 

This example shows a couple of different single line patterns, First in the dark blue is a shooting star, followed by a hanging man which is then followed by a drop of around  4 cents.

Then at the bottom of that downtrend is an inverted hammer which signalled an uptrend which carried for approximately 6 cents.

Here you can see a hammer which marked the reversal of a MASSIVE downtrend on the NZD/USD.

There are a heap more candlesticks that are in those charts, I've just pointed out a couple of the basics. I will write more later. 

Aussie Dollar and Interest Rates

Let me start this post off by saying that for those that don't know, I'm an Aussie. 

Many many years ago (10 to be precise) I remember a friend bought a whole lot of USD (I think they were travellers cheques that he bought) when the aussie dollar was trading at just over 80 cents as he felt that there was no way the dollar could survive at that strength against the USD. Looking at a monthly chart it seems he was correct. I never did ask him how that investment went for him though I find it interesting the current situation that is occuring as we are nearing back up towards the 80 cent mark.

Today the government upped interest rates and I think that has only helped the dollar to keep climbing, I wonder how much further it will go before we experience a breakdown. I've opened a long position on the AUD/USD which I'm planning to hold as a longish position until the RSI gets up over 70, I've set my trailing stop at 50 pips which might be a little too close for fluctuations in a long term trade... though haven't been able to find any good info on how to manage the stop loss, except what I wrote about once before.

Monthly Chart of the Aussie Dollar

Current FOREX Data?

I've just found something that is a bit of a worry with Meta Trader... Upon logging in I've just been presented with daily data that is CLEARLY wrong, compare it to the charts in this post which I wrote just a little while ago (not more than 2 hours). Also if you look at the dates they're back in 1990!!!!

I understand that because I'm using a free demo account I don't get the 100% perfect data feed, though this data feed from Interbank FX is well a bit of a mystery as to why it's giving me data from 1990 then 2006.

The screengrab resizing cut off the current date for the latest candle which is todays date, all the rest are prehistoric candles. 

Heiken Ashi Chart

Since I've managed to get Metatrader running on Linux I've been experimenting a bit with chart displays.

One method of charting which I read about a little while back though haven't until now really had the opportunity to look at it in any great depth is Heiken Ashi, it makes trend spotting a bit easier as you can see in the 2 charts below, they're both EUR/USD hourly charts though visually it is a little bit easier to see the trend changing with the heiken ashi one. I don't use it all the time, though I've been finding it easier to skim through the different currency pairs with the heiken ashi chart and when I spot a trend that looks good I can then go into more analysis of it. To make it easy I've setup a couple of templates in metatrader which allows me to switch between heiken ashi and standard candlestick charts quickly.

Heiken Ashi Chart showing EUR/USD

Candlestick chart showing EUR/USD

I will do a bit more of an analysis of heiken ashi in the future. 

A lot of activity in the USA

I've been sitting on some positions that I opened this morning that I was anticipating would gain by the USD losing more ground to the euro, all day (I'm in Aus) it's been pretty ordinary and I've lost a little bit. As soon as the US woke up on this monday morning they went crazy and very quickly I made a LOT of cash, I was making some stupid trades which happen to have worked and it makes for very nice earnings, though I would have lost a LOT of money if it went the other way which is suicide.

Here's a graph which shows the reaction when the US wakes up.

Becoming Disciplined

I'm going to attempt to have another go at this FOREX trading stuff, though I'm going to try to only open a position when I can see a high probability. Some things that I am going to attempt are:

1. Trading with the trend
   
2. Waiting for confirmation of reversals

Basically I just want to try to be super disciplined and only make very high probability trades. Whether I can do that or not... I don't know :) though I'm sure I can learn a bit in the process.

I will update on my progress. 

Linux Charting Application

I've mentioned metatrader before, I've  been a bit unhappy that I've had to run windows in order to use the great technical analysis indicators and all the other goodies in it, well I've just worked out how to run metatrader 4 in Linux.

I use Ubuntu and it runs ok with the version of wine which is in the Ubuntu application repository, the only issue is that none of the fonts on the menu's work correctly so it makes it rather difficult to do anything much ;) The solution (read about the problem in this bug) to this was to upgrade to the latest version which is on the wine website and it all runs correctly (as far as I've tested, I haven't yet tested experts advisors etc.).

I should also mention that I had to find MFC42.dll in order for it to work, this was easy from an existing windows installation, note that I did a search online for MFC42.dll and the version I found did not work.

Here's a screenshot, click if you want to look at the bigger version.

I really should also look at fundamentals

With my dismal showing as can be witnessed in my prevous post, I've figured out what I did wrong, I should have at least read a little bit about what was happening in the world of fundamentals rather than just looking at RSI and trying to guess... There was some big announcement about a pause in US intererst rates which has caused everyone to ditch the USD.

Recently (no I haven't been dead) I've been reading a book I borrowed from the local library about candlestick charting, have been slowly learning some of the different candles (haven't yet got up to the multi candle patterns), some of them really are great indicators of changes in trend, I noticed that they were amazingly good when you look at forex long term (eg. on a monthly chart), the charts I looked at, everytime there was a doji in an uptrend a breakdown followed. Sadly I don't know if I'm patient enough to trade monthly!

Always Wrong

How on earth am I ever going to make a good FOREX trader????

This screenshot should tell all.

Automated Trading Systems

I think that an automated trading system is the holy grail for lazy people such as me. I've dabbled with the automated trading in meta trader before with some success until I got onto doing other more useful stuff.

For those of you that are interested in it yet have no idea where to start, I just found a great introductory tutorial on investopedia.

On the last page there are some great links. From my brief browsing thus far, these appear to be the best free links:

• Wealth Lab (automated trading experimentation site)
  
• Elite Trader (trading community)
  
• Meta Trader
  

A couple of other FREE trading programs that I stumbled across in the last couple of days (not really to do with automated trading systems):

• Quote Tracker
  I need to look at this a bit more in windows.
• ITLocus Charting
  This one has a lot of promise for me as it runs on Linux (and windows) and actually has a proper scripting language (Python) for creating indicators etc. Unfortunately they only provide an rpm for Linux which didn't run very well for me when I installed it using alien.

Dabbling in the Stock Market

Sorry I've been a little quiet the last few days, I've had a quite a bit of work on and so haven't been able to waste quite so much time playing with currency trading.

I've also been spending a little bit of time looking at trading the stock market by playing the investopedia simulator. I've joined a competition (the Q2 2006 one) and well I started doing quite well, I was up to position 373 out of 88 thousand or so, though today I took a hit and well I'm back near the bottom of the pile.

To find stocks worth purchasing (not exactly, read below) I've been looking at the signals page on barchart.com, it's a pretty cool page which runs some technical analysis indicators across all the stocks and then lists the ones that are the biggest movers. The only problem with using these signals is that you really want to get them a couple of days beforehand, generally when a stock makes it to the top it is close to the top of it's run.

I have to say that being on the other side of the world from the major American stock markets makes it rather difficult to trade them with any seriousness unless it's proper long term, as during our day the markets are closed. One of the advantages of FOREX, you can trade anytime of day (unless it's a weekend!).

I'll keep fiddling with trading pretend stocks and maybe I'll even run some of my own technical analysis indicators (I've developed a basic little program which I can use to analyse any type of chart) on the different stocks so that I can get in before the big moves. 

Trading Currency Crosses

I found an interesting article by Boris Schlossberg about trading the currency crosses, apparently 90% of traders don't trade them, though there are some very nice profits to be made by trading them.

Prior to reading it I had no idea what a currency cross was, though after reading it I went and made some short term trades on the gby/jpy which were losers, though I did manage to make a nice trade on the aud/jpy which I was happy about :)

I've had an idea about a feature that I should add to this site, and reading that article has reinforced to me how it might be a useful tool, more later if I add the feature. 

What is the trick with long term trading

I've decided that I need to work out how I can be more successful with my inter day trading.

I have no trouble picking the trends on intraday trades and can make at least a few pips on each trade, though I need to spend all the time right there looking at the price when I'm doing intra day trading and I don't want to do that! I want to workout how I can successfully pick the correct stoploss and take profit points so that my stop loss doesn't accidentally get triggered.

Will keep you all updated on how I go with my learning about long term forex trading. 

DAMN I SUCK

I'm beginning to realise that I seriously suck at this forex trading stuff.

After picking some absolute rippers of trades and making some serious profit very quickly I completely messed it up and went backwards like you wouldn't believe. So badly that I'm too ashamed to make it public how I managed to mess up so stupidly!

I've decided that I'm going to be a wimp and reset my account (though I set it to be $10,000 instead of the 100k that it was previously) to be back where I started from, lets see if I can be disciplined from here onwards and get it going UPWARDS.

Lessons to be learnt, DO NOT BE GREEDY, TAKE THE PROFITS WHILE YOU CAN. 

What a quick way to lose money!

With my success the other day in using the RSI and CCI to correctly pick a good time to open a position I managed to get my unrealised profits up to $5000 (that's with 20:1 leverage), I went to negative within a matter of hours, mainly due to having taken a position on the EUR/AUD and then taken a second when it spiked. I should have cashed out when I was over 100 pips up on both of those positions, though instead I was greedy and held onto them... now one is 125pips in the negative :(

Here's a daily chart of my stupidity with the EUR/AUD.

I've moved my take profit to a level where I should almost break even if it drops back down to todays low. 

Update: After looking at it a bit more, I've decided that I'm going to hold it and wait for the big drop since RSI is indicating that the euro is overbought. I think my mistake was an error in timing, I should have waited for the price and RSI to begin dropping before opening my short position.

FOREX Idiot

I laughed when I checked my log files today, someone from Malaysia found me searching for exactly what I am!

A FOREX Idiot!

Absolutely Amazing, it really really works!!!

I opened a trade on the AUD/JPY last night when I finished writing my RSI article based on the info that I had from RSI. It worked well overnight and so this morning I opened 11 more trades across a whole lot of currencies, a few hours later my profitable trades are up by 223 pips, and I have only 54 pips in negative trades at the moment (though they should also swing). If all goes well and they all reach their take profit levels I should get up by around 2000pips!!!!!

Now for the important bit... how did I do it? I looked at the daily charts with CCI (14 periods) and RSI (14 periods) as indicators, when I found a currency that had both RSI and CCI showing a trade should be made I opened a position. I paid slightly more attention to RSI and just used CCI as a verification that it was more or less a suitable time.

Needless to say, I'm absolutely amazed at how successful it has been thus far.

Update: After about 24 hours I'm up 543 pips, I closed down a couple of positions EUR/CHF and USD/CAD which were both down by around 40 pips, I think I jumped the gun a little with them so I decided to take the pain now rather than holding onto the positions. One thing I noticed that might have been an indicator to avoid with the EUR/CHF was that it was on a pretty long slow up trend and that the RSI had mostly been somewhere above 50 since back in January. I'll keep my eye on it to see how it progresses. I should disclose that 195 pips of that profit is on the EUR/SEK which I don't think converts into much $ in my unrealised P&L so I'm probably thinking I'm doing better than I really am.

New Research: Relative Strength Index

Just a quick post to announce that I've just published some new research I've done on the Relative Strength Index into the technical analysis section.

It's actually pretty useful so I'd recommend you check it out, I'm going to be trying to use it as much as possible in the future to avoid making stupid trades.

Do these actually make sense to the rest of the world?

Let me start this post by stating that I am a beginner, and I'm well and truly aware that I don't know a lot. Hopefully given enough time that can change :-D

Forex Project posted about some charts (click here to see some more great pieces of line art) on the fibo-group website so I went to have a look and the first thing I thought of was...

how the fuck is anyone other than the person creating that line drawing going to know what it's actually meant to mean

I'm sure that experienced technical analysts can probably decipher it, though for now I'm just going to have to content myself with learning all there is to know about CCI, RSI and the other more basic indicators.

Are stocks a better idea than currencies?

In my research for the info I'm going to write about RSI (Relative Strength Index), I've been reading around a quite a bit. I came across a site called barchart.com which is a pretty useful site if you are trading in stocks.

It has a really cool feature which I wish was available for foreign currencies (if only I could find a good free data feed.....), basically they run a few technical analysis studies on the thousands and thousands of stocks, based on the results of the studies they assign buy, sell and hold ratings and give an overall rating.

As you might have guessed by the title of this post, I'm wondering if trading on the stockmarket might be a better place for a technical analyst to ply their trade than by trading currencies on the foreign exchange market. Not because foreign exchange is less suited to technical analysis, rather because there are so many more stocks which can be sifted through for the perfect trade which is almost guaranteed to make money. Where with currencies there really isn't a whole lot of them to choose from, though they sure are more volatile than the average stock from what I've been able to see.

Yipeee

I'm amazed, after going away on honeymoon for a couple of weeks I have come back and opened some trades, I'm up by over 130 pips! almost enough to make back the stupid losses that I made a little while back :D

Here's a daily chart showing my current position on the CAD/JPY which is up by 100 pips, I had some others that took the profit as well so I'm quite happy :D 

How did I do it? I used the CCI indicator... I've been very happy with CCI since I started using it, so much so that I'm starting to think that maybe it's time for me to do some research into some of the other indicators... and see if they can give me as good results. Next on the list is RSI (or Relative Strength Index), I've had the barebones of the research done, though I need to finish it off and do some back testing and comparisons before I publish it.

Lack of Updates

I'd like to start this post off by apologising for the complete lack of updates for the last couple of weeks.

I got married and had a nice honeymoon so I've been a little pre-occupied.

Once I've caught up on everything that has happened I'll be sure to find something interesting (wishful thinking) to write a post about

I'm going to close it early

I've mentioned my long term strategy experiment that I've setup on the USD/SGD and that I've been frustrated waiting for it to become profitable. Well I'm sick of waiting for it and I'm going to close it next time the price spikes to a position where I will have made a little bit of a profit.

Big Stupid Mistake

When a trend is getting towards the end, do not make a big trade.

I got a little impatient with my account deficit and thought I'd try trading a million in the hope that I would make big bank from it... I thought I had found a great downtrend with the CAD/JPY and so I took a short position with $1,000,000. It went well for a while and I started to make a nice profit, then I had to go grocery shopping and so I left it with a stop loss that while it was pretty low (around 15-20 pips) I thought there was no way it would get triggered unless there was a trend reversal.

Well... as you can probably guess from the title of this post, it all went horribly wrong!

I've just logged in to see that after continuing to fall, the price had a sudden spike which triggered my stop loss and kept going a bit higher, then it fell rapidly again.

I've taken a couple of screenshots which will hopefully remind me someday how much of an idiot I was today!

Close up view showing where I opened the trade and where the S/L was triggered.

Chart showing the trend and where I opened my trade and where it was stopped by the stop loss.

The most profitable currency pairs

Rich from over at forexproject.com has written a post detailing which currency pairs have been most profitable for him. I find his results quite interesting because I think (I haven't actually looked at the numbers) by far the */JPY currency pairs have been most profitable for me as well.

Seeing that someone else has also found these currency pairs to be the most profitable is a good reason for me to focus on these currency pairs instead of trying my luck on the EUR/USD.

Here are Rich's results, I think you'll agree they are interesting!

USD/JPY: +3720
EUR/JPY: +2400
GBP/JPY: +1370
USD/CAD: +890
NZD/USD: +470
USD/CHF: +420
EUR/GBP: -70
AUD/USD: -130
GBP/USD: -$410
CHF/JPY: -650
EUR/USD: -$1430

New Research / Technical Analysis Article

I was lazy and didn't get around to doing the EMA (Exponential Moving Average) because well it's basically the same as the WMA with slight differences, though not enough for me to notice. So instead I moved on to a completely different indicator and a very nice one it is. The latest article to be added to the Technical Analysis section is the CCI (Commodity Channel Index).

I thoroughly recommend that you check it out if you haven't already, it's one of my current favourites for opening and closing long positions.

New Design

I had some time to kill the other day on a different computer so I spent it playing very short term idiot trader (I actually didn't do too badly). since this site is getting a few visitors nowadays I thought that I should also knock up a design that would look a little more like a proper website rather than just the thrown together pile of garbage content that it really is ;)

I hope the green doesn't hurt your eyes too much, if I get enough complaints I'll think of something a little more friendly.

How long should I wait?

I'm getting a bit impatient with my long term USD/SGD long position and I'm starting to think about closing them next time there is a small wave which makes it profitable.

I have also been a little stupid and opened another long position during one of the troughs, however that position was only 10,000 rather than 100,000.

Maybe the trick for me to not get impatient is to just not look at them... that way when I login in a few months time there will be a nice 300pip profit. My only issue is that it's a rather slow way to gain 300pips.

Here is the current daily chart

Update: after writing this post and looking at the chart I realised there was a pretty obvious support line which was going UP (see the yellow trendline I drew in when writing this update), so I will be holding my position. 

Will my long term strategy work?

I opened a position a few days ago on the USD/SGD as I was anticipating a breakout, thus far it hasn't happened though I'm still holding on as I think the signs are still showing that it should breakout sometime soon and I might actually be on it from the beginning.

Here is the current daily chart of the USD/SGD which shows where I opened my position and the fact that I'm down by around 30 pips.

I opened my position there because I saw that there appeared to be resistance and it was near a one year low (I've set my stop loss at that level). The bollinger bands are quite compressed (they looked to be compressing even more when I opened my position) which would tend to indicate a big move is in the works, since we're almost at the 1 year low I'm predicting that it will be a breakout rather than a breakdown. I've set my take profit at the Fibonacci retracement 50% line, there was a small resistance line on the way down at that point so I've set it there (a bit over 300pips, so if it comes off I'll be happy).

I will let you know if my long term strategy pays off :) 

In other news: I went back and had a read of the FOREX project blog to see how he is going and if I could learn anything, I learnt that he is making nearly all profitable trades! He's making very few of them, though who cares if they are all profitable!

Developing an Automated FOREX Trading System

The last couple of days I've been playing with Metatrader4 and experimenting with creating expert advisors, I've been trialing them on historical data and believe it or not, I actually managed to run profitable simulations!!! sometimes hehe

It seems that creating a system which runs profitably across all the currencies and across various time periods is a little more involved. I'm not sure if this is due to the quality of the historical data or if it's just the nature of the game.

The experts I created all only focused on finding and executing long positions (just laziness, if I created something that worked well with long positions then I was going to add in short position detection). The first one I created looked at weighted moving averages and opened a position when the short term average crossed to the high side, it also closed out when it crossed back across the long term average. Obviously if this is all that the system does then there is a lot of money being thrown away as you can normally exit a long time before it crosses back across the long term average. To combat this I experimented with detecting the peak of the short term average, being lazy I only did this by finding out when it started going back downwards.

Of the systems I experimented with I thought that the moving averages had the most promise and sometime I may return to it and add some of the following features:

1. Detection of the angle of the short term average.
   If it is going up quickly then I want in, if it is almost at the same angle as the long term average then it's probably nothing special.
   
2. Better detection of the peak of a trend will help the profit go up by a lot.
3. Opening Short as well as Long positions... this should hopefully double(?) the profitability of the sytem.

When/if I make these changes I will post the code for you guys to hack to pieces, or maybe to make your millions :)

As I look a little more at the maths behind investing, it is a little more obvious to me that it isn't an easy way to make a living... and it's not just the picking the right trades part of it ;) The less you take out of your trading account to pay bills etc. then the more profitable you will be in the future, will do some research into when is the right time to take money out and how much sometime in the future... not that I'm anywhere near putting my real money into the big trash can. 

I think for a little while now I will just look at doing manual trading and see if I can keep making back my deficit. I think it's always good to do things the hard way at first and then when you are good at them then look for shortcuts to make your life easier.

Candlestick Charts, Should they have gaps in data?

After I learnt how to read them, I quickly became a fan of candlestick charts. When I can set them to my preferred red and green, candlestick charts provide me with a very quick and easy way to read what is happening.

While I've been evaluating metatrader 4 I've been experiencing something that I think is a bit odd. The bars on their candlestick charts don't always open at the same price that the previous one closed at. After doing some research I found that it's actually normal for one bar on a candle stick chart to not open at the previous bars closing price, they call it a gap... or if you talk to the Japanese who invented candlestick charting, they call it a window.

From what I was able to find out online, the reason that a gap or window occurs is that trades have been made outside of trading hours eg. a publicly traded company releases information outside of trading hours, many investors might get this information and put in buy or sell orders which are to be executed first thing in the morning, this can cause the opening price to differ from the previous sessions closing price.

How this happens in FOREX I do not know. I can understand if this happens when the market closes for the weekend, though when it happens mid week on hourly charts I can't understand the reason, I will do some more digging and see what I can find out.

60minute Candlestick Chart showing gaps

Update: I've worked it out thanks to this thread. The way they are counting it is that the close of one bar is the last trade during that period. The opening price of the next period is the first trade of that period.

The best trading platform?

Since I became interested in trading FOREX I've been trying out various trading platforms (is that the correct term??). I've found that there is 2 types of client, one is a Java client which can run on any computer that has the Java Virtual Machine installed, the other is a Windows based program which as you might have guessed only runs on Windows.

Due to the nature of my work, my operating system of choice is Linux (lets me do stuff quicker and easier). So I've predominantly been evaluating Java based trading platforms. Of the Java trading platforms that I've evaluated my favourite has been Oanda's. Of the Windows based trading platforms I've evaluated FXCM's trading platform has been my favourite.

Well yesterday I found what I believe to be the ultimate in trading platforms (Only issue is that I need to be running Windows). It is called MetaTrader 4, a free trading platform that is FULL of technical analysis goodies. And best of all as far as I'm concerned as a programmer... it has it's own scripting language that allows you to create all sorts of custom indicators and even code up experts to tell you when to make trades, you can even set it to automatically make them for you!

It provides access to years and years of historical data to allow you to perform back testing, and when you create a trading system you can automatically test it across months or years of historical FOREX data to see if it is actually likely to be successful!

I have a couple of gripes about certain user interface issues (I wish I could set my charts to automatically come up as candlestick charts with green indicating bullish bars, red bearish), though I think I have figured out how to get around them through the use of profiles.

Dan Zanger, how to make a LOT of money

I was told about this guy called Dan Zanger a while back, if you want some inspiration about how much money can be made through trading... then this guys stuff is the stuff to make you get inspired.

Formerly a pool contractor, over several years he honed his trading strategies until he became an absolute success.

After he worked out a strategy he invested $11,000 and 18 months later that had become $18 million, then he grew that $18 million into $42 million!!!! It's a world record for greatest percentage increase.

Dan Zanger made all his money through trading on the stock market. What is great is that a lot of the information about his strategy, what he looks for in a stock etc. can be read on many sites around the internet, such as this article on investopedia.

What surprised me when I heard about it was that he did it with 2:1 leverage which when you think that you can have up to 200:1 leverage with some FOREX brokers you think, damn he could have made a lot more with more leverage. However after reading the post about what is the best amount of leverage , I realised that maybe Dan Zanger only using 2:1 leverage was part of the reason that he actually did so well, rather than get wiped out by his bad calls he was able to recover without too much trouble.

If you want to read more about Dan Zanger, you should probably check out the media section of his website.

When I was told about Dan Zanger I didn't ask how you spell his name and for some reason I had a lot of trouble spelling it, so here are some alternative spellings that I tried before I figured out the proper one: Zangar, Zanga, Xanga, Xanger, Xangar... I can't remember the others that I tried. 

In some more personal news: I'm still making profits :D I closed out my big money making positions at close to the right time, since then I've just been making a few small short term trades that have mostly all gained a little bit, at least no big losses. I think I've also changed my leverage (though I thought I changed it to the highest leverage), since now a few pips isn't much in a money sense... will have to figure out what is going on, it will take me a while to work back my deficit at a couple of dollars a pip ;) Don't I sound like a fool writing about how it's good to have low leverage then saying that I want big leverage to get rid of my deficit hehe

What is the best amount of leverage?

I wrote the other day about how mini accounts were better because you got more leverage.

Well today I discovered the forums on Oanda and read a great article outlining why high leverage is a BAD thing. Well worth a read before putting real money on the line.

I guess I should do more reading about risk management. 

Trends are wonderful

When I think about technical analysis, I think of it as being extremely complex, full of algorithms and secret knowledge that makes those in the know almost spookily good at predicting things. While I'm 100% certain that some people are excellent technicians, I think that the next best thing for a beginner is to simply look at the longer term trends and go with the trend.

What I've been finding successful recently is looking at the daily charts, when I see a trend forming I go to something like a 60 minute chart or even finer to pick where I want to take a position (ideally at the peak or trough of a wave, depending on if I'm going long or short). After I've opened a position I've been setting my stop loss to just beyond the previous day's high or low (depending if I'm long or short), as the price moves I move the stop loss to counter any swings that aren't simply waves (I've been moving it to slightly above the previous wave, when short, slightly below when long) . I've yet to come up with a good take profit strategy, though generally I'm setting it to where the price may get to in a couple of days (I do it by roughly putting it at 1.5 times the distance of the biggest difference between open and close of the candlestick bars that I'm looking for, either gaining or falling).

While it's still very early days for me as a trader, I thought someone might find this useful, and maybe sometime in the future I can look back and laugh at myself :) Still I think it's important to start with the basics and gradually get more advanced. And hey, since late yesterday I'm up about 190pips :D

For future reference and so that others understand what I consider a trend here's a screengrab of the current AUD/JPY daily chart showing my short positions.

I'm always keen to learn, if you think I'm an idiot or maybe what I wrote actually helped you :O then feel free to tell me newbie at forexhowto.com 

The Dodgy Side of FOREX

Most industries that can be extremely profitable though need a reasonable level of knowledge prior to becoming successful tend to have similar sides to their industries. When you are learning about FOREX you will undoubtedly come across many claims of easy methods to make a fortune, live in the caribbean while your investments make you millions etc. etc.

If you take the time to read through them, some of them are really very convincing... though the simple fact remains, if it is so successful why on earth aren't they raking in millions from using the techniques??

Here's a story about a place that has a system called 4xMadeEasy.

While I would never consider buying a system like that, it's good to know that my suspicions are correct. If I'm going to spend any money, it won't be on a product that looks very much like a scam. It will be purchasing a very thorough technical analysis book. I think that would be some of the best money I could possibly spend to help me improve my knowledge.

Mini FOREX trading accounts versus full FOREX trading accounts

During the weekend I was having a look at the differences between mini FOREX trading accounts and comparing them to the full trading accounts.

One thing which I haven't been able to figure out is why anyone (I'm excluding the non beginners since I'm nowhere near being anywhere near them in terms of capital or risk taking) would choose a full trading account. The way I see it is that until you are investing more than $10k you would be mad to not make use of the better leverage and extra flexibility.

Generally what I found was that most full FOREX trading accounts have a minimum of between $3,000 and $5,000 with leverage being 100:1. Lots are $100,000 so each lot costs you $1000.

The Mini FOREX trading accounts on the other hand generally have a minimum of between $300-$500. Leverage is normally 200:1 with lots being $10,000 so each lot only costs $50. The great thing about this setup is that you get a lot more flexibility, assuming you have the funds there is nothing stopping you from buying 10 lots and taking advantage of the additional leverage. Though the risk is reduced for single lot positions that you take. Of course it sucks when your account goes over the $10,000 maximum level that most brokers have for their Mini FOREX trading accounts. Though hopefully if you can work it up to there then you'll do as well (except for only getting half the leverage) with a full account.

Needless to say, I will be running with a Mini FOREX trading account when I make the switch to real money. Having thought about it, I don't think a Micro Mini account is worth it.

The psychology of learning FOREX

You know, after I did some reading of the moving averages theory, and earlier the bollinger bands theory, I just couldn't wait to start trading so that I could put my new found knowledge to work. Sadly, again I wasn't disciplined and I'm copping a hiding! I'm becoming a bit of an expert at choosing the tops of the peaks to go long, bottom of the troughs to go short hehe

I really need to get the psychology worked out so that I can make consistent profits.

Oh well, it's all a learning experience for me :) 

New Research Posted - Weighted Moving Average

I've researched the Weighted Moving Average today (what better to do on a sunday morning? thankfully I'm off to a photography exhibition this afternoon).

I'm far more impressed with the WMA than I was with the SMA, the SMA was so incredibly slow at detecting a change in trends, so much so that most of the time the lines would only cross when more than half trend had passed!

Probably the SMA has uses in markets which aren't extremely volatile, or in analysing very long term trends. Next up will be the Exponential Moving Average.

Technical Analysis Studies

A while back I mentioned that I thought it was great that the FOREX markets close for the weekend, well I have to say it also frustrates me a bit :(

I'm sure it's great for the sanity of traders that they can have 2 days off without needing to worry about being close to the action, though I want to learn more! I've decided that I will do some research into what the different studies mean, how to read them and see if I can determine which of the studies might help me the most in my learning of technical analysis.

I may even go back and do what I've heard called "back testing" where you scroll back on your timeline and see if you can predict what will happen... it's rather boring to do though I guess less time consuming to see many different scenarios.

Some of the technical analysis studies that I'm planning to research are: 

• Bollinger Bands (I already have though will research them a bit more)
• EMA, Exponential Moving Average (very similar to the WMA)
  
• Parabolic SAR (The SAR stands for Stop And Reverse)
  
• SMA, Simple Moving Average
  
• WMA, Weighted Moving Average
  
• ADX, Average Directional Index
  
• ATR, Average True Range
  
• CCI, Commodity Channel Index
  
• MACD, Moving Average Convergence/Divergence
  
• Momentum
• ROC, Rate of Change
  
• RSI, Relative Strength Index
  
• Standard Deviation
• Stochastic RSI, Stochastic Relative Strength Index
  
• Fast Stochastic
• Slow Stochastic
• Full Stochastic
• Williams %R

These are the studies that are available in the Oanda FXgame user interface which is what I'm using to learn about trading FOREX. Hopefully I can find some examples for each of these studies through back testing, in which case I will try to post an example or 3 of each one. I can't promise how quickly I will get them researched, I would rather spend more time on each one so that I learn it properly rather than skimming over them all quickly without actually learning anything much.

I will also see if I can learn a bit more about the usage of Fibonacci to help make predictions. Fibonaccci techniques I will study are:

• Fibonacci Arc
• Fibonacci Fan
• Fibonacci Retracement
• Fibonacci Timezones
• Speed Lines (aka Speed Resistance Lines), don't think this if fibonacci though since it isn't an automated study (it probably isn't even called a study) I'll include it here.
  

I will also research the different chart patterns that can indicate a change is coming, though I will leave that for another time.

One thing that I find so great about technical analysis is that once I learn how to do it successfully I don't need to just restrict myself to FOREX, any charting analysis is possible (assuming it is many human actions which are causing changes in the charts being analysed).

If you ever have any comments or can help me, feel free to email me newbie at forexhowto dot com. Feel free to bookmark this post, or maybe you'd like to bookmark the new Technical Analysis section where I will publish all my technical analysis findings.

Definately a fluke

My good luck yesterday was definately a fluke, every trade I've made since closing my profitable ones has been a loser (well almost, had a couple that were only just profitable).

At present I'm down over 80 pips with 3 trades... it seems I'm going long at the top of the peaks, short on the bottom of the troughs hehe

I will need to go back and read my patience patience patience post. Maybe I should print it out in BIG letters and stick it to my monitor!!!

Going short wasn't a good idea

This is a follow on to my previous post where I was all happy about having made some big gains. 

After I saw that the shortish term trend had swung downwards I thought I'd open up a short position and it wasn't a good idea (at least not where I opened it), I lost as it went up shortly after I opened the short positions hehe

I've seen that the daily trend is still on the climb (though a bit slower) so I've decided to go long and see what happens, stop loss is around 50 pips below where I bought.

I will learn, I'm just thankful that I'm able to burn pretend money rather than my own :)

Update: Going long was a worse idea, down about 40 pips hehe 

I think I did it correctly

I mentioned that I was on a nice uptrend last night, well this morning I closed my positions after the gbp/jpy dipped below the level of support I had drawn, waiting for it to get down near the level of support line cost me a bit, though overall I'm very happy that I've managed to pull off a nice profit and now my account balance is actually going in the right direction!

Here's a 15 minute graph of my trades, after it hit the peak I made another buy trying to anticipate the bottom of the wave, it was a bit of a loser.

And here is the 60 minute chart of my trades.

It will be interesting to see if the uptrend continues, and if so I may well buy into it again, I've decided not to go short since I made a rule that I wasn't going to go against the trend, and the trend is still showing upwards.

Lets hope that I can make some more good trades like this and work back my account deficit. 

Learning from my mistakes

So now that I've got some trades that are doing well for me, and have had some dodgy ones that only lost me money I think I can honestly say that the only time that I (speaking as a beginner in FOREX) should ever take a position is when there is a long (I'm talking a trend over a few days though it might be short term for some long term traders) term trend.

I shouldn't look at anything less than a 60 minute chart except when I'm trying to find the optimum time to make a trade or I'm watching for a swing which won't show up early enough on a 60 minute chart.

Another mistake I've been making is to set my stop loss too low so it gets triggered easily.

Oh well, these thoughts sound great in theory, lets see if I can consistently pull them off :) 

Could it be possible?

I'm starting to wonder if maybe I've worked out how to be a little more succesful... yes I know counting my chickens waaaay too early, though this afternoon I've made some trades that have actually done what I was expecting. At present I'm up about 40 pips, which while nothing special for more seasoned traders, I'm very happy that recently I've managed to pick a couple of nice places to trade in the last couple of days. I've picked more losers still though once I get better at picking the winners I'm sure I'll stop being an idiot and making silly speculative trades.

The trick that I've been using... absolutely nothing special, just going with the longer term trend, have been mainly looking at the 60 minute and daily charts to determine what is happening longer term and then I'm just sitting on my positions without getting worried and closing out when it temporarily goes the wrong way, seems to be very easy to do that when looking at small time intervals.

Will see if I counted my chickens too early soonish and will let you know.

A frustrating day of FOREX trading

I had a frustrating day of FOREX trading today, after learning about how to properly use Bollinger Bands yesterday and then spotting where I had missed out on opportunities today I was trying too hard to find something to make a winning trade on.

The problem from what I can tell is that yesterday there was a big move upwards on a lot of the currency pairs (specifically AUD/JPY, AUD/USD, EUR/USD) and so it wasn't too hard to open a long position and then it would continue up, today it hardly moved, so positions I opened today thinking I'd cash in when the trend kept going haven't really done much for me.

Oh well, all part of the learning process. 

Patience Patience Patience

I'm starting (rather slowly) to realise that patience is the key to being profitable in trading, wait for a high probability trade and then make almost certain money.

Last night I managed to buy into an uptrend and made a nice profit, then this morning I blew it all fairly quickly by just speculating that it might go my way rather than buying or selling into a trend.

I was alerted to a massive and extremely clear downtrend on the AUD/CAD, a pity that the free FX trial on Oanda doesn't have the AUD/CAD as one of their currencies.

How to use Bollinger Bands

When I originally was studying what bollinger bands were all about I read something about how they showed the relative strength of the currency or something along those lines (I'm pretty sure I have the incorrect terminology). Basically the idea behind what I read was that you go short when it's above the upper line and long when it's below the bottom line. Sadly this strategy hasn't worked the times that I've tried it so I did some more searching and I found what I think is a better method of using the bollinger bands.

For those too lazy to read the article I linked to, the idea is that when the bands contract it means that the market is not very volatile, meaning that there is some big moves due to happen shortly.

In their words:

Markets move between low volatility trading range moves to high Volatility trend moves. One of the best ways to see this taking place is with the Bollinger Bands. When a market makes a extremely narrow range move, the Bollinger Bands will noticably narrow together. When the bands narrow down, it shows an extremely low volatiltiy market. A low volatility market forecasts - a high volatility trend move is more than likely - just around the corner. This is a big trading setup and a money making opportunity is at hand. The Bands narrowing together does not forecast the direction that the breakout will be but often times it is fairly clear from classic technical analysis which way the odds favor the breakout to be.

After reading this I looked at the current daily chart for the eur/usd and I think the bollinger bands do contract quite noticeably prior to a big move. As an example (possibly not the best one since the contraction was fairly quick) see around the end of last year.

Losing more than Winning

Since I changed my strategy to only work on the currencies which have a very small pip spread I've started having more winners, my only issue at present is that I still don't have enough discipline to hold off from making trades for the sake of doing something. Therefore I'm making trades that I regret shortly after having made them and I lose more than I make from the ones that I've gained on :(

Oh well the life of a forex beginner, I'm sure I'll work it out someday.

In other news I found a forex broker (I suspect they are actually an agent for a broker) called Mada FX (www.madafx.com) who will give you $5 for your live account when you signup for a demo. What someone could do with $5 I don't know, though I guess theoretically it should be possible to turn that $5 into $5 milion. I tried signing up to their demo so that I can give another brokers forex trading platform a try, though after filling in the form I got a blank page.

Why do I forget so easily???

It seems that I write a post on my blog and then less than 24 hours later I just completely forget all about it. Case in point: Yesterday I wrote that I need to THINK before making a trade, this morning I woke up and straight away I jumped into some trades that I really should have thought about for a little longer. Needless to say they've all gone against me :(

I REALLY NEED to go with the trend rather than anticipating a breakdown.

Making it easier as a beginner

After I wrote my previous post I made some changes to my setup which should hopefully help me make more profitable trades:

I removed all currencies with a spread greater than 3 pips. What this should do is make it safer for me to make a trade and if it goes sour then at least I'm not going to lose as much as if I trade on something like the USD/ZAR (it has about a 1000 pip spread), I actually made the mistake of trading on that, before I went on vacation I saw a lot of movement and even made a bit of profit though after returning from vacation I misread the spread and straight away lost 1000 pips!

So for the next little while I'm going to only play with the majors and see if I can slowly build back my deficit (which has really blown out!) 

Think before trading

I REALLY need to get into the habit of THINKING before making a trade. It seems that all that is happening to me nowadays is I'm making a quite a few trades of which some are profitable though most of them are profitable for a short while then become major losers.

I really need to think through all of my trades much much more and only make a trade when I'm certain what is going to happen. I've been trying to find spikes to make big profits from, however I think what I need to do is to start trading with the trend, find a trend, make a trade and then sit on it. Also I believe I should be making longer term trades.

I've been away on holiday (had a great time) for the last couple of weeks so just got back into my trading and updating my blog.

I'm a fool

I don't know why I do it though I seem to have a major problem when I make a trade and then it swings the wrong way and so I make more trades expecting it to swing the way I was originally anticipating, today I went short on the EUR/USD expecting it to drop after a big price rise that I wasn't at my computer for.

No sooner had I made the trade than the price began to rise, so when I next saw what I thought was the peak I went short with 10 lots thinking "excellent, this is going to make me some nice cash when it drops"... sure enough it kept climbing and I made the same mistake a couple of more times though only with single lots. Needless to say I'm well and truely in the red and have used up nearly all my margin.

It is slowly dropping towards my breakeven positions though it certainly isn't going as quick as I would like! 

Hopefully someday I will learn to think before trading! I'm just incredibly lucky that I can practice all this on a demo account without sending myself into bankruptcy.

Stop/Loss Risk Management Strategy

After the market opened this morning I placed a trade correctly anticipating that the market was going to climb, however I messed up and set the stop/loss order too close and it was caught before the prices could rise to where they would have been profitable!

So I decided that I needed to learn if there were industry accepted levels that are best to set stop/loss orders as well as limit profit orders. This is what I found.

As a general rule of thumb, traders should set stop/loss orders closer to the opening price than limit orders. If this rule is followed, a trader needs to be right less than 50% of the time to be profitable. For example, a trader that uses a 30 pip stop/loss and 100-pip limit orders, needs only to be right 1/3 of the time to make a profit. Where the trader places the stop and limit will depend on how risk-adverse he is. Stop/loss orders should not be so tight that normal market volatility triggers the order. Similarly, limit orders should reflect a realistic expectation of gains based on the market's trading activity and the length of time one wants to hold the position. In initially setting up and establishing the trade, the trader should look to change the stop loss and set it at a rate in the 'middle ground' where they are not overexposed to the trade, and at the same time, not too close to the market. 

I was already setting it up similar to this, though I think I was setting it a bit too close with generally about 10-15 pips to my stop/loss order and around 20-25 to my limit. I think I need to aim a little higher and increase my loss threshold a little and I will see how it goes.

Next on my list of things to learn: How to trade the start of the new week when there isn't much history because of the weekend break. 

FOREX Trading Hours

I've been trying to determine exactly when trading starts and stops on weekends, and it seems that there aren't any sites that can tell me for certain, the best I've been able to find is that it closes around 4pm EST on friday arvo and starts again at 6.30pm on Sunday evening.

However it seems to be quite broker specific, since Oanda is currently up for me, while FXCM are still on holiday.

If anyone can give me any tips please email me: newbie at forexhowto dot com

Before I forget, Happy New Year!

Hopefully 2006 is a profitable year with good health for all of us! 

Micro Mini FOREX Accounts

I've just been having a look at some FOREX brokers and I found Interbank FX, one thing that they have which I think is great is a Micro Mini Account. Basically a very risk free way to trade real money, each pip is worth approx 10 cents. Obviously it'll be very hard to make a fortune when each pip is only worth 10 cents though I might use it as my introduction to real money trading.

I'm going to signup for a demo account over there and see if I can actually work this one to a profit without making major mistakes from the start like I've been doing with my other accounts! 

Easy Come, Easy Go

It's so incredibly easy to make money in FOREX, though it's just as easy to lose it all and more :(

I saw a breakdown mid occurence on the same USD/JPY shortly after I wrote my previous post, and so I went long where I thought it would bounce back and I was WRONG, the price kept plummeting. I bought more as it kept falling though that didn't gain me much. Imagine if I had held onto my original short position (the arrow right up the top) and sold out at the bottom, I would have made over 100 points profit!

I think I need to analyse how breakdowns work a little more.

Back to Profitable FOREX Trades

So after my very dismal trading recently I'm proud to say that I finally made a good trade!

I was watching the USD/JPY and noticed it spiking so I went short (in plain english, I predicted that the USD was being sold for too much and was going to crash back down to the levels prior to the spike so I sold some), unfortunately I did this during the first plateau of the spike and then it kept climbing and my stop loss kicked in a little bit later, when I saw that it had actually reached the top of the spike I again went short and waited for the drop. As you can see at present the price is even lower so I could have profited more, though I think that my second trade was made at close to the correct places.

My reasoning behind closing my position where I did was that I predicted that the price would halt at the prior level of resistance (which I've circled in yellow), so I took my profit just before that level. In hindsight I could have taken the risk to the earlier level of resitance (circled in red) which is approximately where it has returned to.

So I'm a happy camper again :) 

I have a long way to go

I'm a little bit worried about my future as a trader on the FOREX markets.

It seems that I'm an expert at choosing the incorrect time to make a trade. During christmas I mentioned my incredible ability to buy at preciscely the wrong time and he said that he's had it like that as well. He even went to the extreme of doing the opposite to what he thought and it didn't work out too badly for him.

I think part of my problem is that because it is virtual currency that I'm trading I've been making trades for the sake of doing something where I think I need to be more patient, sit out the quiet spells and wait for a good time to trade. 

My FOREX Mistakes

So I've been playing with a demo account for a little while now and the last few days I've been going backwards at an incredible rate!

I seem to have had the amazing ability to buy a currency just before it drops like crazy :(

So after I initially lost a large amount of money due to just buying without thinking, I managed to build back up to my starting capital and then turn a bit of a profit. However my last few days has undone all the good work I did in building back up to a profitable place and now I'm down about $8k. I think I need to implement a rule to never buy during a bearish market.

In some more positive news I've been doing a bit of reading over on the investopedia site about the different methods used in technical analysis, mostly I've been using the Bollinger Bands, and the Parabolic SAR.

Areas of Support, Areas of Resistance and Fibonacci

Whenever you get into something new there are always many new terms and concepts to get your head around, FOREX appears to be especially so, I'm going to create a FOREX Glossary sometime, though for now I'll just post about some of the terms that I've learnt. I will also do my best to use the correct FOREX terminology :)

Areas of Support: A level that the price generally doesn't drop below, as a beginner the easiest way to look at this is to draw a line that links up the bottoms of the deepest troughs.

Areas of Resistance: The opposite to Areas of Support, it's a price that there is resistance to passing, easiest way to explain it is to draw a line through the highest peaks.

Using these 2 lines you can begin to estimate future prices, thereby being able to trade at the most profitable moments.

The reason I actually found out about the Areas of Support and Areas of Resistance is that I had read reference to Fibbonaci retracement and didn't understand what it was. I'm fairly familiar with Fibonacci numbers (except that I can never remember how to spell his name!), basically many many things in life conform to the numbers specified by Fibonacci who was a briliant Italian mathematician, I won't go into detail since lots of people have written extensively about him, you can find more information about Fibonacci here.

Now it turns out that because the prices in the FOREX market tend to be wave like in appearance you can use Fibonacci numbers to predict the future peaks and troughs. I can't wait for the weekend to finish so that I can try this stuff out!

I found this page on FX Street to be quite good at explaining it to me.

Update: Screw that, this page and site have a LOT more information, looks like I've got a lot of reading to do! 

Hooray - The FOREX markets shut down for the weekend!

In my regular work you can do it pretty much anytime of the week, so it's a refreshing change to find that the FOREX markets shutdown for the weekend!

I'm slowly clawing my way back with my free demo account. 

Damn, last time was much easier!

So I jumped back in with a free demo account to see how my brains would work. And I really seem to remember it being much easier last time.

I jumped right in and made some buys which very quickly lost me money. I guess that's what you get when you don't do any real research before making trades.

Anyway, after blowing a couple of thousand dollars very quickly I quickly remembered that you need to look at the current charts and see what is actually happening. After looking at it for a little while I managed to make some money back which was quite good, though then late this afternoon I made some silly trades which cost me money again.

Looking at another beginners FOREX trading experience

I was quite fortunate to come across the forex project website so early in his (is a guy?) trading life to see how other beginners trade. One great feature which is on that site is their trading history . I ran their numbers through the calculator and it seems they're up by about $1500 which isn't too shabby!

I'm sensing that I might need to do is to buy some FOREX literature, that guy seems to know a quite a bit more than I do.

Current Foreign Exchange Rates

Obviously when you decide to take the plunge into the world of foreign exhcange, you need to gather as much data/intelligence as you can. What I have done is to create a little script which every minute checks the current foreign exchange rates.

I have yet to fully analyse the data that I have captured, though thought I would post the page that I found which provides the current exchange rates for the major currencies. When I have completed my analysis of this data I will post my findings :)

About

My reasons for setting up this website are two-fold:

1. Learn more about FOREX so that I can make some money via trading on the foreign currency exchange markets.
2. Provide a beginner friendly learning resource for others that are new to FOREX.

A little bit of background about me and my life thus far:

• I'm engaged to be married, 28 (at least I was when I wrote this, born in '77) and I live in Sydney, Australia.
• My current income is generated by being a self employed computer programmer.
• I have studied at university though dropped out with a couple of semesters to go.

The way I found out about currency trading as a suitable way of making money for the average joe was that my sisters new ex boyfriend James happens to be a FOREX trader. I was amazed that you didn't need to have millions and millions of dollars in funds to make money by trading currencies. I was always under the impression that because of the tiny movements that you would need to have a LOT of money to be able to turn a profit of more than a few dollars.

A few months back I did a bit of research into it and found that FOREX can indeed be a great way to make some very nice money (also a great way to lose money if you aren't careful, read below). I opened a free practice account at a website that had a J