on
Won
Won
5059.85
5116.57
5040.51
5059.855040.515040.515040.51
5059.85
5025.91
5014.44
5014.44
5014.44
5014.44
4981.46
(continues)
US Housing Data not a disaster: 36 from38 last monthJapanese opening bullish. Aud broke0.800 resistance other followedBought on pivot point pierce: not sure ashas already broken itBought again on break of pivot but dailytrend downBought in channel but I think was toohigh in channel – got out too earlyMkt at 5 year high – current sidewaysaction – correction?Cad retails sales 12.30pm exp bearish/plus USD/CAD at extreme lowAll currencies vs $ risingChannel PlayBearish line intra day downtrendChannel Play – broke channel bullish butretreated after USD unemploymentclaimsUSD leading index out at −0.4% vs−0.3% – bearishUSD Leading Index – plus broke 1.3366resistanceUSD Home Sales out at 2 pm – bullishexpectation
15:11
1.9693
1.3278*1.3341*1.97441.3393
1.1605*
0.8055
1.3298
1.3290
1.3292
1.9457
1.9437
August 10, 2007
1.33081.33721.97061.3355
1.1625
0.8025
1.3267
1.3269
1.3258
1.9422
1.9398
JWPR051-Cofnas (JWBK051-Cofnas)
1.3297
1.3289
1.3288
1.9452
1.9434
c17Char Count=
181
1821.9569 1.96051.9569 1.9605
3/30/2007 GBP/USD
3/30/2007 GBP/USD
1.9564 50,000
1.9567 50,000
1.9620 50,000
50,00050,00050,00050,000
5
2
4
3123
$5
$5
$5
$5$5$5$5
Won
Won
Won
WonWonWonWon
WonWonWon
Won
WonLost
Result
Comments
5012.005012.00 US Jobless Claims bullish – closedwithout checking properly5068.10 EUR German IFO Business Conﬁdencebullish5068.10 4 hr timeframe suggest buyers in control5068.10 4 hr timeframe suggest sellers in control5089.07 Making a series of higher highs andhigher lows5089.07 USD Core Durable Goods bearish5102.00 Hugging Bollinger Bands5102.00 Hugging Bollinger Bands5102.00 US Unemployment Data bullish thanexp – should have got in earlier5102.00 Broken support/ bullish US data/onlyrising above bottom bollinger5116.57 USD Price Index bullish – should haveleft in longer5116.57 Sold on retracement
P/L (£)
15:11
1.9624 1.9654
1.96561.21520.80871.2185
$2$2$5
$2
$2$2
$ PIP
August 10, 2007
3/29/2007 GBP/USD
1.96191.21830.80691.2152
1.96531.21530.80891.2182
GBP/USDUSD/CHFAUD/USDUSD/CHF
3/28/20073/29/20073/29/20073/29/2007
732
4
10−8
Total Pip
JWPR051-Cofnas (JWBK051-Cofnas)
118.35 20,0001.2140 20,0001.9270 50,000
118.28 117.981.2143 1.21781.9625 1.9593
3/27/2007 USD/JPY3/27/2007 USD/CHF3/28/2007 GBP/USD
Quantity
1.2135 20,000
Exit
1.2139 1.2169
Stoploss
3/27/2007 USD.CHF
Entry
1.9673 20,0001.1602 20,000
Currency
(Continued)
3/26/2007 GBP/USD 1.9683 1.97183/26/2007 USD/CAD 1.1610 1.1575
Date
TABLE 17.1
c17Char Count=
1.9686 1.97161.9682 1.97121.3370 News Play
3/30/2007 GBP/USD
3/30/2007 GBP/USDEUR/USDUSD/CHFGBP/USDEUR/USDEUR/USDEUR/JPYEUR/USD
4/2/2007
4/2/2007
4/3/20074/3/2007
4/3/2007
4/3/2007
4/3/2007
1.3330 1.3300
1.3340 50,000
158.61 50,000
1.3364 50,000
10
$5
$5
$5
−44
$5$5
101
$5
−4
Won
Won
Lost
WonWon
Lost
Won
Won
Won
WonWonWon
(continues)
5116.57 Chicago PMI numbers bearish5116.57 Broke Resistance5161.74 Retracement after one masive masiveintra day bulltrend5170.61 Retracement after one masive masiveintra day bulltrend5175.70 Retracement after one masive masiveintra day bulltrend5175.41 News Play: USD ISM Manufacturingbearish5173.91 News Play: USD ISM Manufacturingbearish5201.13 Broke below 200 MA/ Morning reaction5202.91 Triangle developing for an upsidebreakout5193.28 Broke resistance @ 1.3363/ had to go tojob interview5200.34 Hugging Bands sold on retracement/been very bullish5238.82 Extreme sell oﬀ. 4 green bars on renkoshowing
15:11
158.65 158.95
1.3368 1.3338
1.9765 50,0001.3352 50,000
$5
$5
$5
$5$5$5
6
2
3
225
August 10, 2007
1.9775 1.98051.3353 1.3383
1.2130 50,000
1.3376 50,000
1.9680 50,000
1.9683 50,000
1.9571 50,0001.9599 50,0001.9675 50,000
JWPR051-Cofnas (JWBK051-Cofnas)
1.2136 News Play
1.9573 1.96051.9597 1.95671.9680 1.971
3/30/2007 GBP/USD3/30/2007 GBP/USD3/30/2007 GBP/USD
c17Char Count=
183
1841.21921.9740
4/4/2007 USD/CHF 1.2188 1.21581.9736 1.9701118.69 118.99*1.97200.67811.96991.9735
4/5/2007 GBP/USD
4/5/2007 USD/JPY
4/5/20074/5/20074/5/20074/5/20071.3430 1.34701.3422 1.3452
4/5/2007 EUR/USD
4/5/2007 EUR/USD
50,000
10,00010,00050,00050,000
1.3419 (6th) 50,000
1.3424
1.96850.67871.97091.9730
50,000
50,000
50,000
50,000
3
$5
$5
$1$1$5
−35610−56
$5
$5
$5
$5
$5
1
4
4
7
2
$5$5$5
$5
Won
Won
LostWonWonLost
Won
Won
Won
Won
Won
WonWonB/E
Won
5192.00 AUD keep rates at 6.25% mkt priced in arise bought on retracement5260.93 Hugging 15/30 min bands5216.63 Broke pivot support @ 1.97625281.94 Resistance too strong – may break keepwatching5200.11 Hugging 1 min bands/ all currencies vs$ retreating5278.65 USD ISM non manufacturing orders/factory orders bearish5290.20 Playing retracement after the oversoldUSD news5301.13 GBP Industrial/Man more bearish: Downmove exhausted5316.46 Bought as broke pivot point but was afalse breakout5271.51 GBP Interest Rate Announcement5271.51 GBP Interest Rate Announcement5292.35 EUR broke key 1.3389/ GBP followed5323.49 Broke resistance at 1.9727 bought onretracement but gone back through5289.91 Retracement play after big movethrough res/pivot points5330.07 GBP broke through 200 MA/ EUR testingit
15:11
News PlayNews Play1.96591.9705*
1.9749
1.9742 1.9722
4/4/2007 GBP/USD
50,000
470
5
Comments
August 10, 2007
GBP/USDEUR/GBPGBP/USDGBP/USD
0.8126
4/4/2007 AUD/USD 0.8128 0.8148
50,00050,00050,000
50,000
Quantity Total Pip $ PIP Result P/L (£)
JWPR051-Cofnas (JWBK051-Cofnas)
118.68
1.21851.97471.3372
Exit
4/4/2007 USD/CHF 1.2189 1.22094/4/2007 GBP/USD 1.9754 1.97844/4/2007 EUR/USD 1.3372 1.3342*
Stoploss
0.8070
Currency Entry
(Continued)
4/4/2007 AUD/USD 0.8075 0.8095
Date
TABLE 17.1
c17Char Count=
1.34281.34191.97681.34261.97691.33971.97830.82531.97810.82751.21590.82871.2145
4/10/2007 EUR/USD 1.3430 1.34604/11/2007 EUR/USD 1.3423 1.3453
4/11/2007 GBP/USD 1.9770 1.98004/11/2007 EUR/USD 1.3425 1.3495
4/11/2007 GBP/USD 1.9771 1.9801
4/11/2007 EUR/USD 1.3407 1.3437
4/12/2007 GBP/USD 1.9778 1.9808
4/12/2007 AUD/USD 0.8252 0.8222
4/12/2007 GBP/USD 1.9791 1.9823
4/12/2007 AUD/USD 0.8280 0.83104/12/2007 USD/CHF 1.2153 1.2123
4/12/2007 AUD/USD 0.8289 0.8319
4/13/2007 USD/CHF 1.2144 1.2111
75,000
75,000
1
2
56
10
$7.50 Won
$7.50 Won
$7.50 Won$7.50 Won
$7.50 Won
$7.50 Won
$7.50 Lost
$7.50
$7.50 Won
$7.50 Won$7.50 Won
$7.50 Won$7.50 Won
5326.60 Broke back through 1.2191 5/10 minstocks turning up5337.16 15 min/5 min stocks turning/ RSI at70–80/ all time high5341.24 Broken under 1/2 min 200 MA5356.83 Broke through 1,2/5 min 200MA /USD/CHF is rising5347.91 Broke through 1.97755350.92 Broke through 200 MA 1 min but lookedlike ﬁnd res.5356.62 FED speech no comments/broke 200 1min MA/ 1.9775 pivotFOMC meeting int. Rate may provenecessary next month5356.21 Renko 1 min uptrend formation broken:closed by accident5356.21 Broke 0.8250 pivot/ 5–10 min stocksturning up/ renko broken5356.21 Mistake: Hugging 10/15 min bandsdespite what 1 min says5356.21 Failed to break 13 yr high res. 0.82845356.21 Retracement play after massive USDcollapse5356.21 Broke from its uptrend failing/ 15 minstocks turning over5424.39 5 min/ 10 min stocks turning over –closed as mkt wknd close at 10pmNo trading today helping Ispotek withﬁlming
15:11
75,00075,000
75,000
1
−5
2
21
24
$7.50 Won
$7.50 Lost
August 10, 2007
75,000
75,000
75,000
75,000
75,00075,000
75,00075,000
6
−9
JWPR051-Cofnas (JWBK051-Cofnas)
4/13/2007
0.8256
4/10/2007 AUD/USD 0.8262 0.8292
75,000
1.2185 (11th) 75,000
4/10/2007 USD/CHF 1.2194 1.2167
c17Char Count=
185
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186
PUTTING IT TOGETHER
This trader had good initial strengths such as being able to have consecutive wins. Akey weakness is not putting on a limit order, and therefore getting out too early. Ross isbuilding key psychological skills in handling more money and facing the pressures thatthis entails.
LEVEL 3: THE $25,000 FIRST-50-TRADE CHALLENGEThis level of capital presents new opportunities and new challenges. A $25,000 accountoffers the opportunity to trade a combination of more pairs, larger sizes, and longer durations. More sophisticated strategies can be put to the test. The trader at this level ofcapital can trade more than one strategy. Therefore, we divide the trade challenge intotwo phases.1. Phase 1: Intraday Tradinga. Select two currency pairs to start trading.b. Raise your lot size to maximum of five lots. Remember to use five lots only when
you have a high confidence level in the setup observed.c. Leave your risk per day at 3 percent.d. Set the goal to achieve an average pip gain of 10 pips for one pair and 20 pips for
the second pair, per trade, for a 25-trade sequence.e. When using multiple lots, use an all-in and legging-out strategy.2. Phase 2: Multiple-Day Positionsa. Take the next 25 trades and focus on opportunities for 50-pip or more gains. This
involves using the 4-hour chart to identify large trading ranges.
LEVEL 4: THE $50,000 75-TRADE CHALLENGEA $50,000 account provides a serious capability to generate results that could providea path to professional trading. The steps required to meet the challenges of a $50,000account focus more on being able to handle the psychological pressures that emergewhen more money is at stake. Many beginning traders put on too much leverage withoutfirst testing their skills in handling the larger risks per trade.1. Scan all majors and cross-pairs to select to trade.2. Raise your lot size to maximum of 30 mini lots (two standard-size lots).3. For the first 25 trades, reduce risk per day to 2 percent.4. For the first 25 trades, put on multiple lots but leave profit limits open on half of the
lots.
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Strategies and Challenges for Diﬀerent Account Sizes
187
LEVEL 5: THE $100,000 TRADING CHALLENGEThere are several challenges here within this level of account size that will enable a traderto prepare for full-time and professional trading. This level should be used if traders haveachieved at least a 55-to-45 win-loss ratio. At this level, the trader has evolved to handlethe pressures of trades that can result in gains or losses of $1000 per trade. For example,a 50-pip loss on a two-big-lot trade results in a $1000 loss. At a level of $100,000 in theaccount, such a size loss is 1 percent of the total. If the risk per day is 2 percent, thetrader has to be very careful on the trades that follow.1. Scan all majors and cross-pairs.2. Use standard lot sizes, with a six-lot maximum.3. For the first 25-trade sequence, have the goal of trading 7 trades in a row correctly,
with a minimum pip gain of 10 pips; if this goal is achieved, repeat the goal of thenext 25 trades.4. For a sequence of 25 trades, put on trades only with the goal of 20 pips per trade.5. Use a 2 percent risk per day for all trades.6. Learn to optimize your trading setups by back-testing.
SUMMARYSome traders will be comfortable with one strategy or focus on one pair. This is totallyacceptable. Trading goals and styles should be customized to one’s own personality. Thepurpose of trading more than one strategy is to enable the trader to become flexibleand maximize the ability to spot winning trade situations. By scanning the seven majorsand several cross-pairs during every day, trading opportunities occur. Market conditionschange, and having more than one approach in one’s trading tool box will be very useful.
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Char Count=
C H A P T E R 18
The Path to Successin Forex Trading
ltimately, the knowledge gained in this book and in training in general needs tobe applied to the real world. This involves taking practical steps and choosing abrokerage firm to trade with. Competitive pressures in the industry are narrowingthe difference between firms in terms of pip spread, platform, and technology offered thetrader. The really important determinants of success will involve how well traders areprepared before they start real trading, and whether the trading itself follows a soundaction plan.
U
FACTORS IN CHOOSING A FIRMWhile strategies and tactics are important, ultimately, the trades are placed at a forexfirm. The industry is growing rapidly, and forex firms are available throughout the world.Selecting the right broker can make a difference. While there are essential features atmost firms, the most important criteria for selection for a trader include the pip spread,dealing desk, customer service, and trading resources.Pip spreads are rapidly becoming much narrower. Just a few years ago, five-pipspreads were the standard. Today two-pip spreads are available. Remember, if the spreadis two pips, then the forex firm is still making money. They are offering you the currencypair with a built-in profit.The industry is also evolving its dealing desk structure. Firms that have automaticdealing desks are becoming more common, allowing better spreads. But there is no free
189
c18
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190
Char Count=
PUTTING IT TOGETHER
lunch. Remember, the firms make money on your trades. Customer service is critical.When the net freezes or you have a question about a trade, the ability to call someone ona 24-hour basis is important. Equally important is the ability to communicate. Some firmsoffer 24-hour service, but the trader connects to a barely competent English speaker.Tech support could be in a third world country. But trading resources is a major tippingpoint in choosing a firm. Most trading platforms have basic charting. The trader has to goto third-party providers to obtain charts such as three-line break and renko. Firms offering advanced charting packages and discounts on their cost is one criterion for choosing,particularly when accounts are traded with larger capital. Essentially, a good trader cantrade profitably at any firm, but an average trader can improve his trading when choosinga better firm in terms of the total services he receives.The trading environment used by the trader is more important than is usually recognized. Getting started the right way requires having a trading environment that servesthe needs of the trade. Having two screens is a minimum suggested configuration. Onescreen should provide access to charts, and the second screen should enable accessto Internet-based information and other activity. Having more than two is not unusualamong more serious traders. The forex trader beginning today can use any new computer due to the advances in computer speed and capability. The most important aspectof organizing your own trading room is whether it is dedicated to the trader. The tradingroom should be isolated from family interference. Trading with kids running around istoo distractive. Today’s Internet connections provide easy access via high-speed links(DSL, digital cable, etc.). Trading through a dial-up should be avoided, but it can be usedas a backup.
GAUGING PERFORMANCE: KNOW THYSELFCentral bank of New Zealand The path to success in forex trading is not measured byprofitability alone. Those traders who become profitable have the challenge of consistency. Can they do it over a sustained period of time? The duration of successful trading also requires adaptability. Conditions change in the geopolitical world and its globaleconomic cycles that significantly impact forex. Those who are successful during periods of global growth may not be able to use the same strategies during periods ofglobal stagnation. The key skill of identifying macro conditions comes into play to provide early warnings to reassess trading strategies or choose different currency pairs. IfChina enters into a slowdown, the forex trader will be very careful about going long onthe Australian dollar. If oil is trending up toward the $75+ level, the experienced tradermay start including the strategy of going long the Canadian dollar. If the trader observesthat Japan’s economic performance is showing growth and inflationary tendencies, those
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The Path to Success in Forex Trading
191
favoring carry trades will significantly lighten their leverage or turn to other pairs to avoidequity volatility.Becoming more successful in forex trading is also about being efficient. Two tradersmay have the same performance record of profitability, but they are not equal in success.The trader who has achieved the pip accumulation with less time is more efficient. Consider two traders who have the same profitability but different win-loss ratios. One traderwins 60 percent of the time, and the other wins 40 percent of the time. Which one is moresuccessful? By measure of profitability, they are equal. But there are huge distinctions inother qualities associated with the trade. The 60/40 trader has a much wider freedom oftrading action than the 40/60 trader. The later has to win big and lose small—almost allthe time.One thing that is critical on the path to success in forex trading is what happensafter the trade. Being able to evaluate trading performance and apply the new knowledgegained about yourself will be essential to improving. The ability to improve depends onthe ability to evaluate.Performance evaluation needs to avoid being overloaded with information thatdoesn’t lead to improvements. Here are some performance evaluation measures thattraders should be able to have regarding their own trading history.
Measuring PerformanceTo help gauge your performance, the following objective measures should be used:
r Win-loss ratio, standardr Win-loss ratio, adjustedr Average winr Average lossr Average duration of the winning trader Average duration of the losing trader Average stop loss distance from entryr Average profit limitMeasuring Emotional IntelligenceWhile it is conventional wisdom that emotions are not beneficial to trading, the fact isthat they are used by all traders. We are—in the words of Marvin Minsky, one of thefounders of the artificial intelligence field—an emotional machine. The profitable traderis using emotions to his advantage. The new trader needs to obtain a high level of confidence about how he or she trades. This is, in fact, a use of emotional intelligence. Wereviewed how to rank your trades by confidence level. The goal is to determine what kind
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PUTTING IT TOGETHER
of emotional trader you are. Are your winning trades hunch trades, or are they trades thatare taken on excellent setup conditions? The effective hunch trader is a very rare speciesbecause hunches are hard to replicate. So it becomes important to know the following:
r Distribution of wining trades by level of confidencer Distribution of losing trades by level of confidenceCompare your first 50 trades against your second 50 trades in terms of how confidentyou were when you put on the trades. There is a natural shift in percentage of winningtrades being highly ranked setups versus hunch trades.
Measuring Performance with the Learn4x Trading PadLearn4x has created its own trading pad (Figures 18.1 and 18.2) that provides the abilityto have real-time trades in a simulated account. The pad, which can be downloaded atwww.learn4x.com/tradingpad, uniquely offers built-in analytics on trader performance,allowing the trader to track the key performance results. The Learn4x trading pad isindependent of any Forex brokerage firm and receives the real-time prices from its ownfeed supplied by Tenfore Systems, a world feed provider.
FIGURE 18.1 FX Trading Pad