minibahn

UPDATE: EUR/JPY Technical Analysis - Monday 18 January 2010

2010-01-18T17:52:00.002Z

EUR/JPY Technical Analysis
by minibahn

Eerily quiet...

EUR/JPY Technical Analysis - Monday 18 January 2010

2010-01-18T09:01:00.001Z

EUR/JPY Technical Analysis
by minibahn

RTFX Tradertip Nostromo Scenarios

Daily:
Elliott : extension wave down 129.7139. Market should not go lower than 129.6951. After this move down it should go up to 131.5035 - 131.9020 area.

Weekly:
Elliott : flat correction down 129.2227. Market should not go lower than 130.4540 - 129.1457. After this move down it should go up to 132.4895 - 133.2167 area.

Monthly:
Elliott : flat correction down 129.9450. If market stays below 134.0565 a fall to 129.1927 is expected. If market breaks the point 136.2407 it could reach the sky.

minibahn Mafia:
Daily bias is short. EUR/JPY has gone as low as 130.07. It's plausible that the flat correction down has NOT YET completed. There's a confluence of pivots below: DS2 128.97, WS1 129.10 and MoS1 128.99 that attract.

EUR-JPY higher, new daily high close above DR1 133.44.

2010-01-14T06:38:00.001Z

EUR-JPY higher, new daily high close above DR1 133.44.

RTFX TraderTip >> EUR-JPY Analysis – Tuesday 12 January 2010

2010-01-12T07:37:00.001Z

Click HERE to jump to the Analysis posted on minibahnFX.com

Daily Market Comments - Tuesday 22 December 2009

2009-12-22T02:10:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/39417-daily-market-comments-tuesday-22-december-2009-a.html

RTFX TraderTip >> EUR-JPY Analysis - Tuesday 22 December 2009

2009-12-22T02:07:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/39432-rtfx-tradertip-eur-jpy-analysis-tuesday-22-december-2009-a.html

RTFX TraderTip >> USD-JPY Analysis - Tuesday 22 December 2009

2009-12-22T02:04:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/39436-rtfx-tradertip-usd-jpy-analysis-tuesday-22-december-2009-a.html

RTFX TraderTip >> GBP-JPY Analysis - Tuesday 22 December 2009

2009-12-22T02:03:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/39425-rtfx-tradertip-gbp-jpy-analysis-tuesday-22-december-2009-a.html

Fixed Ratio Money Management

2009-12-19T07:22:00.007Z

It's been a while since I last blogged about Money Management, what many consider to be the most important yet overlooked subject in trading. As one of the three (3) pillars of trading success (the other two being Mind and Method), I therefore feel that I have an obligation to share more of my thoughts on the matter.

A personal favourite money management system of mine is outlined in great detail in Ryan Jones' book The Trading Game: Playing by the Numbers to Make Millions. In this book, he teaches 'Fixed Ratio' money management (what I will refer to as FRMM). Some FX traders assert that this is the best money management system for forex traders.

An important bit to note, Mr. Jones argues that FRMM will help any trading system as long as it is profitable over time. So, I would argue that trading using price action and support & resistance using pivot points (Mafia or otherwise) fits this requirement nicely. :-)

So, let's start putting FRMM into practice:

1. To show that this would work even for you small retail traders, let's assume that we begin trading with USD100 in our account.

2. Then, we need to pick how many pips profit we need to achieve before we start trading with more lots. Let's target an "easy" 200 pips a month or 10 pips/day for 20 trading days in a month.

3. Now we're ready to launch our trading terminal and start... just about. Before we start trading, we need to determine our trade size. Using 10:1 leverage, given that we have USD100 in our account, we therefore should be trading 1,000 units or 1 micro lot (USD0.10/pip) per trade. So, our daily target is 10 pips or USD1.00 per day . We will only increase to 2 micro lots after gaining 200 pips. After that, when we gain another 200 pips, we trade 3 micro lots... so on and so forth.

4. Should the broker give is 100:1 leverage, our margin requirement is simply 1% per micro lot traded, which comes up to USD10.

5. So, here's how FRMM would work:

Month 1: USD100 + (200 pips x USD0.10/pip = USD20 ) Total: USD120

We start with USD100 in our trading account and after 1 month of trading we gain 200 pips, and now have USD120 in our trading account. We are now at the next level. If our account balance has not reached USD120, we still trade 1 micro lot.

Month 2: USD120 + (200 pips x USD0.20/pip = USD40) Total: USD160

We now start month two with USD120 and gain 200 pips profit trading 2 micro lots. We now have USD160 in our trading account and are now on the next level. If the account has not reached USD160 we remain trading 2 micro lots.

Month 3: USD160 + (200 pips x USD0.30/pip = USD60) Total: USD220

We now start month three with USD160 and gain 200 pips profit trading 3 micro lots. We now have USD220 in our trading account and are now on the next level. If the account has not reached USD220 we remain trading 3 micro lots.

Month 4: USD220 + (200 pips x USD0.40/pip = USD80) Total: USD300

You now start month four with USD220 and gain 200 pips profit trading 4 micro lots. We now have USD300 in our trading account and are now on the next level. If the account has not reached USD300 we remain trading 4 micro lots.

Month 5: USD300 + (200 pips x USD0.50/pip = USD100) Total: USD400

You now start month four with USD300 and gain 200 pips profit trading 5 micro lots. We now have USD400 in our trading account and are now on the next level. If the account has not reached USD400 we remain trading 5 micro lots.

RESULTS:

Month 6: USD400 + (200 pips x USD0.60/pip = USD120) Total: USD520
Month 7: USD520 + (200 pips x USD0.70/pip = USD140) Total: USD660
Month 8: USD660 + (200 pips x USD0.80/pip = USD160) Total: USD820
Month 9: USD820 + (200 pips x USD0.90/pip = USD180) Total: USD1,000
Month 10: USD1,000 + (200 pips x USD1.00/pip = USD200) Total: USD1,200

What is incredible is that by just gaining an average of 10 pips a day, FRMM grows our account size asymmetrically. We've just turned USD100 turned into USD1,200 in 10 months! Yahoo! We don't need to bank mega pips daily, though that would be more than welcome. 10 measly pips a day on average and we're good. We can play around with the formula, to be more conservative than the above example. We can add more pips profit in the formula. For example, we can choose to increase the number of lots traded after gaining 400 pips instead of 200 pips. This would naturally mean slower growth.

Now, how realistic is 10 pips a day? In the above example, we start of trading 1 micro lot, i.e. USD0.10/pip with a daily target of 10 pips or USD1.00. Let's fix our risk per trade at 1% of equity, i.e. a stop-loss of 10 pips which works out to be USD0.10/pip x 10 pips = USD1.00. Risking 1% of equity per trade, let's target a nice reward:risk of 2:1 on every trade, i.e. we risk 10 pips for a gain of 20 pips.

Let's see how we perform if we do 10 trades a day as follows:

#1 - Lost: -10
#2 - Lost: -10
#3 - Lost: -10
#4 - Win: +20
#5 - Win: +20
#6 - Lost: -10
#7 - Lost: -10
#8 - Win: +20
#9 - Lost: -10
#10 - Win: +20

Total = +20 pips

We can see that we only need to win 4 out of 10 trades (40% win rate) and we will be up 20 pips for the day. Nice!

If you really suck at trading and suffer 10 straight losses however, you will be down 100 pips or USD10.00. You will need to turn off your trading platform and re-think your trading method/strategy. Remember, FRMM will only help trading systems that are profitable over time.

So, do try setting up an FRMM plan before you start your next live trade!

EUR/JPY Analysis - Monday 21 December 2009

2009-12-19T04:10:00.002Z

The daily analysis indicates a flat correction up to 130.78, the weekly points to a crucial reversal point at 130.71, whereas the monthly says a flat correction down to 127.02 with a bearish potential for a fall to 125.78.

So, it's a case of "up before going down".

The EJ H1 Mafia chart below confirms this scenario with EJ having bounced off WS1. So, we're looking at EJ going up to the convergence of MPP and WPP circa 130.75-131.17.

The EJ H4 chart shows that a corrective move to MPP & WPP would involve violating the downward trendline. This is no biggie in my opinion for EJ is still ranging within two major bullish and bearish trend lines. The bears case is affirmed also by the volatility pivot which sits nicely in between the MPP and WPP.

Looking forward to another great week trading!

RTFX TraderTip >> USD-JPY Analysis - Monday 21 December 2009

2009-12-19T04:06:00.003Z

http://www.realtimeforex.fr/forums/forex-analysis-news/39229-rtfx-tradertip-usd-jpy-analysis-monday-21-december-2009-a.html

RTFX TraderTip >> GBP-JPY Analysis - Monday 21 December 2009

2009-12-19T04:06:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/39218-rtfx-tradertip-gbp-jpy-analysis-monday-21-december-2009-a.html

RTFX Daily Market Comments - Monday 21 December 2009

2009-12-19T04:04:00.001Z

EUR-USD	Current fall is near an end of wave around 1.4260 zone, a rally should then procede to above 1.4411. Fall below 1.4186 would cancel this scenario.

USD-CHF	While above 1.0409 - 1.0379 zone a corrective upmove could test 1.0463 or 1.0488. After which it should resume its downtrend.

GBP-USD	One more dip to 1.6097 - 1.6046 is likely followed by a grind higher to 1.6196 - 1.6243. After which it can resume its downtrend.

USD-JPY	It should try higher up to 90.6275 - 91.1913. Entry point 90.0637 or 89.6375. After this rise, a correction is expected.

USD-CAD	It looks more likely that it would rise to 1.0715 from 1.0645 or 1.0618. After which a downside move is expected.

NZD-USD	It should try higher up to 0.7122 - 0.7140. Entry point 0.7103 or 0.7087. After this rise, a correction is expected.

AUD-USD	It should try higher up to 0.8910 - 0.8942. Entry point 0.8877 or 0.8859. After this rise, a correction is expected.

EUR-JPY	It should test 130.9890 area after which a sell off down to 127.9983 or extended to 126.4907 area is expected.

EUR-CHF	Current fall is near an end of wave around 1.4897 zone, a rally should then procede to above 1.5015. Fall below 1.4844 would cancel this scenario.

EUR-GBP	It may attempt a test higher to 0.8890 - 0.8900 after which weakness may set it to a drift down to below 0.8860 limit.

EUR-CAD	One more dip to 1.5258 - 1.5212 is likely followed by a grind higher to 1.5339 - 1.5375. After which it can resume its downtrend.

EUR-NZD	While below 2.0215 - 2.0245 it might drop to 2.0102 or 2.0041.

EUR-AUD	It looks more likely that it would rise to 1.6198 - 1.6301 from 1.6090 or 1.6038. After which a downside move is expected.

GBP-CHF	Current fall is near an end of wave around 1.6770 zone, a rally should then procede to above 1.6920. Fall below 1.6704 would cancel this scenario.

GBP-JPY	It may attempt a test higher to 146.2010 - 147.0173 after which weakness may set it to a drift down to 144.1973 limit.

GBP-CAD	It is likely to fall towards 1.7173 - 1.7117 as its corrective rally could falter in 1.7276 - 1.7322 area. Stop above 1.7436 zone.

GBP-AUD	It looks more likely that it would rise to 1.8255 - 1.8387 from 1.8113 or 1.8047. After which a downside move is expected.

CAD-JPY	It looks set for gains to 85.5227. Supports at 83.9160 and 83.5267. A break of 82.3093 will damage this bullish structure.

NZD-JPY	It should test 65.3790 area after which a sell off down to 63.3360 or extended to 62.4450 area is expected.

AUD-JPY	It should test 82.1810 area after which a sell off down to 79.1923 or extended to 77.9147 area is expected.

XAG-USD	It should test 17.3470 area after which a sell off down to 17.1140 or extended to 16.9620 area is expected.

XAU-USD	It should test 1121.8340 area after which a sell off down to 1100.0106 or extended to 1088.1193 area is expected.

RTFX Weekly Market Comments - Monday 21 December 2009

2009-12-19T04:01:00.002Z

EUR-USD	It looks set to visit further lower territory down to around 1.4298 - 1.4169. Its corrective attempts should fail ahead of 1.4298 - 1.4593. Stop loss above 1.4851 zone.

USD-CHF	While below 1.0469 - 1.0527 it is more likely to fall further towards 1.0362 or 1.0314. Premature rise above 1.0527 could see it rising above 1.0624 zone.

GBP-USD	Market should not go lower than 1.6097 - 1.5992. After this move down it should go up to 1.6277 - 1.6351 area.

USD-JPY	Corrective dips should ideally halt near 89.3355 or 88.8087 for one more thrust upwards towards 90.6275 - 91.3927 area or 92.4463 in extention. Fall below 87.2783 puts it back on a downward path.

USD-CAD	While below 1.0703 - 1.0753 it is more likely to fall further towards 1.0561 or 1.0461.

NZD-USD	Prefer a fall to 0.7087 or 0.7017. Then a correction to 0.7204 is anticipated. A clear break of 0.6924 is again bearish.

AUD-USD	Market should not go lower than 0.8859 - 0.8754. After this move down it should go up to 0.9041 - 0.9118 area.

EUR-JPY	It should try higher up to 130.1465 - 131.0273. Entry point 129.2657 or 128.5050. After this rise, a correction is expected.

EUR-CHF	Market should not go lower than 1.4929 - 1.4859. After this move down it should go up to 1.5046 - 1.5091 area.

EUR-GBP	Market should not go lower than 0.8866 - 0.8805. After this move down it should go up to 0.8965 - 0.9002 area.

EUR-CAD	Market should not go lower than 1.5120. After this move down it should go up to 1.5511 area.

EUR-NZD	It may meet resistance in 2.0162 - 2.0179 zone for a drift down to 2.0050 zone, after which bounce to 2.0291 is anticipated.

EUR-AUD	It is likely to fall towards 1.5962 - 1.5829 unless a corrective rally breaks the 1.6170 resistance. Stop above 1.6236 zone.

GBP-CHF	It looks more likely that it would rise to 1.7007 from 1.6768 or 1.6682. After which a downside move is expected.

GBP-JPY	Market should hold major support at 143.0290 before rising towards 147.4667 or even 149.1033 limit.

GBP-CAD	No comment!

GBP-AUD	Current rise seems to be over near 1.8217 or 1.8365 for a retracement towards 1.8069 - 1.7948 area.

CAD-JPY	Market should hold major support at 83.2687 before rising towards 85.5560 or even 86.3680 limit.

NZD-JPY	Market should hold major support at 63.1106 before rising towards 65.1347 or even 66.0423 limit.

AUD-JPY	Market should hold major support at 77.6876 before rising towards 81.8187 or even 83.1673 limit.

XAG-USD	One more dip to 17.1705 - 16.9657 is likely followed by a grind higher to 17.6757.

XAU-USD	Current fall is near an end of wave around 1090.6235 zone, a rally should then procede to above 1137.5536. Fall below 1069.3452 would cancel this scenario.

EUR/JPY Analysis - Friday 18 December 2009

2009-12-18T01:54:00.003Z

Flat correction down spiked to a low of 127.40 by the time I am writing this. As Nostromo indicates, we should expect a recovery now with the caveat that there is bearish potential for a fall to 125.72.

Although it cannot be seen from the screenshot below, the level mentioned above is circa the convergence of WS2 and MoS1 (125.70).

On the H4 chart, we can see where EJ briefly plunged and violated the support line.

RTFX TraderTip >> GBP-JPY Analysis - Friday 18 December 2009

2009-12-18T01:46:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38975-rtfx-tradertip-gbp-jpy-analysis-friday-18-december-2009-a.html

RTFX TraderTip >> USD-JPY Analysis - Friday 18 December 2009

2009-12-18T01:45:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38986-rtfx-tradertip-usd-jpy-analysis-friday-18-december-2009-a.html

EUR/JPY Analysis - Thursday 17 December 2009

2009-12-17T02:51:00.004Z

Flat correction down as per the weekly and monthly technical analysis underway as I write this.

Break of the support trendline (as see below) will confirm.

Chart below confirms WS1 128.10 as a good target should the support line fails.

Now, just go out there and make some dough!!!

RTFX TraderTip >> USD-JPY Analysis - Thursday 17 December 2009

2009-12-17T02:51:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38707-rtfx-tradertip-usd-jpy-analysis-thursday-17-december-2009-a.html

RTFX TraderTip >> GBP-JPY Analysis - Thursday 17 December 2009

2009-12-17T02:50:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38696-rtfx-tradertip-gbp-jpy-analysis-thursday-17-december-2009-a.html

RTFX TraderTip >> USD-JPY Analysis - Wednesday 16 December 2009

2009-12-16T02:00:00.003Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38471-rtfx-tradertip-usd-jpy-analysis-wednesday-16-december-2009-a.html

RTFX TraderTip >> GBP-JPY Analysis - Wednesday 16 December 2009

2009-12-16T02:00:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38460-rtfx-tradertip-gbp-jpy-analysis-wednesday-16-december-2009-a.html

EUR/JPY Analysis - Wednesday 16 December 2009

2009-12-16T01:48:00.003Z

Nostromo's daily technical analysis is now out of sync with the weekly & monthly view. Daily indicates flat correction up to 131.00 whilst the weekly and monthly indicates a flat correction down to 128.72-78 with warnings of bearish potential as far down as 125.78.

Per Mafia, daily bias is up. For as long price holds above DPP, flat correction up to convergence of WPP (131.17) and DR2 (131.32) looks good.

Just wanted to share the H4 view. EJ still "contained" unless we see a breakout of some key levels.

Happy pipping!

That’s not a tax. THAT’s a tax!

2009-12-15T06:15:00.001Z

http://www.forexlive.com/71336/all/thats-not-a-tax-thats-a-tax

RTFX TraderTip >> GBP-JPY Analysis - Tuesday 15 December 2009

2009-12-15T02:19:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38207-rtfx-tradertip-gbp-jpy-analysis-tuesday-15-december-2009-a.html

RTFX TraderTip >> USD-JPY Analysis - Tuesday 15 December 2009

2009-12-15T02:18:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38218-rtfx-tradertip-usd-jpy-analysis-tuesday-15-december-2009-a.html

EUR/JPY Analysis - Tuesday 15 December 2009

2009-12-15T01:56:00.004Z

Another flat correction down to 128.72-128.99 is expected today, with the daily, weekly and monthly technical analysis lining up.

The Mafia stochs have crossed, but EUR/JPY is still skirting along the support line. Should this line be violated, EJ could very well correct to WS1 at 128.10 (which is sandwiched by DS2 at 128.45 and DS3 at 127.75).

Above MoR1, we should see DR1 at 130.68 (conservatively).

P.S. Just remember, today is Gotobi! ;-)

RTFX TraderTip >> USD-JPY Analysis - Monday 14 December 2009

2009-12-13T06:22:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/38003-rtfx-tradertip-usd-jpy-analysis-monday-14-december-2009-a.html

RTFX TraderTip >> GBP-JPY Analysis - Monday 14 December 2009

2009-12-13T06:21:00.001Z

http://www.realtimeforex.fr/forums/forex-analysis-news/37992-rtfx-tradertip-gbp-jpy-analysis-monday-14-december-2009-a.html

USD/JPY slumps sharply as EUR/JPY sales overwhelm dollar strength

2009-12-13T06:16:00.001Z

http://www.forexlive.com/71022/all/usdjpy-slumps-sharply-as-eurjpy-sales-overwhelm-dollar-strength

EUR/JPY Analysis - Monday 14 December 2009

2009-12-12T09:03:00.003Z

It's been a while since I wrote and/or commented on an analysis piece. So, here I've used RTFX's excellent RF Tradertip Nostromo for EUR/JPY this coming Monday, 14 December 2009.

Interestingly enough the daily, weekly and monthly scenarios are in sync (and this is not necessarily always the case). Having failed to climb towards WPP (132.46) on Friday, we're now expecting a flat correction down to 128.72-129.49. After this fall, a recovery is expected.

Looking at the EJ H1 chart, I am in agreement with the analysis. I've also re-introduced our old friend, the Volatility Pivot indicator, which rather interestingly is at 129.58, a mere 9 pips above the highest flat correction level.

Going into the week, I'm perfectly squared and looking for optimal trade entries near pivots as always.

TheFXSpot: Long-Held Correlations Break - For How Long?

2009-12-12T05:32:00.001Z

Written by Vicki Schmelzer (Source: iMarketNews.com)

NEW YORK, Dec. 11 (MNI) - Long-held correlations broke down further Friday, with the dollar, U.S. interest rates, and stocks all rising at the same time, almost like "the good ol' days," analysts said.

This was in sharp contrast to the trend of the last few years, where the dollar typically fell as U.S. stock and commodity prices rose and vice versa, they said.

It was not that many years ago that a currency would be in hot demand if its economy were rebounding and its stock market was deemed undervalued, but that was before "the carry trade" took over as the dominant play for many global investors.

From 2005 to early 2008, market players went short low-yielding currencies and bought high-yielding currencies and held these positions, with little impetus to take profit.

The euro and other currencies rose versus the dollar and the yen and emerging market currencies soared, prompting global central banks to intervene to prevent excessive currency strength.

Stocks and commodity prices rose and the dollar fell, sometimes for months at a time without a larger correction.

In the wake of Lehman's bankruptcy in September 2009 and again in March 2009, when the market fretted the prospects of a global depression, the dollar rose across the board on safe-haven demand and stock and commodity prices collapsed -- but the correlation stayed the same.

Direction shifted later in 2009, as risk appetite improved, but up until recently, the game plan of shorting the dollar and going long stocks and commodities continued to be profitable.

Things may have shifted last week, when better-than-expected November non-farm payroll data started players thinking that a positive payroll reading may be around the corner.

A much-improved U.S. jobs picture would increase the chance of the Federal Reserve moving forward its tightening cycle.

This week, U.S. Treasury yields have nudged higher, with the 10-year yield breaking above late October levels (3.575%) to post a high of 3.585% Friday before stabilizing at lower levels.

As the greenback followed yields higher, widespread profit-taking was seen in commodities and emerging markets, especially those countries with commodity exposure.

Next Wednesday's Federal Reserve statement will be closely eyed for any inkling that the Fed might push forward the process of normalizing U.S. monetary policy.

Any larger shift in U.S. Treasury yields, in response, would have spillover implications for the dollar, stocks and commodities, analysts said.

Eonomists at HSBC maintained that the FOMC statement will likely keep the phrase that fed funds will stay low for an "extended period," for three reasons, i.e. "low rates of resource utilization, subdued inflation trends and stable inflation expectations."

The Fed will eventually need to provide guidance on the "potential use of large-scale reverse repos and term deposits to drain reserves, factors which have received more attention of late," HSBC said.

"But doing so in the statement risks sending an unwanted signal on the likely timing of such moves," the economists said.

Therefore, the Fed "may prefer to continue to communicate its thinking on these matters through Fed speeches rather than explicit policy statements," they said.

U.S. 10-year yields closed around 3.55%, down from an earlier high near 3.585%.

Earlier, the 10-year U.S. Treasury yield tested yield resistance at 3.575%, the high from October 26 and also a high from August 21.

With the "double top" in play, a "daily close above this level would be bearish for bonds and project additional gains in yields toward a key resistance trendline drawn off the highs from June and August at 3.65%," said George Davis, chief technical analyst at RBC Capital Markets.

Above that, additional yield resistance is found at 3.72% (Aug. 12 peak), followed by 3.86% (Aug. 7 peak). Yield support is found at 3.39% and 3,18% (double bottom), he added.

In other markets, the euro was trading at $1.4622, on the low side of a $1.4587 to $1.4776 range.

In recent sessions, the euro has been weighed by a combination of rising U.S. yields and concerns about Greece defaulting on its debt.

JP Morgan Chase strategists said the euro "is a buy based on the exaggerated fears of a sovereign risk event, but the timing of re-entering longs is poor given the ongoing back-up in yields."

Their technical analysts maintained that "the euro is still at risk of extending the downside to $1.45 and even the $1.43 handle, where a new base has to form in order to prevent a complete reversal of the long-term dollar bear-trend."

JPMC continued to look for broader dollar weakness throughout 2010 and saw the euro then pressing higher.

The strategists have a March 10 forecast of $1.55 for the euro and a June 10 forecast of $1.62.

On the U.S. stock front, the S&P 500 closed up 0.37 at 1106.41, after trading in a 1101.44 to 1108.38 range. The index posted a 2009 high of 1118.67 December 4, in the wake of upbeat November U.S. non-farm payroll data.

NYMEX January light sweet crude settled down $0.67 at $69.87 per barrel after trading in a $69.46 to $71.20 range.

The front contract last settled below $70 on October 7.

Technical analysts saw scope for crude to retest the late September lows near $65.05.

Spot gold settled at $1114.75/oz, on the low side of a $1110.05 to $1141.90 range.

The precious metal is down 9.1% from the life-time high of $1226.10, posted December 3 and is closing in on initial support at 1100/1102, lows from mid-November.

** Market News International New York Newsroom: 212-669-6430 **

Interbank FX (IBFX) Introducing Intraday Hedging

2009-12-11T14:46:00.002Z

In a very interesting development, IBFX has apparently found a loophole in NFA's ruling regarding hedging. Read on:

Dear Valued Customer,

We will be introducing Intraday Hedging into the demo accounts on Dec 10th, with plans to introduce Intraday Hedging to the live accounts on or around Dec 20th. What this means to your account:

- You will be able to place both long and short orders in the same currency pair during the course of the day.

- Just before swap at approximately 5 pm Eastern Time if you are still in your hedge, the trades will be netted out, please see the example below.

We recommend that you test your experts and trading strategies that use hedging thoroughly on a demo account before using them on your live account.

Example #1:

At 10:11:00 Eastern you open a 2 lot long on the EUR/USD at 1.4730 (ticket #1).
At 13:01:01 Eastern you open a 2 lot short on the EUR/USD at 1.4733 (ticket #2).

Just before swap, at approximately 17:00 Eastern, ticket #1 is closed out at 1.4733 and ticket #2 would show 0 lots with an open and close price of 1.4733.

Example #2:

At 10:11:00 Eastern you open a 1 lot long on the EUR/USD at 1.4730 (ticket #1).
At 13:01:01 Eastern you open a 2 lot short on the EUR/USD at 1.4733 (ticket #2).

Just before swap, at approximately 17:00 Eastern, ticket #1 is closed out at 1.4733. The remainder of ticket #2 would allocate to a new trade ticket of 1 lot short at 1.4733. Swap would be charged to this new ticket for that symbol’s rate for one lot.

Example #3:

At 10:11:00 Eastern you open a 5 lot long on the EUR/USD at 1.4730 (ticket #1).
At 13:01:01 Eastern you open a 2 lot short on the EUR/USD at 1.4733 (ticket #2).

Just before swap, at approximately 17:00 Eastern, 2 lots of ticket #1 would close at 1.4733. Ticket #2 would show 0 lots with an open and close price of 1.4733. The remainder of ticket #1 would allocate to a new trade ticket of 3 lots long at 1.4730. Swap would be charged to this new ticket for that symbol’s rate for three lots.

Minibahn Mafia Azzuri Template

2009-10-14T09:52:00.003+01:00

During a relatively quiet market, I created another template for the Mafia. I call it "The Mafia Azzuri". The M5 and M15 templates can be downloaded HERE.

The Wait Is Over: Here It Is... The Minibahn Mafia!

2009-10-10T09:41:00.009+01:00

Please note that The Mafia is designed to be used by more ADVANCED TRADERS, and I make no apologies to aspiring traders that do not possess the 3M's and 3C's (mind, method, money management, competency, contacts and capital) who in all likelihood will get all confused.

Timeframes

M5 and M15.

Money Management

Sound money management is essential to sustainable and profitable trading. Though I shall not cover in great lengths on the subject, I will share my own money management technique.

On any given trading day, my daily equity at risk is capped at 3%. I further divide this into 10 to 20 trades, meaning that I risk only 0.15% to 0.3% of my equity on any given trade.

Trading Rules

1. This is an ADVANCED intraday trading strategy adapted for trading using the M5 and M15 charts. The indicators you will need as well as the template I use can be downloaded here: http://www.ircforex.com/indicators/602-minibahns-indicators

(a) b-clock_(h-m-s).mq4
(b) Stoch Candle OverBought-Sold.mq4
(c) OnChart_Stochastic_Channel_(FL_MTF).mq4
(d) Pivots_Daily_vMB1.0.mq4
(e) Pivots_Monthly.mq4
(f) Pivots_Weekly.mq4
(g) OnChart_Stochastic_Channel_(FL_MTF)_vM5.mq4

(h) Bands.mq4

2. Determine bias by observing the day's opening price relative to the daily pivot point. If price opens ABOVE the daily pivot point, then bias is bullish/long. If price opens BELOW the daily pivot point, then bias is bearish/short.

3. Look at the "slow" stochs (360,180,180 on M5 and 120,60,60 on M15) firstly. If the %K (green) line is above the the %D (red) line, bulls are in control... therefore, look for opportunities to buy support. Naturally, it's best to wait for the crossover AND when both lines are above the 20% level of the stoch channel. For shorts, wait for the opposite signal.

4. Use the "fast" stochs (30,10,10) to time your entries and exits.

5. Good entries at e.g. D3, W1 or Mo1 levels will present opportunities to perform multiple trades... to continuously enter and exit until the "slow" stochs signal a reversal.

Remember:

If price is at PP, watch for a move back to R1 or S1.
If price is at R1, expect a move to R2 or back towards PP (shorts outperform longs approx. 58% to 42%).
If price is at S1, expect a move to S2 or back towards PP (longs outperform shorts approx. 56% to 44%).
If price is at R2, expect a move to R3 or back towards R1 (shorts outperform longs approx. 83% to 17%).
If price is at S2, expect a move to S3 or back towards S1 (longs outperform shorts approx. 83% to 17%).
If there is no significant news to influence the market, price will usually move from P to S1 or R1.
If there is significant news to influence the market price may go straight through R1 or S1 and reach R2 or S2 and even R3 or S3.
R3 and S3 are a good indication for the maximum range for extremely volatile days but can be exceeded occasionally (at R3, shorts outperform longs approx. 97% to 3%; and at S3, longs outperform shorts approx. 97% to 3%).
Pivot lines work well in sideways markets as prices will most likely range between the R1 and S1 lines.
In a strong trend, price will blow through a pivot line and keep going.
Once support or resistance is broken, the level in question becomes its opposite, i.e. former support becomes resistance and former resistance becomes support.

** It is important to understand, however, that these are probabilities and not certainties.

6. Stop-losses (SL) are totally unnecessary if you've adhered to all of the above rules. Also, should you be caught by premature reversal trades... employ the standard cost-averaging techniques. Step back, take a look at the next two pivot levels and calculate the appropriate trade size and R:R to re-set the positive expectations.

Well, that's it in a nutshell. Please feel free to review the trading logs posted here to further familiarise yourself with the strategy... and remember, practice makes perfect. Should you require further clatification, you'll most probably find me here (http://www.ircforex.com/chat/) most weekdays.

End of Another Productive Week

2009-10-09T21:13:00.003+01:00

It's the end of another productive week. For my EJ M5 sub-account, the 10 day return works out to be 145.3% from 333 trades executed, with 321 wins and 12 losses for a win rate of 96.4%.

Looking forward to the weekend for I am in need to rest and sleep. Hoping to come out charging again next week. :-)

Who's Screwing Who? Forex Brokers Lose Too!!

2009-10-09T10:29:00.005+01:00

This was reported some time back, and totally forgot to blog about it. It's commonly thought that Forex Brokers hold the keys to money making machines, are 'evil' and are out to screw their own clients. It would surprise many therefore, to learn that many U.S. Forex Brokers actually LOST money in July 2009. Anyhow, here's the full article... enjoy!

Source: Forex Magnates

July was a bad month for all brokers. With the exception of GFT, Oanda and MB Trading all brokers lost money that month. It’s also very interesting to see that Gain Capital lost over $12 million dollars – I’m not aware of any reason behind that. It is in-line however with the $50 million loss so far that Gain reported couple of weeks ago in its IPO registration documents.

Stuttgart Banker Divining Currencies Is World’s No. 1

2009-10-08T13:12:00.001+01:00

By Bo Nielsen (Source: Bloomberg)

Oct. 5 (Bloomberg) -- During the most volatile period for global foreign exchange in more than 15 years, a state-owned bank in southern Germany bested the currency forecasters at the biggest banks and trading firms.

Gernot Griebling, head of bond and economic research at Stuttgart-basedLandesbank Baden-Wuerttemberg, and his team of five currency strategists beat competitors at 46 firms to become the most-accurate forecasters for the six quarters ended on June 30, according to data compiled by Bloomberg. They outshone analysts at bigger firms by holding fast to such views as an early call for the dollar’s decline against the euro in the first half of 2008, even when their predictions went against the mainstream.

“Your track record has nothing at all to do with the number of people working for you,” says Griebling, 48, who navigates global currency markets from the glass-and-concrete headquarters of LBBW, a firm with less than a quarter of the employees and less than a third of the assets of its German rival Deutsche Bank AG, the world’s biggest currency trader. “You have to have the courage to stick to your conviction, to deviate from the consensus view.”

Griebling predicts that the dollar will trade at about $1.42 per euro until mid-2010 compared with $1.4625 today, as investor concerns over rising U.S. deficits and debt offset optimism about the prospects for an economic recovery.

Ranking Method

The ranking was based on quarterly predictions made at the beginning of both 2008 and 2009 for seven major exchange-rate pairs. Scotia Capital, part of Toronto-based Bank of Nova Scotia, Canada’s third-biggest bank, was second overall, followed by BofA Merrill Lynch Research in New York and Toronto-Dominion Bank’s TD Securities unit in Toronto. Frankfurt-based Deutsche Bank came in fifth, while Zurich-based UBS AG, the second- biggest currency trader, was No. 22.

LBBW prevailed at a time when financial turmoil and an economic slump sparked the most-violent swings for major currencies since at least 1992, as measured by JPMorgan Chase & Co.’s benchmark JPMorgan Volatility Index. The dollar plunged in the first half of 2008, only to rally later in the year as the collapse of Lehman Brothers Holdings Inc. in September froze credit markets and sent investors flocking to the safety of the greenback. The yen rallied in the second half of 2008 as traders reversed risky bets funded in the currency. In 2009, the dollar and yen started out strong against other major currencies and then weakened as central bank actions and $2 trillion spent by governments around the world on fiscal stimulus efforts helped to stabilize the global economy.

‘Spectacular Misses’

The dollar weakened 4.5 percent versus the euro in 2009 through today. The yen also fell 3.6 percent against the European currency to 131.34 yen in the period and was little changed against the dollar at 90.64.

The turbulence made even the top forecasters prone to missing the mark: The average margin of error of the 10 top- ranked firms was 6.6 percent compared with 3.5 percent when Bloomberg last ranked currency strategists in 2006, a year characterized by global growth and stable financial markets.

“It was a very difficult time to be a forecaster,” says Daniel Tenengauzer, head of global foreign exchange strategy at BofA Merrill Lynch in New York. “We had some spectacular successes and some spectacular misses.”

Tenengauzer, 41, predicts that the dollar will weaken to $1.50 per euro by year-end and then strengthen to $1.28 by the end of 2010 as the Federal Reserve begins a series of rate increases to keep inflation in check.

Discerning the Trend

While no one foresaw the scale of last year’s market moves, some forecasters, such as Griebling’s team at LBBW, were able to correctly discern the broad trends that guided currencies.

As 2008 began, the U.S. dollar was strengthening against the euro. The dollar was $1.4592 per euro on Jan. 1, 2008, compared with $1.4967 per euro on Nov. 23, 2007, its weakest ever. A Bloomberg survey of 43 forecasters published on Dec. 27, 2007, when the euro-dollar rate was $1.4626, showed that analysts expected the dollar to continue strengthening through September 2008. The strategists cited a narrowing deficit in the U.S. current account, which is the broadest measure of trade, and predicted that the threat of inflation would keep the Fed from cutting benchmark rates.

Griebling and his team didn’t share that bullish view. The LBBW forecasters had been tracking the decline in the U.S. housing market. They predicted that the deepening slump’s impact on consumer spending and growth would be bigger than most market participants expected and would curb the dollar. In 2007, the housing downturn had already triggered $80 billion in writedowns at financial firms, a figure that would grow to more than $1.3 trillion within two years.

Borne Out

“We had been big bears on the U.S. economy and the dollar for a long time,” Griebling says. LBBW predicted that the dollar would strengthen against the euro in the second half of 2008 as the U.S. recession would drag down euro-zone economies.

LBBW’s view was borne out: First, the dollar lost value against major currencies in the first half of 2008, with the greenback touching $1.6038 per euro in mid-July. Then, the U.S. currency surged in the latter part of the year, reaching $1.2330 per euro in October. The dollar ended 2008 at $1.3971 per euro, not far from Griebling’s year-end forecast of $1.39 per euro.

What LBBW and most other currency forecasters failed to predict was the magnitude of the currency swings and the unprecedented financial turmoil that brought them about.

Not Foreseen

No one foresaw the severity of the deterioration in the U.S. economy and credit markets in the first half of 2008 that would lead the Fed to cut rates four times between January and April and prompt the government-brokered takeover of Bear Stearns Cos. by JPMorgan. Nor did anyone foresee Lehman’s September 2008 collapse, the U.S. bailout of insurer American International Group Inc. a month later and the rounds of global rate cuts soon afterward, all of which sent investors stampeding back into the dollar.

LBBW wasn’t immune to the turmoil roiling financial markets. The bank, predicting a “substantial loss” for 2009, last week said it will shed about 2,500 jobs, or a quarter of its workforce, by 2013 and slash assets by 40 percent as part of a reorganization plan. It posted a loss of 2.1 billion euros in 2008.

Some analysts were thrown off track by the roller-coaster market. Gerry Celaya, chief strategist at Redtower Asset Management, entered 2008 as the biggest dollar bull among strategists in the Bloomberg survey, forecasting a $1.30 euro- dollar rate for June 2008.

Wrong Reasons

Celaya, who placed third overall in the 2006 ranking, slid to number 40 on this year’s list after the U.S. economic rebound he was betting on in 2008 didn’t materialize.

“We were surprised by how consistently bearish people were about the dollar in the first half of 2008,” Celaya, 44, says. “And when the dollar strength finally came, it was for all the wrong reasons.”

Callum Henderson, Singapore-based global head of currency strategy atStandard Chartered Plc, came closest to predicting the dollar’s swings against the euro. In January 2008, he forecast a euro-dollar rate of $1.49 by March, making him among the biggest dollar bears in the Bloomberg survey. His $1.38 prediction for where it would stand at the end of September was among the most bullish for the U.S. currency.

Past Patterns

In making his forecasts, Henderson says he studied the greenback’s moves during similar periods: 1989 to 1992 and 2002 to 2004. Both times, the dollar weakened as the U.S. economy lost steam before surging against major currencies as recession damped global growth, forcing central banks to cutrates. Those patterns told him the dollar would slump initially in 2008 and then rally.

“As soon as the global credit crisis happened, we knew there was going to be a dollar rally, but no one could have foreseen the speed with which it happened,” says Henderson, 44.

Some market watchers searched for new ways to gauge currency relationships in late 2008 as the flight to quality sent investors pouring into the dollar.Henrik Gullberg, a strategist at Deutsche Bank in London, abandoned his standard forecasting measures and instead looked at weekly data on the amount of dollar reserves being held at the Fed by foreign central banks.

Flight to Quality

Gullberg discovered that from late 2008 through the beginning of 2009, the dollar tended to gain against major currencies when foreign central bank accounts at the Fed rose and vice versa, even though that hadn’t been the case historically.

“We followed safe-haven flows very carefully; there was nothing else driving currency markets,” says Gullberg, 36. “The only thing that mattered was risk aversion. All other models went out the window.”

The financial turmoil in late 2008 also prompted traders to get out of so-called carry-trade bets, in which they borrowed funds in yen and U.S. dollars at low rates and then invested them in currencies of countries such as Australia, where returns were higher. The Dollar Index, a gauge of the greenback’s performance against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, had its biggest weekly gain since 1992 in October 2008.

“This was a huge structural change,” says Camilla Sutton, director of currency strategy at Scotia Capital in Toronto. “It became pretty clear that the de-leveraging was impacting currencies.”

Revisiting Risk

The period of dollar and yen strength lasted from July 2008 to March 2009, when signs of stability in the global economy persuaded investors to venture back into stocks and bonds denominated in foreign currencies.

As of mid-September, most of the top forecasters predicted that the dollar would weaken at least through the middle of next year amid rising U.S. deficits and debt, and that investors would gravitate to more attractive investment opportunities elsewhere.

Sutton, 38, sees the greenback losing value as the U.S. Treasury swamps the market with bonds to fund $12.8 trillion in pledges to prop up the economy. The euro-dollar rate will return to $1.60 and the dollar will fall to 85 yen by the end of 2010, she says. Standard Chartered forecasts the dollar at $1.58 by the end of next year.

Deutsche Bank’s Gullberg says the correlation between central bank reserves and the dollar has been broken as stability returned. Now, using models that look at traditional gauges such as interest rates, he foresees declines in the dollar to as low as $1.60 per euro by year-end as investors seek out higher-yielding assets in other currencies, and as the Fed resists raising rates anytime soon to ward off the threat of inflation.

“Dollar strength is dependent on an aggressive Fed, and so far there has been very little sign of that,” Gullberg says.

EJ M5 Update

2009-10-07T13:06:00.002+01:00

I've managed to double my sub-account dedicated to trading EUR/JPY on M5. Quite pleased with the results. The 8 day return is 104.5% or USD1.045 million.

In all, I executed 234 trades with 227 wins and only 7 losses for a 95.89% win rate.

The earlier analysis for EUR/JPY to reach 139.00 by the end of the year still stands for now.

Ten Lessons I Have Learned in Working With Traders

2009-10-05T10:44:00.002+01:00

by Brett N. Steenbarger, Ph.D. (Source: Traders Log)

When I sat down to write this article, I thought it would be challenging—but useful—to distill over 20 years of trading experience—and 25 years of specializing in brief therapy—into ten lessons that I have learned while working with traders (including myself!). In that time, I’ve written two books on trading and worked with dozens of professional traders at a proprietary trading firm. What has this taught me? Let’s break it down:

1. Trading affects psychology as much as psychology affects trading – This was really the motivating factor behind my writing the new book. Many traders experience stress and frustration because they are trading poorly and lack a true edge in the marketplace. Working on your emotions will be of limited help if you are putting your money at risk and don’t truly have an edge.

2. Emotional disruption is present even among the most successful traders – A trading method that produces 60% winners will experience four consecutive losses 2-3% of the time and as much time in flat performance as in an uptrending P/L curve. Strings of events (including losers) occur more often by chance than traders are prepared for.

3. Winning disrupts the trader’s emotions as much as losing – We are disrupted when we experience events outside our expectation. The method that is 60% accurate will experience four consecutive winners about 13% of the time. Traders are just as susceptible to overconfidence during profitable runs as underconfidence during strings of losers.

4. Size kills – The surest path toward emotional damage is to trade size that is too large for one’s portfolio. We experience P/L in relation to our portfolio value. When we trade too large, we create exaggerated swings of winning and losing, which in turn create exaggerated emotional swings.

5. Training is the path to expertise – Think of every performance field out there—sports, music, chess, acting—and you will find that practice builds skills. Trading, in some ways, is harder than other performance fields because there are no college teams or minor leagues for development. From day one, we’re up against the pros. Without training and practice, we will lack the skills to survive such competition.

6. Successful traders possess rich mental maps - All successful trading boils down to pattern recognition and the development of mental maps that help us translate our perceptions of patterns into concrete trading behaviors. Without such mental maps, traders become lost in complexity.

7. Markets change – Patterns of volatility and trending are always shifting, and they change across multiple time frames. Because of this, no single trading method will be successful across the board for a given market. The successful trader not only masters markets, but masters the changes in those markets.

8. Even the best traders have periods of drawdown – As markets change, the best traders go through a process of relearning. The ones who succeed are the ones who save their money during the good times so that they can financially survive the lean periods.

9. The market you’re in counts as much toward performance as your trading method– Some markets are more volatile and trendy than others; some have more distinct patterns than others. Finding the right fit between trader, trading method, and market is key.

10. Execution and trade management count – A surprising degree of long-term trading success comes from getting good prices on entry and exit. The single best predictor of trading failure is when the average P/L of losing trades exceeds the average P/L of winners.

Well, I’ve already hit ten and I have at least ten more I could jot down. Number 11 would be that successful performance mentors have content expertise in their particular domain. What I mean by that is that teachers of concert musicians themselves have experience as musicians; basketball coaches invariably have played the sport themselves. You learn trading by seeing your mentor trade and by having your mentor observe your trading. The right mentorship goes a long way toward shortening learning curves.

Figure it out: what proportion of baseball players, golfers, actresses, chess players, singers, or bicyclists can make a consistent living from their performance activities? Is trading really so much easier than those activities? The stark reality is that expertise in any performance field is the exception, not the rule, requiring dedicated practice and training. If you are emotionally prepared for the learning curve—and excited by the challenge—you are well ahead of the game. Start with finding the Three M’s: right methods, markets, and mentors. Those are the foundation of success, upon which you build skills and experience. Enjoy the journey!

Special Focus: Japanese Yen

2009-10-04T08:30:00.005+01:00

As a technical intraday trader, I seldom talk about fundamentals, perform any analysis or make long-term forecasts. So, here's my first published attempt at it. :-)

We've witnessed the appreciation of the JPY by more than 50% in effective terms since the start of the crisis. Naturally, many are eager to know the new administration’s stance on JPY.

Japan is not a particularly open economy; notwithstanding the significance exports have played in the last 10 years. As such, foreign exchange levels, especially in the current situation, are particularly important.

Off-late, there's been several statements by Japanese officials making clear that the Japanese government does not intend to pursue policies favouring JPY weakness and this, in a FX market looking for ‘stories’ has triggered a strong appreciation to the JPY.

However, my view is that the USD zone still seems very resilient, especially as markets for risky assets stop for breath after the significant improvement in the past six months. So, I'm in favour of a moderate depreciation of the JPY in the next six months.

My call? By year-end... EUR/JPY to reach 139.00 and USD/JPY to reach 97.00.

To support this view, I've dedicated a USD1 million sub-account to trade EUR/JPY. The 5 day results have so far been encouraging. With 3% daily at risk (USD30,000), I've managed to make 107 trades with 105 wins and only 2 losses, for a 98.13% win rate. This translates to a nett return of USD606,137.59 or 60.6% in 5 days.

Here's a look at EUR/JPY on M5. So, far... I've resisted the temptation of shorting resistance levels and instead have focussed my trades on going long at support levels. Though EUR/JPY essentially finished the week at the same level it started the week at, a 60% return on "long-only" trades is pretty encouraging.

Looking at the M15 chart, I'm reasonably comfortable that having bounced off MoS1 (129.02)... EUR/JPY should at the very least be a long to MPP (132.24) which is my 1-month target. So, I'll be buying any dips going forward with this immediate target in mind.

When It Rains In Paradise...

2009-09-17T11:14:00.003+01:00

What do you do in when it rains in Paradise? I don't know about you, but I crack open my laptop and trade! Yes, I know I told everyone I wouldn't bring it with me. :-P

Anyhow, here's the latest summary of my M5 trades using my all-new strategy code-named "The Mafia". It's based on my core strategy, which is support and resistance using pivot points... combined with the stochastic oscillator with custom settings.

The results speak for themselves:

Anyhow, the weather seems to be clearing up. So, I'm putting the laptop away and resuming my 'activities' here in Paradise. :-)

Cheers!!!!

The Forex Marketplace

2009-07-24T19:59:00.016+01:00

Presently, the foreign exchange market is one of the largest and most liquid financial markets in the world. Traders include large banks, central bank, currency speculators, corporations, governments, and other financial institutions.

According to the 2009 Euromoney FX Poll, total turnover has reached a record USD175.3 trillion. The market share for the top five banks remained steady, at a combined 61.5%. The combined share of the top ten banks rose, from 76.3% to 79.7%.

Unlike a stock market, where all participants have access to the same prices, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume.

If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX market makers.

Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems.

Commercial companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high—that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds as speculators
About 70% to 90% of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Investment management firms
Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.

Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Retail foreign exchange brokers
There are two types of retail brokers offering the opportunity for speculative trading: retail foreign foreign exchange brokers and market makers. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated by the CFTC and NFA might be subject to foreign exchange scams. At present, the NFA and CFTC are imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. It is not widely understood that retail brokers and market makers typically trade against their clients and frequently take the other side of their trades. This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had. A move toward NDD (No Dealing Desk) and STP (Straight Through Processing) has helped to resolve some of these concerns and restore trader confidence, but caution is still advised in ensuring that all is as it is presented.

Non-bank Foreign Exchange Companies
Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but currency exchange with payments, i.e. there is usually a physical delivery of currency to a bank account.

It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign Exchange Companies. These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.

Money Transfer/Remittance Companies
Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally.

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price.

The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

One such marketplace is the Dukascopy - SWFX FX Marketplace, a technological solution for trading, using a centralized-decentralized marketplace model. The SWFX is specialized in institutional liquidity and instant execution. Among the ten FX marketplaces in the world, Dukascopy - SWFX has a unique position by combining liquidity of the biggest marketplaces. In this market, the participants act on an equal and transparent basis. Being a marketplace, the SWFX prevents conflict of interest between buyers and sellers.

Among marketplaces with a centralized structure, Dukascopy gives access to the Decentralized Marketplace (SWFX - Swiss Forex Marketplace) by combining liquidity of other marketplaces and a number of banks.

The general scheme above shows the main participants of the business model (see below). The left side includes centralized and decentralized liquidity providers. Combining their bid/offer orders in the resulting data feed, the central element is in fact the liquidity pool itself, being at the same time a centralized marketplace for its clients: liquidity consumers and centralized liquidity providers. Liquidity consumers are able to place bid/offer orders. Execution of any order in this decentralized Forex Marketplace, can take place on one of the servers - decentralized liquidity providers, or on the red - the centralized marketplace itself. The decentralized liquidity provider can be a single bank liquidity provider or any marketplace server.

As an example, End Liquidity Providers for the month of January 2009 were: Dresdner, SG Paris, Standard Chartered, Barclays Capital, Bank of America, CRNX, JPMorgan, Morgan Stanley, Deutsche Bank AG, RBS, CITI, UBS, HOTSPOT INST, HOTSPOT RETAIL, GOLDMAN, LavaFX, SWFX FX Participant, SWFX FX Anonymous Bank, Other Liquidity Providers.

In Dukascopy's case, a trader may have multiple end counterparties.

Step 1:

Step 2:

Step 3:

Step 4:

Note:

Hotspot FXi LLC is a wholly owned subsidiary of Hotspot FX, Inc. Hotspot FX, Inc. is a subsidiary of Knight Capital Group, Inc.
Currenex is a wholly owned subsidiary of State Street Corp, the world's leading provider of financial services to institutional investors. State Street has $11.9 trillion in assets under custody and $1.7 trillion under management.
Lava Trading is a Citigroup company.

Dukascopy produces a valuable tool, the SWFX Sentiment Index, which is based on transaction flow information and is designed to show long and short ratio in the most popular currencies and currency pairs consolidated by liquidity consumers and providers.

Liquidity consumers are represented by individual clients, brokers, investment companies and hedge funds. The sentiment ratio of this group is the percentage of longs or shorts in the overall amount of open trades, executed by the liquidity consumer. The index also includes liquidity from individual bids and offers of the foregoing participants if it is not provided on a regular basis.

Liquidity providers are participants of SWFX marketplace represented by centralized marketplaces and a number of banks which continuously provide ask and bid prices on the market (e.g. Dresdner, SG Paris, Standard Chartered, Barclays Capital, Bank of America, CRNX, JPMorgan, Morgan Stanley, Deutsche Bank AG, RBS, CITI, UBS, HOTSPOT INST, HOTSPOT RETAIL, GOLDMAN, LavaFX, SWFX FX Participant, SWFX FX Anonymous Bank, Other Liquidity Providers). The sentiment ratio of this group is opposite to liquidity consumers’ data because, for each trade executed through SWFX, there are two equal and offsetting over-the-counter transactions.

Liquidity consumers are extremely long when liquidity providers are extremely short (and vice versa).
A top in price occurs when liquidity consumers are extremely long and when liquidity providers are extremely short (and vice versa).
Liquidity consumers are on the right side of the market for the meat of the move but are wrong at the turn.
Liquidity providers are on the wrong side of the market for the meat of the move but are correct at the turn.

So, in an ocean full of different sharks... make sure that you're swimming with the right shark at the right time. Failure to do so... well, you'll be eaten up in an instant! :-)

Trading or Gambling Screen

2009-07-23T06:52:00.000+01:00

Trading or Gambling Screen (http://www.marketpsych.com/personality_test.php)

Low Risk

According to your answers on the “Trading or Gambling?” screen, you are at low risk of having a trading addiction. For professional traders, risks are limited and discipline is central. However, some traders are unable to effectively control their impulses or manage financial risks, and a trading problem ensues. When a trading problem is compounded by hiding losses and increasing debt, then trading addiction is probable.If you suspect that you have a gambling or trading problem, then please contact a mental health professional for a complete assessment of your symptoms.

Attention and Impulsivity Screen

2009-07-23T06:48:00.000+01:00

Attention and Impulsivity Screen (http://www.marketpsych.com/personality_test.php)

Low Risk

You have scored at low risk of problem inattentiveness and impulsivity. If you feel this result is in error, then please repeat the screen with someone who knows you well.Many traders will increase their risk of inattentiveness and impulsivity after large gains, losses, or other stressful periods. It is important to identify symptoms of inattentiveness and impulsivity when they arise so that you may take the necessary steps for successful symptom management. Please repeat this screen as needed.

Traders Brain Scan

2009-07-23T06:29:00.002+01:00

Trader’s Brain Scan (http://www.marketpsych.com/personality_test.php)

Trader’s Brain Report

Result Summary
Your overall problem-solving accuracy was above 82% of all other test-takers.
Your overall speed was faster than 40% of all test-takers.

You completed the time-sensitive modules in 7 minutes. -->The average time of all test-takers is 4 minutes. -->

YOUR RESULTS ON EACH MODULE ARE DESCRIBED BELOW:

Brain Flexibility Task
You solved the Brain Flexibility module in 231 seconds.
The average time of all test-takers on this module is 271 seconds.
Your time is faster than 58% of other test-takers.

The Brain Flexibility Task was designed to test the interplay between your frontal cortex and your subcortex. The fluidity of communication here is important for cognitive flexibility (the ability to solve challenging problems and change course when needed). These skills are especially important for longer-term position traders, market strategists, and analysts.

Marketpsych Gambling Task

You total earnings on the Marketpsych Gambling Task were $ 279.00.
The average total earnings of all test-takers on this module is $ 45.47.
Your earnings are above 99% of other test-takers.

You solved the Marketpsych Gambling module in 382 seconds.
The average time of all test-takers on this module is 327 seconds.
Your time was faster than 17% of other test-takers.

The Marketpsych Gambling Task tests your ability to make rapid expected value calculations. The ability to make rapid, intuitive expected value calculations is an essential talent for all traders and investors.

Grid Math Task
You solved the Grid Math module in 136 seconds.
The average time of all test-takers on this module is 102 seconds.
Your time is faster than 21% of other test-takers.

The Grid Math Task was designed to test two cognitive factors that are important for short-term traders: visuospatial acuity and rapid calculation skills. These skills are especially important for ultra short-term proprietary traders and options specialists.

Pattern Recognition Task
You answered 2/8 questions correctly in the pattern recognition module.
The average correct answers of all test-takers on this module is 3/8.
Your score is above 44% of other test-takers.

The Pattern Recognition Task was designed to test two cognitive factors that are important for traders and investors: visual pattern recognition and memory. These skills are useful for traders who use “tape-reading,” technical analysis, and charting to find profit-generating patterns in stock prices. A familiarity with candlestick charting will positively bias a test-taker’s score.

Sequence Task
Your answered 73 % of this task correctly.
The average test-taker answers 58 % correct.
Your module score is above 83% of other test-takers.

You ranked 21/36 symbols correctly on the first 3 series of symbols.
The average correct answers of all test-takers on this module is 19/36.
On the first 3 series of symbols, your score is above 60% of other test-takers.

You listed 18/24 numbers correctly in the reverse-memorization portion.
The average correct answers of all test-takers on this module is 18/24.
On the 2 reverse-memorization tasks, your score is above 48% of other test-takers.

You figured out 2/2 mathematical sequences correctly.
The average correct answers of all test-takers on this module is 1/2.

The Sequences Task was designed to memory flexibility and processing. These skills are useful for analysts and traders who need to understand and process large amounts of information. Your score here is primarily a reflection of your memory capacity, speed, and stress-tolerance. A robust memory is only helpful if it is intelligently used.

Thank you for taking the Trader’s Brain Scan. We hope it has increased your self-understanding in a useful way.

Best wishes,
Richard L. Peterson, M.D.

Trader Personality Test

2009-07-22T18:41:00.016+01:00

Found a very interesting link to a FREE Trader Personality Test (MarketPsych, LLC). Hadn't taken one of these in a while. Anyhow, I thought it a good idea to share this link and highly recommend that you give it a whirl.

Anyhow, here's how I did:

Trader Personality Test

PERSONALITY FACTORS
Conscientiousness : High
Conscientiousness describes your relative ability to plan and organize towards achieving goals and to exercise self-control.

You scored in the HIGH range for conscientiousness. Intelligent activity involves contemplation of long-range goals, organizing and planning routes to these goals, and persisting toward one's goals in the face of short-lived impulses to the contrary. You can achieve high levels of success through purposeful planning and persistence. You are likely to be positively regarded by others as intelligent and reliable. On the down side, some people may see you as rigid or perfectionistic.

Emotionality : Very Low
Emotionality is characterized by stress-sensitivity and more frequent experiences of negative emotions than others.

You scored in the LOW range on emotionality. You are relatively more calm, emotionally stable, and free from persistent negative feelings when compared to high scorers. Freedom from negative feelings does not mean that you experience more positive feelings. You may be reckless in dangerous situations and take more risks than others (sometimes without knowing that you are doing so). In general you are probably secure, hardy, and relaxed even under stressful conditions.

Extraversion : Very High
Extraversion is characterized by a desire to socialize and a tendency to optimism. Extraverts derive energy from interactions with others, while introverts' interests are fueled by introspection.

You scored in the HIGH range on extraversion. You probably enjoy being with people, are full of energy, and often experience positive emotions. In groups you are likely to talk, assert yourself, and draw attention. In general you are outgoing, active, and joyful.

Openness : High
Openness to new experiences describes a willingness to experiment with tradition, to seek out new experiences, and to think broadly and abstractly.

You scored in the HIGH range on openness. You are intellectually curious and tend to be, compared to closed people, more aware of your feelings. You probably tend to think and act in individualistic and nonconforming ways. Open and closed styles of thinking are useful in different environments. An open intellectual style may serve you well as a psychologist, professor or investor. Research has shown that closed thinking is related to superior job performance in police work, sales, service occupations, and short-term trading.

Agreeableness : Above Average
Agreeableness reflects a concern with cooperation and social harmony.

You scored in the NEAR AVERAGE range on agreeableness. You are likely to balance a healthy skepticism about others' motives with a desire to cooperate and get along. You are willing to extend yourself for others and compromise, but you may prefer that they first demonstrate good will.

BIAS REPORT
Confidence Biases
Overconfidence : Very High

"One of the most strikingly evident traits of all the market wizards is their high level of confidence....But the more interviews I do with market wizard types, the more convinced I become that confidence is an inherent trait shared by these traders, as much as a contributing factor to their success as a consequence of it....An honest self-appraisal in respect to confidence may be one of the best predictors of a trader's prospects for success in the markets."
~ Jack Schwager, Stock Market Wizards

Schwager goes on to explain that any trader who does not have "absolute confidence in their ultimate success" should be very cautious about entering the business. Yet, some traders will have excessive confidence without a grounding in reality.

Great traders are confident that they can manage whatever comes up (they are both certain and flexible), but they are also realistic and prudent (they use good money management and recognize that they can lose).

There is a risk from having too much confidence in one's knowledge and skill. This type of overconfidence typically leads to inadequate money management and the ignoring of potential risks. Put simply, overconfident traders think they are smarter than they actually are.

Technically speaking, overconfident traders misinterpret the accuracy and importance of their information (their data) and overestimate their skill in analyzing it. Overconfidence results in a tendency to underestimate trading risk and to have higher position turnover.

Men are more likely to be overconfident than women, and young adults are more likely to be overconfident than older adults. Ironically, "experts" are more overconfident than lay-people, as they often get attached to and then overweigh the predictive power of their own models. Additionally, more difficult decisions (e.g. forecasting the market) inspire more overconfidence in forecasters.

HIGH SCORERS:
If you are a high scorer, to balance your potential for overconfidence in trading, you can:

Practice humility. Remember that the markets are bigger than you. No matter how well you have been doing recently, you will suffer losses if you approach the markets with arrogance or entitlement. Every day, run through the possible trading risks. If you start moving stops or are not performing adequate risk management, then stop trading until you can again approach the markets with respect.
Think before you leap. If you have a problem acting too quickly on your trading certainties, then deliberately pause for a brief cooling-off period between having a strong opinion about the market and executing it. Remember, there will always be more opportunities like this one.
After a string of wins, be careful of feeling that you're invincible. It's usual, after a series of wins, to feel "on top of the world." However, beware of leaving positions open while you are distracted by other things. Overconfident "hubris" is the result of a string of wins, and it nearly always leads to big losses.
Engage in a more thorough evaluation of your trading data and plans. Pay extra attention to potential risks - you may have a tendency to avoid acknowledging these. In particular, remember to look at historical parallels and to perform adequate back-testing.

LOW SCORERS:
If you are low scorer, you are more likely to be realistic about your investment knowledge and expected returns. However, you may be susceptible to the following if you are “underconfident” (in the very low range):

Underconfident traders may be too afraid of risk to take necessary risks. Further, they are often less successful in attracting new business. To combat underconfidence, remind yourself that you are capable and competent (assuming you have demonstrated this previously). Sometimes underconfidence is a real result of knowing less than others about the markets. In that case, be sure to gain the appropriate education and experience before risk taking.
Some underconfident traders are hyperaware of risks. In this case, you should review historical investment information and notice if you are overweighting negatives and overlooking positives. Your challenge is to develop a realistic appraisal of risks and your ability to handle them. It is possible that you have a greater ability to manage risk than you believe.

Over-Optimism : High
"For myself I am an optimist - it does not seem to be much use being anything else."
~ Sir Winston Churchill, 1954.

Optimism refers to the rose-colored lenses through which high-scorers view the world. Optimism is associated with "confidence" biases because many people who are overly optimistic overestimate their chances of success (as in overconfidence). Yet optimistic people do not typically take excessive risks. They are likely to take calculated, moderate risks. Optimistic people would not want to risk losing a large sum of money (because it might jeopardize their optimism, according to researchers).

Optimistic people often avoid negative information and seek out evidence confirming their positive outlook. This search for positive confirmation is a type of denial, On the flip-side of optimism is pessimism, which characterizes low-scorers.

As with the other confidence "biases," optimism benefits businesspeople, politicians, and other professionals whose ability to attract business often depends on their attitude. However, in the financial markets, excessive optimism can lead to superficial analysis and denial of important, negative evidence.

The optimistic trader may find himself holding excessive risk in his portfolio while denying evidence of growing dangers. Many optimistic traders who believed in the "New Economy" and the outstanding growth potential of internet stocks found themselves over-exposed to the volatile technology sector in late 2000 and 2001.

Optimistic people tend to be resilient. They see possibility even after a financial catastrophe, which may explain why they are more financially successful overall. Additionally, optimistic people believe that "everything is going to work out for the best," which fosters energetic activity and success in many areas of life.

HIGH SCORERS:
If you are a high scorer, you are more likely to see the glass as "half-full," and you generally see a positive future ahead for you and the world. Your optimism is, in general, a great gift. However, in your trading, you should be careful:

Don’t Deny the Negative. Learn to seek out and understand the logic of all opinions about a trade, trading system, or market events.
Don't believe the hype. A good story or a good company does not make a good stock. Only invest when you have thoroughly educated yourself and you can commit to following a strict investment plan.
Don’t stop paying attention to risk when things are going well. You are more susceptible to ignoring your trading risk in good times than others.

LOW SCORERS:
"My pessimism extends to the point of even suspecting the sincerity of other pessimists."
~ Jean Rostand (1894 - 1977)

If you are low scorer, you may be generally pessimistic. You might expect more negative events and may feel less effective than an optimist. You are probably more emotionally reactive to negative market feedback. To ensure your peace-of-mind and profitability, you should:

Maintain an objective, nonjudgmental awareness of your negative emotions. Find patterns of emotion that lead to different types of trading behavior. Because of your extra attention to negative details, you may see more threats to your trades than opportunities. You may avoid trading entirely when you perceive signs of danger, regardless of the opportunities that are present.
Consider using a journal to document your mood, the events that affect your mood, and your resulting mood-related decisions, every trading day. Trading psychologist Brett Steenbarger has an excellent website with such resources.
You may take losses personally. After a series of losses, you may become excessively pessimistic and risk averse. Consider reviewing your strategy's historical performance to boost your confidence.
Avoid checking on your trades, except at predefined intervals or price levels. Frequent checking leads to negative emotional reactions (and resulting bad decisions) when positions are going against you (which they occasionally will be).

Risk-taking Biases
Risk Aversion : Very Low
"You Can't Be Afraid of Risk.

...A willingness to accept risk is probably an essential personality trait for a trader. As Watson states, 'You have to be willing to accept a certain level of risk, or else you will never pull the trigger.'"
~ Jack Schwager, Stock Market Wizards, Wizard Lesson #16.

Risk aversion refers to an excessive fear of risk-taking. Risk aversion usually results in hesitation, indecision, and “analysis paralysis.” Many traders with high risk aversion experience difficulty "pulling the trigger." It is common among traders who have recently suffered large losses.

Some traders experience risk aversion as “waiting for confirmation.” Unfortunately, waiting for price movement to confirm the accuracy of their trading signals seriously erodes profits. Such delays can ultimately lead to “chasing” (impulsive entries and exits).

When trading a system that has not been thoroughly tested, risk aversion is appropriate. Traders should always test their systems in order to gain confidence. Sometimes losses are due to random events, and in those cases it is helpful to understand the laws of probability and the inevitability of draw-downs (an understanding derived from fully testing trading systems).

HIGH SCORERS:

A high score can foreshadow a problem if you are a short-term discretionary trader. Your style of trading should take into account your sensitivity to risk. An aversion to risk may prevent the pursuit of high risk/reward opportunities.
Be sure to backtest and systematize your trading strategies.
Confidence can be built through continuing trading experience, gradual exposure to market risk, education, and the constructive challenging of one's fear of risk. Challenging one’s fears and gradual exposure are best done with a trained professional.

LOW SCORERS:
Very Low scorers should beware of taking excessive risk. But in combination with adequate education, historical knowledge, experience, and preparation, a low score on risk aversion is a good sign for traders.

Emotional Vulnerability : Very Low
"Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
~ Warren Buffett

If you are a high scorer on emotional vulnerability, you are likely to experience panic, confusion, and helplessness when under pressure or experiencing stress. If you are a low scorer, you feel more poised, confident, and clear-thinking during stressful times.

MIT researchers Andrew Lo and Dmitry Repin performed a study of 36 online traders in 2002. They gave the traders psychological tests and had them fill-out a daily log of their emotional states and P/L at the end of each trading day. They found that the most significant predictor of trading losses is high "emotional reactivity." Moderate to low emotional reactivity predicts greater trading success.

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
~ Warren Buffett

HIGH SCORERS:

Practice self-awareness. It is important for high-scorers to know when they are in a highly emotional state – without awareness, they cannot take action to halt the destructive effects of overaroused emotions. Meditation and yoga help practitioners identify and release reactive emotional states. Vigorous exercise can also be beneficial in reducing the mental effects of stress.
Check your positions as infrequently as possible. Checking position progress too frequently stimulates emotional reactions without giving useful information.
Stick to a defined money management plan. Know your entry and exit points in advance. Have clearly defined buy and sell signals. (These concepts are easy to acknowledge, but during periods of market volatility you will have trouble following them - know this).
Consider avoiding short-term trading. You are vulnerable to emotional burn-out from rapid market feedback, especially about losses.

LOW SCORERS:

You can stay more calm than most during market volatility. Nonetheless, become aware of the triggers for negative emotional states during trading. If reactive emotions are a problem for you, then see the recommendations above.

Holding Losers too Long : Low
"To Be a Winner You Have to Be Willing to Take a Loss."
...'You can't be afraid to take a loss. The people who are successful in this business are the people who are willing to lose money.'"
~ Jack Schwager, position Market Wizards, Wizard Lesson #14.

"Cut your losers short" is an old Wall Street adage. It addresses a common trader error - the tendency to hold losing positions too long. This is the single most common and costly mistake traders make.

Most traders avoid thinking about losing positions, and typically they hope for a “comeback” so they can exit the trade at “break-even.” Ironically, if a trader is bailed out by the market, they tend not to learn from their mistake, leaving them more vulnerable to later losses.

Most “Rogue Traders,” including Nick Leeson (Barings) and Toshihide Iguchi (Daiwa Bank), who both lost over $1 billion, could not muster the courage to bail out of losing positions in the beginning, and then they developed illegal techniques for hiding their snowballing losses.

The trader Brian Hunter lost $6 billion on natural gas spreads in 2006 at Amaranth Capital. Previously, he had caused a near collapse of the fund in May 2006, but by holding onto his losing positions in May, he turned a near disaster into a large gain during the summer. The second time his positions reversed in Fall 2006, he was not bailed out by market events, and the fund collapsed.

One of the three tenets of the 2002 Nobel-prize winning theory of economic decision-making called “prospect theory” is that people avoid taking losses, even when that avoidance will likely lead to larger losses later. For example, when faced with the choice between (1) losing a definite amount of money, or (2) gambling on a "come-back," most people prefer to take the gamble. Most people will choose the gamble even when they know that the odds are objectively against them.

"Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong."
~Bernard Baruch, Financier

One's baseline level of loss avoidance can change. After experiencing a recent loss, most traders will become more loss averse. Losses of any kind have this effect - the death of a loved one, divorce, illnesses, accidents, work-related losses, and financial losses - all increase the propensity.

"...Tenacity without flexibility is no virtue."
~ Jack Schwager, Stock Market Wizards

HIGH SCORERS:

Ask yourself, "All things being equal, would I enter this position today?" If your answer is "no," then place it on your sell list.
When in a losing position, beware of thinking, “I’ll just wait and see what happens.” Notice any rationalizations or excuses you make in order to hold a losing position longer.
Keep track of your Win/Loss size ratio. Many traders aim to have more winning trades than losing trades. More importantly, they should also be keeping track of the size ratio of their winning to losing trades. Your ratio should be more than 1.
Also monitor the length of time you hold your losing versus winning trades. Most traders hold losers longer while they are waiting for a comeback.

LOW SCORERS:

Remember that you are still susceptible to holding onto losing positions, especially after recent or large losses.
As always, be sure to follow your stop-loss rules. If you don't have a defined money management system, then be sure to put one in place.
When new information changes your assessment of a position, be sure to re-evaluate it. Would you buy this position now?

Cutting winners short : Below Average
"Selling companies that are doing well and purchasing ones that are faring poorly is like watering the weeds and cutting the flowers."
~ Peter Lynch, Fidelity Investments

For professional traders, the instruction to “let winners run” has become commonplace. It is necessary because many professional futures traders sell their winning trades too soon (as shown in academic studies). Furthermore, active stock traders, typically holding positions over months, are even more likely to cut their winners short.

Some traders disagree that this bias is a problem. They find it beneficial to cut their winners short so that they can move their time and attention to finding the next trade - as in this potentially sound advice for traders: "You’ll never go broke taking a profit."

High scorers are more susceptible to this bias. Experience and education may eliminate your vulnerability. If you notice yourself cutting winners short consistently (you can determine this by looking at your win/loss profit per trade ratio or win/loss time held), and it is eroding your profitability, then try to understand what feelings are driving you. Do you feel desperate to lock-in a gain? Are you afraid of giving the paper profits back? Do you want to feel proud of your profits? Answering these questions can help you unlock your motivation for this behavior.

Impulse-control
Self-discipline : High
"One trait that was shared by all the traders is discipline."
~ Jack Schwager, Stock Market Wizards

Self-discipline is what many people call will-power. Self-discipline refers to one's ability to persist at difficult or unpleasant tasks until they are completed. Self-discipline is correlated with wealth level. When undisciplined people are financially successful, it is often because they have a disciplined person supporting them (an employee, spouse, or assistant).

In a survey of 200 currency traders in continental Europe, self-discipline was rated the second most important factor in trading success. (The most important factor was quick reaction time).

"Every winner needs to master three essential components of trading: a sound individual psychology, a logical trading system, and a good money management plan."
~ Alexander Elder, Trading for a Living

HIGH SCORERS

Self-discipline is a great asset for your trading, but be careful not to over-control your positions. The markets can be very disorganized and evolutionary, and in order to trade well, you’ve got to have some comfort adapting to uncertainty.

LOW SCORERS

One key to success is the ability to meticulously analyze one’s performance. What factors led to a successful trade? What happened to cause an unprotected loss? Self-discipline is necessary for collecting and organizing this information.
In order to build self-discipline, start by getting motivated. Notice the importance of discipline in your life. If there is little consistency between your stated intentions and actual behavior, then you may be considered unreliable and even untrustworthy by others.
Practice being "your word." When you say you that will do something, then you have made a commitment. Keep your commitments. A good way to start is to always be on time. A hallmark of undisciplined people is being late to appointments.
Don't get ahead of yourself. If you have low self-discipline, then address this problem with small, do-able steps.
In trading, it’s important to be able to mentally understand and plan for various contingencies before entering your positions. Identify the area of your trading where self-discipline would be most helpful, then begin a gradual program of improved organization and structure. Coaches can be very helpful in keeping you accountable here.

Immediate Gratification : Below Average
"Business opportunities are like buses, there's always another one coming."
~ Richard Branson

“Immediate gratification” is the preference for small, immediate rewards over larger, more distant rewards. People who “eat dessert first” are giving in to immediate gratification urges. Impatience is characteristic of high-scorers. Traders who score highly here should beware of impulsive trading.

HIGH SCORERS

Remember Richard Branson’s quote above – it is true for the trading business as well. Patience is a cardinal virtue of traders.
Beware of excess leverage and chasing fast-moving stocks (e.g the “most actives”).
Widen your time-perspective when feeling impulsive, and re-orient yourself to your original plan. Looking ahead can diminish your urge to trade impulsively now.

LOW SCORERS

If you have trouble reining in your impulses, then see the advice above.

Excitement-seeking : High

"The key sign of gambling is the inability to resist the urge to bet. If you feel that you are trading too much and the results are poor, stop trading for a month.... If the urge to trade is so strong that you cannot stay away from the action for a month, then it's time to visit your local chapter of Gamblers Anonymous."
~ Sonny Kleinfeld, The Traders

Excitement-seeking describes the tendency to pursue emotionally arousing activities. Excitement-seeking is seen in risk-takers who make large bets more for the thrill of the potential gain than out of an understanding of the game.

Excitement-seeking is generally detrimental to trading activities, and high scorers may pursue emotional excitement over prudent trading tactics.

It is important that traders enjoy trading, but trading must remain a business. When price action and P/L fluctuations become thrilling to a trader, then problems may arise. To maintain balance, traders should enjoy following a well thought-out plan more than the pursuit of profit or the avoidance of loss.

HIGH SCORERS:

High scorers are more susceptible to gambling for pleasure (unnecessarily taking high risk positions). If that is true of you, then you should either stop trading or use a small account to gamble for fun (one whose wins and losses will not significantly impact your assets). Some of the "Market Wizards" have small gambling accounts which they use for highly speculative bets.
If you find a new opportunity, then take the time to do due diligence.
You have the potential to be a good trader, as long as you watch the downside as well as the up. Sound money management is 90% of trading success (the other 90% is psychology, so they say).

LOW SCORERS:

For some low scorers, motivation is a challenge, but their trading is more likely to be appropriately deliberate and structured.

Intellectualism
Intellectualism : Above Average
"An intellectual is a man who takes more words than necessary to tell more than he knows."
Dwight D. Eisenhower (1890 - 1969)

Intellectual traders are interested in complex concepts and abstractions. They may enjoy understanding and modeling complicated intellectual problems. Both high and low intellectualism scores can be an asset or a liability for traders, depending on the context.

In trading, high intellectualism may lead to gathering "too much information" and "over-thinking." A hallmark of the intellectual trader is the use of complex analytic techniques. Intellectual traders should always understand the general principles underlying their preferred strategies. Intellectual curiosity can be helpful, but an over-reliance on details is distracting and potentially dangerous. Psychological research demonstrates that gathering more than 3 pieces of decision-relevant information leads to deteriorating decision quality.

Traders who are low scorers on intellectualism can more easily remain focused and without distractions or tangents in their thinking. “Very low” scorers may not feel curiosity about new trading techniques, which can reduce their performance if market conditions change.

HIGH SCORERS:
""Nothing contributes so much to tranquilizing the mind as a steady purpose - a point on which the soul may fix its intellectual eye.""
Mary Wollstonecraft Shelley (1797 - 1851)

Intellectual traders may have trouble with mind wandering. Their endless curiosity about new trading systems or models may hamper the disciplined operation of their trading business.

Be careful to avoid getting caught up in details about your trades or systems.
Don’t think you’re smarter than the market – remember to maintain a sense of humility (often difficult for intellectual experts).
Notice if you are "missing the forest for the trees." Successful trading doesn't have to be difficult or complicated. Many people consistently beat the market with strategies that are simple but consistently executed.

LOW SCORERS:

Use strategies that make sense to you. Low scorers perform best when methodically studying tried-and-true methods. Be wary of relying on unsophisticated or unreliable sources for research.
One problem with low intellectualism is a tendency to continue using a strategy even after market conditions have changed and it is no longer profitable. Maintain an awareness of the larger economic trends that may impact your trading space.

Herding
Trend-following : Above Average
"If your mind is not in gear with the markets, or if you ignore changes in mass psychology of crowds, then you have no chance of making money trading."
~ Alexander Elder (1993) Trading for a Living

Trend-following refers to one's tendency to follow the crowd, relying on others to determine market leadership and perform critical thinking. Trend-following can be profitable for traders (though many contrarians would disagree), provided that they recognize signs of trend formation and dissipation. Momentum traders are an example of trend-followers. Contrarians score low on trend-following. Contrarians tend to bet against current trends or opinion when they are identifiably incorrect. Contrarians typically view the market consensus with suspicion, and are sometimes seen as congruent with swing or counter-trend traders.

"Never, Ever Listen to Other Opinions."

To succeed in the markets, it is essential to make your own decisions. Numerous traders cited listening to others as their worst blunder. Walton and Minervini lost their entire investment stake because of this misjudgement."
~ Jack Schwager, Stock Market Wizards, Wizard Lessons #29

HIGH SCORERS:

Consider using a trend-following strategy in your trading.
Avoid listening to financial media outlets such as CNBC for trading ideas, unless you are planning to be a contrarian. High scorers are more susceptible than most to jumping onto the media bandwagon or following stock tips (which is typically a very bumpy ride).

LOW SCORERS:

You have the innate advantage of searching for opportunities away from the crowd. Trading in overlooked markets or sectors may fit your personality.
Beware of betting against powerfully trending markets. Betting against trends may be appealing to low scorers, but doing it well requires patience, vigilance, and knowledge of the signs of reversal. Timing is key.

The Sharks

2009-07-22T16:47:00.003+01:00

In May 2009, Euromoney first published the results of its benchmark foreign exchange industry poll. No surprise, the Top 5 positions in the poll remained the same. Note that the Top 5 account for 61.5% market share.

The leading banks are enjoying record profitability (whereas as highlighted in a previous blog entry, currency hedge funds aren't doing too well). Volatility combined with wider bid/offer spreads continue to be major revenue contributors. Total turnover is a record USD175.3 trillion!

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems.

To gain an insight into what some of these banks' views are about the market, here are a couple of links:

https://www.db-markets.com/portal/lang/en

http://www.dukascopy.com/swiss/english/marketwatch/fxbankforecast/

About Currency Correlation

2009-07-22T16:26:00.002+01:00

The following tables represent the correlation between the various parities of the foreign exchange market (forex). The correlation coefficient highlights the similarity of the movements between two parities.

If the correlation is high (above 80) and positive then the currencies move in the same way.

If the correlation is high (above 80) and negative then the currencies move in the opposite way.

If the correlation is low (below 60) then the currencies don't move in the same way.

The correlation index are calculated on the daily and hourly data. In other chapters of Mataf.net you will be able also to calculate the correlation of a pair compared to a basket of currencies and to study more precisely the correlation between two parities.

The Case for Dynamic Allocation in Currency

2009-07-22T15:50:00.011+01:00

Daniel Szor, Managing Director
FX Concepts (Source: FX Concepts, LLC)

As alternative investment managers continue their never-ending search for alpha it is clear that for most the priority is in generating the smoothest returns possible with the lowest possible volatility. In our business - currency - this is problematic as we operate in a universe of limited choice in terms of instruments: 10 developed currencies and approximately twice that many emerging currencies (with varying liquidity). Just as a fixed income manager will be able to generate smoother returns and lower volatility by managing a portfolio of 100 bonds versus a 10-bond portfolio, currency managers who are able to create diversification in their portfolios will be able to provide their investors with better information ratios over time than those are more concentrated. Once such diversification exists, be it over multiple currency pairs, time horizons, trading styles or all of the above, the next frontier becomes how to allocate effectively.

FX Beta vs. FX Alpha

The first step in constructing an effective trading strategy is making certain that it effectively exploits all sources of return available in its given market. Foreign Exchange is unique in that despite its great liquidity it is far from the most efficient market in the world. Whether this is due to the often-remarked upon “lack of nonprofit participants” or the fact that currency has never been considered an asset in the “buy and hold” sense is a topic in its own right. Whatever the reason, the existence of a base return – or beta - in currency can be illustrated through the historical performance of naïve rules-based strategies which proxy the returns available by simply exploiting the principle inefficiencies in the FX market. The two most widely followed strategies are directional trading and carry trading and a third exists in the volatility space - i.e. exploiting various mispricings between implied and realized volatility.

If simple rules-based systems can generate positive returns then it should follow that an intelligent, experienced and disciplined manager should be able to add alpha to the beta described above. The three main forms of such alpha can be summed up as: 1)good model design, 2) intelligent portfolio construction, and 3) sound risk management. What has become clear to us as model-designers is that allocation is front and center in the success of all three of the above alpha components.

FX Alpha 101 – Designing Smarter Models

Among the first quantitative techniques used to design directional trading models was systematic trend-following. Relying on any number of related signals such as momentum, moving averages, trendline analysis, etc. trend-following relies primarily on a “pairs-based” approach to portfolio construction. It assumes serial correlation, i.e. what went up yesterday will rise again today and tomorrow. The problem with this approach is that, although certain assumptions regarding future performance can be made taking past performance into account (such as “JPY sees more trends vs. the USD whereas GBP/USD tends to mean-revert, resulting in choppier and more difficult dynamics for trend-following”), the process of creating a pairs-based model and running it on a discrete number of currency pairs involves an essentially naïve and static allocation of risk capital. Furthermore, as trend-following is a “long-volatility” strategy one of its main weaknesses is the “lumpiness” of its returns – i.e. it has several instances of strong return in a year separated by long periods of flat or negative performance. Increasingly, in order to smooth this lumpiness and optimally deploy risk capital assigned to trend-following, managers are turning to optimizers which dynamically allocate capital to currency pairs where risk-adjusted return expectations are highest. The chart below shows the difference in performance between a naïve moving average crossover model and one of our optimized trendfollowing systems employing dynamic asset allocation:

The second-most popular technique used to generate currency alpha is yield-based, or carry, trading. Here once again, naïve strategies were originally used to capture this beta, which is based on the observed phenomenon that over time currencies with high yields tend to outperform those with low-yields. Capturing this beta should therefore be as easy as constructing a portfolio of long positions in high-yielding currencies financed by short positions in low-yielding currencies. While this approach has historically generated positive returns – especially in recent years – the risk has been in the “tails”, i.e. the infrequent but significant losses which can occur when risk appetite (which typically corresponds to positive performance for yield-basedstrategies like FX carry) turns to risk aversion. Overcoming this hurdle is what separating beta capture from alpha generation is all about – i.e. the point at which managers become smarter about their risk allocation. The chart below shows the improvement in performance of a basic carry strategy when the risk allocation is dynamically set using a “risk appetite index” (the black line) as we do in several of our carry systems:

The third beta available is probably the least-exploited, as it is only in the past several years that systematic strategies operating in the volatility space have become practicable. These strategies are based on a number of inefficiencies observed in the past, the principle one being that implied volatilities embedded in currency options tend to be more expensive than realized volatility. It would then follow that even a naïve options-selling system would do well over time – and such is the case. Once again, however, there is a price to pay – which is the “short volatility” risk profile of the strategy. This tends to look the opposite of the “long volatility” trend-following risk profile, which makes it a good complement to any systematic trend-following strategy - but nevertheless it can be improved on by dynamic allocation. The chart below shows the difference in return between a naïve options-selling strategy and one of our own, “smart” systems using dynamic allocation to weight positions based on the favorability of the environment for short-volatility strategies:

FX Alpha 102 – Improving Portfolio Construction

Once a series of individual trading systems has been developed the next step is putting them together in a portfolio with the goal of capitalizing on the benefits of diversification and low correlation between models. Even the most basic portfolio combining systems based on the three “betas” above will probably outperform any single strategy on a risk-adjusted basis, given the low correlation between the three approaches. In the case of many professional currency managers this is only the beginning, however – as a more complex portfolio using multiple systems will probably produce a superior risk-adjusted return than one using only 2 or 3 systems.

In the case of FX Concepts, our investment process has evolved over the years to the point at which the very complex investment decision tree below depicts our most sophisticated currency/fixed income strategy – the Global Financial Markets (GFM) Program:

Once the portfolio becomes this complex it is clear that a manager is no longer operating at the level of a basic FX trader but rather in a way more similar to that of a Fund of Funds manager – i.e. with a focus not only on having good strategies but also on getting the allocation between strategies right. This “allocation alpha” becomes more significant with the increasing complexity of the underlying portfolio, to the point at which it can become a more important contributor to the overall return than any one underlying strategy. A correspondingly more intense discipline is therefore required in order to effectively allocate risk capital between various strategies – this discipline can be summed up as follows:

FX Alpha 103 – Creating Allocation Alpha

So the goal becomes outperforming a benchmark “naïve allocation” – easily said, but how to go about it? Just as dynamic allocation was shown above to be a key element in improving the returns of underlying trading models, so also can it be an important element in improving the portfolio construction process. As is the case with underlying models, the key to this is in understanding the drivers of performance in the strategies making up a portfolio – in other words, under what circumstances they are expected to outperform and when they are more likely to underperform. We have grouped our strategies into those that are essentially long volatility in nature and are therefore more likely to outperform during “divergent” periods in the market, versus those that are either short- or neutral-volatility or more likely to outperform during “convergent” periods.

What do these terms - convergent and divergent – mean? Think of it as follows: if there’s a currency headline on the front page of the Financial Times, this would likely be described as a “divergent” period – i.e. one in which significant shifts in parities are occurring – whereas if currency barely makes the back page of the FT, this would probably be described as "convergent” – i.e., “all quiet on the Western Front” – with yield-enhancing trades the order of the day. We have therefore crafted our allocation metric as follows:

As mentioned in the illustration above, the portfolio manager’s job becomes one of identifying exogenous variables (just as the model designer does when building dynamic allocation techniques for his systems) which can help determine future performance for a given strategy, or group of strategies. Just as a model designer will want to easily test multiple factors for effectiveness and predictive value, the portfolio manager will want to do the same – therefore, effective technology is required. We have used one such system below, the Alphaengine from Mcube, to illustrate the significance of the return enhancement obtainable through dynamic and systematic strategy allocation.

In the example above, we have created a very simple allocation model composed of two rules. The first rule is based on the momentum of implied volatilities in the currency options market, and on the premise that high absolute levels of volatility are bad for trend-following as they tend to hamper the effectiveness of trend signals. During these periods the signal therefore shifts the weight from trend-following to carry by an increment of 10%. The second rule uses the VIX index – a proxy for equity market volatility – as a signal to increase or decrease the allocation to trendfollowing. The premise is that high and rising equity volatility is a pre-cursor to an increase in currency volatility which will render trend-following less effective. It therefore shifts the allocation away from trend-following towards carry during such periods, by an increment of 10%. Each of these rules took 5 minutes to develop and test; the final step was in creating a rule which combines the two. The results – versus a benchmark 50/50 split between trend and carry – are as follows:

The power of this sort of allocation alpha becomes evident when analyzing the excess return of 3.78% p.a. vs. the underlying static allocation. The most significant point to note is that the increase in alpha comes with no increase – actually a slight decrease – in the volatility of returns. It will quickly become evident that the strategic allocation process can, and should, be considered to be a significant source of return. Of course, it can also be a significant source of risk as well; but as trading strategies become increasingly sophisticated and widely available it will be dynamic allocation –and the skill with which it is executed – that will separate the men from the boys in the game of currency.

REGISTRATION CLOSED: "Live" Trading Session - Monday, 20th July 2009

2009-07-18T10:54:00.010+01:00

UPDATE: Ok, we now have 20 participants. Looking forward to it. For those unable to join me this time... I will consider holding another session in the near future (if this one goes well enough)! :-)

I'm planning to host a FREE "live" trading session (no strings attached) on Monday, 20th July 2009 starting at 07:00 AM BST (British Summer Time).

It will by no means be a definitive webinar on how to trade. Rather, my hope is more modest... to provide an insight to how I go about trading intraday. So, the trades made will be done on a newly setup demo account (FXCM UK's MT4)... and may not accurately reflect my own actual live trades. And as I can't possibly replicate all of my live trades... I'll probably stick to a maximum of 2 pairs, i.e. GBP/USD and GBP/JPY.

Should anyone be interested (limited to 20 participants on a first-come, first-served basis), do e-mail me at minibahn8@gmail.com and I will reply with the details in due course. Additionally, you will need to download the necessary tools in advance. See my previous blog entries, links and archives for the template and indicators you will need.

As this will be the first time I'm attempting this... I'm anticipating a few hiccups. So, do bear with me. :-)

New Channel Created on IRCForex.com

2009-07-14T22:08:00.002+01:00

I've created a new channel on ircforex.com. Just type "/join #PivotPoints". See you guys there! :-)

Are You Outperforming the World's Largest Forex Hedge Fund?

2009-07-13T19:00:00.002+01:00

Monday, 06 July 2009 20:55

by S. Wade Hansen (Source)

The first half of 2009 has been a difficult time for many forex traders---even the seasoned professionals.

FX Concepts, the world's largest currency hedge fund, is down more than 5 percent since the end of 2008.

The question is...how are you doing in your forex trading?

Have you been able to outperform the top forex hedge funds---with their sophisticated computer models and staffs of professional traders---or have you been day trading yourself into oblivion?

Have you been stopped out for dramatic losses due to the increased volatility the forex market has seen, or have you been able to find a few key trends and take advantage of them?

My guess is many traders find themselve in the same boat, or worse, as the funds discussed in the following article:

According to Bloomberg:

FX Concepts Inc., the world’s largest currency hedge fund, says it lost 5.4 percent in this year’s first five months. John W. Henry & Co.’s foreign-exchange fund told investors it lost 2 percent, after 2008’s 76 percent gain, the best since its 1986 launching.

Both use computer models to spot currency trends and, along with other momentum chasers, are getting hammered by this year’s lack of clear direction as the markets are pulled in opposing directions. Deflationary pressure from the first global recession since World War II is being countered by the inflationary forces of record stimulus spending and currency printing across the globe.

The ICE’s Dollar Index shows the U.S. currency fell 1.4 percent against a basket of six major currencies in this year’s first half, the smallest two-quarter change since 2006. Of four currency trading styles simulated by Royal Bank of Scotland Group Plc indexes, trend-following is the year’s only loser, down 4.8 percent after also underperforming in June. In 2008, the tactic gained 9.9 percent, its best in five years.

“I am not trying to make any excuse, but certainly it has been difficult,” said John Taylor, chairman of New York-based FX Concepts, which manages about $12 billion. “Unfortunately, there’s lack of consistence of what’s happening. I am wondering how stupid the market can be for how long.”

I would love to hear what you all are having success with and where you have run into trouble.

Personally, I've taken some longer term trades on the commodity currencies this year, and they have played out well. I also caught part of the uptrend on the GBP/USD.

Of course, not having $12 billion to deploy has made my trading much more nimble than that of FX Concepts.

If you feel comfortable, please share some of your successes and failures. We'd all love to learn together.

Are You a Better Trader Than a Japanese Housewife?

2009-07-12T14:59:00.008+01:00

I'm sure many of you have heard this story before... in 2007, a 60 year-old Japanese housewife made headlines for receiving a suspended sentence and fine of 34 million Yen for tax evasion having made 400 million Yen (USD3.44 million) trading forex! (Source)

The obvious lesson notwithstanding (i.e. do not mess with the tax authorities), it's a useful simple benchmark to use. So, are you a better trader than a Japanese housewife? ;-)

Monthly Retail Forex Volume report for June, 2009

2009-07-12T04:52:00.001+01:00

Monthly Retail Forex Volume report for June, 2009
Posted by Michael Greenberg in Brokers

Every month I’ll be preparing a report with a volume survey of as many retail forex brokers as possible. The report I released in May estimated the total daily volume at over $105B. June’s report estimates it at $128B, the increase is mainly due to several more brokers being added to the list.

The largest retail Forex broker, as you probably already know, is FXCM with Oanda coming in second. It looks like FXCM’s world Forex domination is all but complete and all that is left for others is the competition for 2nd and 3rd places. Good luck Oanda, Gaitame, Gain, Saxo and GFT.

Several major differences from the previous survey: Oanda was upgraded to reflect its volume more accurately (though their exact numbers are very hard to find), Gaitame the leading Japanese firm was added and FXOpen a leader in Middle East and Asia was added as well. Avafx was downgraded to reflect its known volume and Easy Forex was added.

The numbers were officially, and to some extent unofficially, released by the brokers themselves or are educated estimations based on industry rumored figures:

The figures are incomplete as some brokers such as FXDD, FX Solutions and CMS simply don’t report or disclose their numbers.

Moreover, it’s important to note that is very hard, if at all possible, to discern the retail trading volume (individual traders) and institutional trading volume as they are typically jointly reported by the brokers. Therefore, these numbers might reflect some institutional trading volume as well.

minibahn's TFD System

2009-07-11T09:55:00.003+01:00

Mini-TFDS

**WARNING** This is not the ‘holy grail'. So, kindly observe good money management practices at all times.

Preface

I’ve put together a simple trading system, which I call “Mini-TFDS”, which stands for Minibahn’s Trading-for-Dummies System.

My inspiration for doing so is simple… I realise that many part-time retail traders simply face an up-hill battle trying to juggle their busy lives, much less to devote the time and energy required to learn & perfect their own variation of any given strategy or system. The frustration arising from persistent losing trades and mounting losses do not make matters any easier.

So, then… I humbly present to you, the Mini-TFDS!

Requirements

Kindly click HERE for the ZIP-file containing the Mini-TFDS template (to be placed in the ‘templates’ folder) and indicators you will need.

A note of thanks to the creators/coders of the indicators. :-)

Trading Rules

1. The recommended timeframes for the Mini-TFDS are M15, H1 and H4. This system can be used to daytrade or position trade.

2. You will notice that on the top right-hand corner of your chart will contain the optimal entry conditions (see the GBP/JPY chart below).

In this case, the optimal entry would be to trade a break-out, i.e. going long above the buy(ask) at 152.271 OR going short below the sell(bid) at 151.803. Under this optimal entry condition, the risk as indicated is approx. 47 pips.

3. The volatility indicator (in yellow) is to be used as a trailing stop level. Remember, do not let your winners turn into losers.

4. You notice also, there’s also an opportunity to take a contrarian (counter-trend) trade after a break-out. After a price break-out, when price crosses-over the volatility pivot line… this signals that the break-out is over and reversal is underway. For these types of trades, simply set the daily high/low as your initial stop-loss level and as previously, use the volatility pivot line as your trailing stop level.

Let’s look at an example. After breaking-out lower on 8 July, GBP/JPY crossed-over the volatility pivot line… indicating that the break-out is over and that a reversal is beginning. Notice that there were a number of wicks on this M15 chart below the volatility pivot line. Since they were wicks (and not bodies) past, you could re-enter if stopped out. The melkl indicator’s new buy(ask) and sell(bid) levels also then allows for additional lots to be added. The entire move in the end was a whopping 500 pips!

5. The supersignals can also be used as discretionary entry and exit points in support of the strategy as outlined above. However, please be aware that this indicator re-paints. My suggestion, therefore, is for you to familiarise yourself with steps 1 to 5 first.

6. Well, that’s it… easy-peasy. Have fun and good luck! :-)

Intraday Trading Strategy (Version 2.1)

2009-07-09T22:06:00.006+01:00

Preface

My approach to intraday trading is based largely on technical analysis, which is the study of price action through indicators in order to anticipate future price action. Naturally, I've long accepted that there is no way to be 100% accurate, for trading is (and this is a very important point) a game of probabilities. The successful application of technical analysis is therefore designed to alert the trader to the highest probability move... be it up, down or sideways. It is collective psychology that is the force behind market movements, and the result of this psychology is what we eventually see on the price chart.

Keeping It Simple

Given the multitude of technical indicators out there, it's hardly surprising that traders (especially new ones) often get confused. Unfortunately, it's hardly helpful that there's no 'holy grail' to trading. As they say, "there's more than one way to skin a cat."

Trading is very personal, and for this reason you should use indicators you feel most comfortable with in the hopes of improving your odds for success.

Notwithstanding, I will show you how I use the indicators that I use... and hopefully you will be inspired to develop your own trading strategy.

Speaking of Timeframes

The choice of timeframes is a personal one also, and personally speaking I like trading using the M15 and H1 charts.

Money Management

Sound money management is essential to sustainable and profitable trading. Though I shall not cover in great lengths on the subject, I will share my own money management technique.

On any given trading day, my daily equity at risk is capped at 3%. I further divide this into ten (10) trades, meaning that I risk only 0.3% of my equity on any given trade. Though it has yet to happen *touchwood*... I will be able to sustain 10 consecutive losing trades a day, before walking away for the day and regroup.

The Fundamentals

The foundation for ALL of technical analysis is the concept of support and resistance. Support is an area below the market price where buying overcomes selling. Resistance is an area aboe the market price where selling overcomes buying. It's no surprise then that properly identifying support and resistance is a big part of becoming a successful trader... because good market timing depends on buying close to support and selling close to resistance.

The strategy I employ is modelled on the tried and tested pivot points, originally employed by floor traders on equity and futures exchanges to determine critical support and/or resistance levels.

*Quick history lesson: Pivot Points are based on the mathematical formula originally developed by Henry Wheeler Chase in the 1930s. Chester W. Keltner used part of the formula to develop the Keltner Bands, first published in 1960. Larry Williams "brought sexy back" in his book 'How I Made One Million Dollars... Last Year... Trading Commodities' in 1979. Don Lambert, the creator of the Commodity Channel Indicator (CCI) uses the pivot point formula to make the CCI work.

If you are unfamiliar with pivot points and the various terms, kindly read the following articles for better understanding.

http://www.investopedia.com/articles/forex/05/FXpivots.asp
http://www.investopedia.com/articles/forex/07/pivotpointstrategy.asp
http://www.babypips.com/school/pivot_points.html

Should you already be familiar with pivot points, then by all means read on.

You will realise that I've essentially kept my trading style fairly conservative and without any material changes to the basic principles. As they say, "if it's not broken, why fix it?"

Trading Rules

1. This is an intraday trading strategy adapted for trading using the M15 and H1 charts. The indicators you will need as well as the template I used can be downloaded here: http://www.ircforex.com/indicators/602-minibahns-indicators

(a) super_signal_v3.mq4 (used for alarm feature and for discretionary TP; NOT to be used for new trade entries!)
(b)i. Pivot _Points_-_Daily_(Shifted).mq4 (my ShiftHrs is "-1" to sync with London) *
(b)ii. Pivots_Daily.mq4 *
(c) Pivots_Weekly.mq4
(d) Pivots_Monthly.mq4 **
(e) b-clock_(h-m-s).mq4
(f) Volatility.Pivot.mq4 (my atr_factor is set to the default "3.0" on H1 and "5.0" on M15)
(g) FFCal.mq4

* My primary MT4 account is now with FXCM UK (http://www.fxcm.co.uk/metatrader.jsp). As FXCM UK's server time follows London (BST), I now use (b)ii. on my M15 chart. Note that use of (b)ii., (c) & (d) on MT4 platforms with different server times, may result in materially different pivot levels. Whilst it is acceptable to use different pivot levels, i.e. based on GMT, EST, etc. my personal preference is per London since the London market is the largest and most volatile forex trading market in the world.

** I use (d) only on H1.

2. Determine bias by observing the day's opening price relative to the daily pivot point. If price opens ABOVE the daily pivot point, then bias is bullish/long. If price opens BELOW the daily pivot point, then bias is bearish/short.

3. Confirm bias by observing the day's opening price relative to the volatility pivot line. If price opens ABOVE the daily pivot point AND is also ABOVE the volatility pivot line, then the bullish/long bias is strong. If price opens BELOW the daily pivot point AND is also BELOW the volatility pivot line, then the bearish/short bias is strong.

4. The BEST entries for new trades are located within a zone (sweetspot) 20-30 pips wide of any given pivot line (Daily PP, S1, S2, S3, R1, R2 and R3). For longs (buying supports), ideally entries should be made 'at' to 15 pips above any given pivot line. For shorts (selling resistances), ideally entries should be made 'at' to 15 pips below any given pivot line.

Note:

If price is at PP, watch for a move back to R1 or S1.
If price is at R1, expect a move to R2 or back towards PP (shorts outperform longs approx. 58% to 42%).
If price is at S1, expect a move to S2 or back towards PP (longs outperform shorts approx. 56% to 44%).
If price is at R2, expect a move to R3 or back towards R1 (shorts outperform longs approx. 83% to 17%).
If price is at S2, expect a move to S3 or back towards S1 (longs outperform shorts approx. 83% to 17%).
If there is no significant news to influence the market, price will usually move from P to S1 or R1.
If there is significant news to influence the market price may go straight through R1 or S1 and reach R2 or S2 and even R3 or S3.
R3 and S3 are a good indication for the maximum range for extremely volatile days but can be exceeded occasionally (at R3, shorts outperform longs approx. 97% to 3%; and at S3, longs outperform shorts approx. 97% to 3%).
Pivot lines work well in sideways markets as prices will most likely range between the R1 and S1 lines.
In a strong trend, price will blow through a pivot line and keep going.
Once support or resistance is broken, the level in question becomes its opposite, i.e. former support becomes resistance and former resistance becomes support.

** It is important to understand, however, that these are probabilities and not certainties.

5. Wicks pricking through pivot point levels do not constitute a valid entry. Unless the move past a pivot point level is convincingly rapid, it is advised to enter a new trade only upon the 2nd candle that has its body past the pivot point level. In relatively calm market, when price is in the "sweetspot", I would typically place an OCO order (One-Cancels-The-Other) with the buy stop leg 10-15 pips above the pivot line and the sell stop leg 10-15 pips below the pivot line.

6. Stop-losses (SL) though highly recommended are not an essential part of the trading strategy, for if Trading Rules no. 4 & 5 are strictly observed... any unprofitable trades will be immediately closed when the opposite entry signal is observed. However, should you require a SL... the recommended level is 20-30 pips (and preferably on the opposite side of pivot point level to your entry).

7. Unless you trade one (1) lot at a time, it is advised that you split your entries into at least two separate trades.

8. Pursuant to no. 7, the way of exiting trades shall also be split... i.e. one shall be based on your discretion, and the other shall be decided by the market (via a trailing stop about 20-30 pips away). In general though, the TP level should be the nearest resistance if buying support and the nearest support if selling sesistance. (Note: The volatility surrounding the major USD-crosses have resulted in trades frequently being stopped out, be it for a loss, break-even or prematurely when in profit... far short of its eventual reversal point. I've been tinkering with a few exit strategies and was advised by an institutional trader friend of mine to utilise a volatility 'filter'. Since I do not have access to his multi-million dollar setup, I found the use of the Volatility.Pivot.mq4 to be helpful. From what I understand, despite its name, it is actually based on the ATR. I'm still in search of a more 'concrete' volatility filter. Until then, this is what I'll be using.)

Well, that's it in a nutshell. Please feel free to review the trading logs posted here to further familiarise yourself with the strategy... and remember, practice makes perfect. Should you require further clatification, you'll most probably find me here (http://www.ircforex.com/chat/) most weekdays.

My Indicators

2009-07-09T13:06:00.001+01:00

Click here to download the indicators I use: http://www.ircforex.com/indicators/602-minibahns-indicators

Post-mortem: GBP/JPY Analysis (8 July 2009)

2009-07-09T06:31:00.003+01:00

Refer here for earlier analysis: http://minibahn.blogspot.com/2009/07/gbpjpy-analysis.html

GJ eventually moved 550 pips in a fairly short time-frame! Amazing... going as low as 146.739. Coolness!!!

Super Day Trader - Mind Map

2009-07-08T09:49:00.003+01:00

(Source: DayTradingLife.com)

LATEST: My Position Trading Strategy & System (Version 2)

2009-07-08T04:44:00.005+01:00

Kindly read in conjunction with my Intraday Trading Strategy & System (Version 2).

Trading Rules

1. This is an intraday trading strategy adapted for trading using the H1, H4 and even Daily charts. The indicators you will need are as follows:

==> super_signal_v3.mq4 (used for alarm feature and for discretionary TP; NOT to be used for new trade entries!)
==> Pivots_Weekly.mq4 (do not use this on Daily charts!)
==> Pivots_Monthly.mq4
==> b-clock_(h-m-s).mq4
==> Volatility.Pivot.mq4

==> PriceChannel_Stop_v1[1].2.mq4

2. Determine bias by observing the week's opening price relative to the weekly pivot point. If price opens ABOVE the weekly pivot point, then bias is bullish/long. If price opens BELOW the weekly pivot point, then bias is bearish/short.

3. Determine additional bias by observing the month's opening price relative to the monthly pivot point. If price opens ABOVE the monthly pivot point, then bias is bullish/long. If price opens BELOW the monthly pivot point, then bias is bearish/short.

4. Confirm bias by observing price relative to the volatility pivot line. If price is ABOVE the weekly pivot point AND is also ABOVE the volatility pivot line, then the bullish/long bias is strong. If price opens BELOW the weekly pivot point AND is also BELOW the volatility pivot line, then the bearish/short bias is strong.

5. The BEST entries for new trades are located within a zone (sweetspot) 20-60 pips wide of any given pivot line (Weekly or Monthly PP, S1, S2, S3, R1, R2 and R3). For longs (buying supports), ideally entries should be made 'at' to 60 pips above any given pivot line. For shorts (selling resistances), ideally entries should be made 'at' to 60 pips below any given pivot line.

Note:

If price is at PP, watch for a move back to R1 or S1.
If price is at R1, expect a move to R2 or back towards PP (shorts outperform longs approx. 58% to 42%).
If price is at S1, expect a move to S2 or back towards PP (longs outperform shorts approx. 56% to 44%).
If price is at R2, expect a move to R3 or back towards R1 (shorts outperform longs approx. 83% to 17%).
If price is at S2, expect a move to S3 or back towards S1 (longs outperform shorts approx. 83% to 17%).
If there is no significant news to influence the market, price will usually move from P to S1 or R1.
If there is significant news to influence the market price may go straight through R1 or S1 and reach R2 or S2 and even R3 or S3.
R3 and S3 are a good indication for the maximum range for extremely volatile days but can be exceeded occasionally (at R3, shorts outperform longs approx. 97% to 3%; and at S3, longs outperform shorts approx. 97% to 3%).
Pivot lines work well in sideways markets as prices will most likely range between the R1 and S1 lines.
In a strong trend, price will blow through a pivot line and keep going.
Once support or resistance is broken, the level in question becomes its opposite, i.e. former support becomes resistance and former resistance becomes support.

** It is important to understand, however, that these are probabilities and not certainties.

6. Wicks pricking through pivot point levels do not constitute a valid entry. Unless the move past a pivot point level is convincingly rapid, it is advised to enter a new trade only upon the 2nd candle that has its body past the pivot point level.

7. Stop-losses (SL) though highly recommended are not an essential part of the trading strategy, for if Trading Rules no. 5 & 6 are strictly observed... any unprofitable trades will be immediately closed when the opposite entry signal is observed. However, should you require a SL... the recommended level is 40-60 pips (and preferably on the opposite side of pivot point level to your entry).

8. Unless you trade one (1) lot at a time, it is advised that you split your entries into at least two separate trades.

9. Pursuant to no. 8, the way of exiting trades shall also be split... i.e. one shall be based on your discretion, and the other shall be decided by the market (via the use of the Price Channel Stop or a wide trailing stop about 40-60 pips away). In general though, the TP level should be the nearest resistance if buying support and the nearest support if selling sesistance. (Note: The volatility surrounding the major USD-crosses have resulted in trades frequently being stopped out, be it for a loss, break-even or prematurely when in profit... far short of its eventual reversal point. I've been tinkering with a few exit strategies and was advised by an institutional trader friend of mine to utilise a volatility 'filter'. Since I do not have access to his multi-million dollar setup, I found the use of the Volatility.Pivot.mq4 to be helpful. From what I understand, despite its name, it is actually based on the ATR. I'm still in search of a more 'concrete' volatility filter. Until then, this is what I'll be using.)

Well, that's it in a nutshell. Please feel free to review the trading logs posted here to further familiarise yourself with the strategy... and remember, practice makes perfect. Should you require further clatification, you'll most probably find me here (http://www.ircforex.com/chat/) most weekdays.

GBP/JPY Analysis

2009-07-08T02:39:00.007+01:00

A bit of longer-term analysis using my system, as it were. I do apologise if my charts seem a little cluttered, but I shall try and point out the important elements.

Just with a casual glance at the GBP/JPY Daily chart below, you will immediately notice that I'm using Fibonacci Retracements to help me out. So, here we go...

Recent price action suggests that the GJ's rise from 118.78 has reached it's peak (for now) at 162.57. For the first time since February of 2009, GJ is convincingly BELOW the Monthly Pivot Point (now at 158.19). In fact, as I'm writing this, GJ is below even the Monthly S1 (at 153.82) and have past slightly below the 23.6% retracement level (at 152.23). In fact, it's testing the volatility pivot line (in yellow) which is at 151.75.

Should GJ be able to get past the latter, and supported by the fibs, the target for shorts shall conservatively be the 38.2% fib line at 145.84 and perhaps the Monthly S3 at 144.72.

For now, by looking at the GJ H4 chart, it is an obvious short below MoS1 (153.82) targeting MoS2 (149.09).

FYI, I've been scaling-in sell trades on GJ once it went below June 2009's MoR1 at 158.97.

I have sufficient lots on this trade to make a tidy sum indeed. ;-)

The Numbers Game (Part 2)

2009-07-07T06:22:00.004+01:00

So, we've seen a glimpse of the fact that frequency or probability would be rather useless if not considered in conjunction with the magnitude of the outcome.

Let's dabble more into the concept of reward:risk and expectations.

I'm frequently pressed for my 'call' on any given currency pair. To the ill-equipped (without basic understanding of probabilities), my honest & straightforward answer comes across as confused jibberish... when in fact (and I try to put this across as delicate as possible), it is they who are mired in confused jibberish and are desperately trying to make any sense of the market.

To side-track a little, notice that the words bullish and bearish, both end with the adverb "ish"... meaning; (1) somewhat, (2) reasonably, fairly, (3) about, approximately. Remember, when dealing with price movements, we're not dealing with certainty.

Using our example from the previous post, we recall that GBP/USD is at 1.6480 and below the Daily R1 (and where shorts are favoured to longs by 58% to 42%). As I mentioned above, probability without considering magnitude is useless.

We need two further pieces of information, i.e. the Daily R2 (1.6580) and the Daily PP (1.6300).

(Note: for the examples, spreads are ignored for simplicity)

Event: Probability x Outcome = Expectation
Price goes up: 42% x -100 = -42
Price goes down: 58% x 180 = 104
Total = 62

(Re:Ri = 180:100, i.e. 1.8:1)

Clearly, going short results in a positive expectation.

If price goes above Daily R1, it would be easy to think that expectations are still with us and we should be simply selling into strength, i.e. go short. However, note that if the improbable does happen you'll be facing with a 100 pip loss at the very least... and if a strong breakout occurs, and price goes past Daily R2 to Daily R3 or even beyond that, you will be staring at a significant intraday drawdown which may force a margin call or worst, blowing your trading account.

This is where the use of stop-losses come in. Many amateur traders have difficulties accepting losing trades, mainly due to psychological reasons that I shall not get into today. With all seriousness, incorporating stop-losses into your trading is akin to putting on brakes on a Formula 1 car. Whilst having the fastest car on the track is a major advantage... notice that what separates the best driver from the rest is the ability to overtake when braking and turning into a corner!

Let's see how it works, using the same data as the above example... except this time, we put a 30 pip stop-loss.

Event: Probability x Outcome = Expectation
Price goes up: 42% x -30 = -13
Price goes down: 58% x 180 = 104
Total = 91

(Re:Ri = 180:30, i.e. 6:1)

So, we've actually 'improved' our positive expectation.

And, let's say if the stop-loss is hit, we 'reverse' and now go long (again with a 30 pip stop-loss) with the comfort that the Daily R1 is now below us and serves as a support level.

Event: Probability x Outcome = Expectation
Price goes up: 42% x 80 = 34
Price goes down: 58% x -30 = -17
Total = 16

(Re:Ri = 80:30, i.e. 2.7:1)

(Note: potential reward to Daily R2 is 80 accounting for the fact that the new buy order is at the same level as our stop-loss level)

Amazingly, it seems, expectations for going long above the Daily R1 is now also positive, as opposed to being negative if without one (see below).

Event: Probability x Outcome = Expectation
Price goes up: 42% x 80 = 34
Price goes down: 58% x -210 = -122
Total = -88

(Re:Ri = 80:210, i.e. 0.4:1)

Now, you've caught a glimpse of how truly successful traders go about the very serious business of trading the financial markets. I therefore strongly urge you to stop being ill-equipped for the sake of your own long-term trading survival and profitability.

So, you see, accuracy in forecasting price movements is truly overrated. The traders you should actually be paying attention to are the ones, when asked for calls, forecasts and predictions, simply answer back "I don't make predictions, period." Leave that to the economists, strategists, analysts and salespeople.

Remember, trading is a numbers game. :-)

The Numbers Game

2009-07-06T20:33:00.005+01:00

To be a successful trader, one must overcome a simple (yet somehow difficult to many) problem, innumeracy. Without understanding the basic concepts of probability, chance and randomness... a trader is fatally ill-equipped.

Assume that EUR/USD is at 1.3900... and there's a 50% chance that it will go up during the Asian session and there's a 50% chance that it will go up during the New York session. To the ill-equipped, it would be easy to then deduce that the chance that EUR/USD would go up during the trading day is 100% certain. Now, to the informed trader... this is clearly not the case. Someone who doesn't understand probabilities is sure to lose money trading.

(Note: In case you haven't figured it out, the chance of EUR/USD going up is still 50%).

Let's take another example. Assume that GBP/USD is at 1.6480. What's the chance of it going up... and what's the chance it would go down? If it were a completely random process with two outcomes, like a coin toss for instance, it would be 50-50.

However, if I had told you that 1.6480 was 10 pips below the Daily R1, this would no longer be the case... for I've now introduced the concept of "the player's edge" or positive expectation. Unless prices blow past the Daily R1 in a strong trend, below the Daily R1 shorts (targeting the Daily PP) outperform longs by approximately 58% to 42%.

Having a sound trading strategy that gives you an edge lets you win more often than you lose over a period of time! Though somewhat crude, a strategy based on price action using pivot points is fairly robust. John L. Person, author of Forex Conquered: High Probability Systems and Strategies for Active Traders (Wiley Trading) describes pivot points as "the best “right side” of the chart indicator... due to its predictive accuracy." They work simply because many individual traders use and trust them, including bank and institutional traders.

With a good strategy, good money management takes one's trading to a completely different level... as you will be able to make more money from your edge and minimize losses.

A good trader's daily-at-risk is typically 2-4% of his equity. Mine is 3%, and this is further divided by ten (10) making my risk per trade at 0.3%. On a USD1 million account, the daily-at-risk is USD30,000 and the risk per trade is USD3,000. Allowing for a 30 pip stop-loss, I'm able to trade a maximum of 10 full lots per trade (USD100 per pip).

The first goal of money management is to ensure survival. Going out of business, i.e. blowing one's account is simply not an option for a professional trader. By having the abovementioned money management settings, I will be able to withstand 10 consecutive losing trades in a day before I have to step away from trading and regroup. Plus, I've the comfort of knowing that a 3.09% gain the next day will erase that loss.

Minimizing losses is key for the deeper one falls, the more slippery the hole becomes. As we have seen, a 3% loss only requires a gain of 3.09% to recoup that loss. A 20% loss on the other hand will require a 25% gain to recoup the loss, and a 50% loss will require a 100% gain to recoup the loss. Remember, whilst losses grow arithmetically... profits required to recoup losses grow geometrically!

The combination of one's trading edge (positive expectations) and sound money management is formidable.

Being on "the right side" of the pivot level, the reward:risk is conservatively 90 pips : 30 pips (3 : 1). Assuming one trades 5 pairs like I do (Cable, Euro, Euppy, Geppy & Chunnel), 20 trades per day is 4 trades per pair per day... which is reasonable. Let's look at a sequence of trades (ignoring the added complication of multi-lots based on bias):

L -30
L -30
W +90
W +90
L -30
W +90
L -30
L -30
W +90
L -30
W +90
L -30
L -30
L -30
L -30
W +90
W +90
L -30
W +90
L -30

Total = 360 pips (8 wins, 12 losses for a 40% win-rate)

Interesting stuff, huh?!! :-)

My Challenge to Pumba

2009-07-03T11:20:00.002+01:00

[18:01] from the trading i see in here, noone of u have the chance of ever working as an institutional trader
[18:01] not even one

My response to the above is a simple challenge. Put up or shut the f**k up!!

I'm challenging pumba as follows: I am willing to provide solid evidence as to my work experience as an institutional trader... documents, witnesses and all. As for the wager... well, I'm willing to put my money where my mouth is. We'll both put up matching bank guarantees and get an independent arbiter.

So what say you, COWARD?

GU Intraday - 2 July '09

2009-07-03T10:56:00.002+01:00

GJ Intraday - 2 July '09

2009-07-03T10:49:00.004+01:00

EU Intraday - 2 July '09

2009-07-03T10:43:00.003+01:00

EJ Intraday - 2 July '09

2009-07-03T10:41:00.001+01:00

EG Intraday - 2 July '09

2009-07-03T10:31:00.003+01:00

Note: One screenshot is missing, i.e. EG going below Daily R1 and triggering sell stop order 10 pips below that. Anyhow, the conclusion of the short trade can be seen below.

Note: Sell stop order was filled 10 pips below Daily S1. EG moved all the way to the Daily S1 at 0.8535 for a nice gain.

Trivia

2009-07-02T01:40:00.005+01:00

What is a "minibahn?"

Though some might think it to be of Indian origin, it's actually a German word... meaning "mini train."

And why did I choose "minibahn" as my nick?

One of my favourite stories growing up was The Little Engine That Could.

The story of the little engine has been told and retold many times. The underlying theme however is the same - a stranded train is unable to find an engine willing to take it on over difficult terrain to its destination. Only the little blue engine is willing to try, and while repeating the mantra "I think I can, I think I can" overcomes a seemingly impossible task.

Growing up and even well into adulthood, I've had to overcome many seemingly impossible trials & tribulations to get to where I am today. And what gets me through them all? That simple, catchy matra "I think I can, I think I can."

Think positive and BE positive (in both word & deed)... and I truly believe, nothing can stand in the way. :-)

GU Intraday - 1 July '09

2009-07-01T22:21:00.001+01:00

Note: Damn! Nothing happened. Sigh...

EG Intraday - 1 July '09

2009-07-01T22:20:00.000+01:00

GJ Intraday - 1 July '09

2009-07-01T22:12:00.005+01:00

EU Intraday - 1 July '09

2009-07-01T22:04:00.003+01:00

EJ Intraday - 1 July '09

2009-07-01T22:02:00.001+01:00

EJ Intraday - 30 June '09

2009-07-01T21:59:00.001+01:00

Note: Euppy went up to the volatility pivot at 135.39 where I TP.

EG Intraday - 30 June '09

2009-07-01T21:53:00.004+01:00

Note: I TP and went short again below Daily S2 (see below). Trade was scratched (B/E) and I went long 10 pips above the Daily S2.

Note: I went short 10 pips below Daily S2... scratched (B/E). Then went long 10 pips above Daily S2.

Note: Final long was scratched (B/E).

GU Intraday - 30 June '09

2009-07-01T21:42:00.006+01:00

Note: I went long again 10 pips above the Daily R2.

Note: Trailing stops hit on the way down for small profit.

Note: Ended up being a rather good short (see below). Made me really, really happy!!!

Note: Short below Daily S1 eventually scratched (B/E).

GJ Intraday - 30 June '09

2009-07-01T21:32:00.004+01:00

Note: By this time, all the trailing stops have been hit... and I was all squared.

Note: GJ broke through the volatility pivot, confirming that failure past Daily R1 is a reversal. So, I went short at this juncture.

EU Intraday - 30 June '09

2009-07-01T21:00:00.004+01:00

I've decided to take a different approach in sharing my trades. These charts are screenshots taken during the trading day, and for those in the #forex chatroom at ircforex.com would have seen these in realtime. Hopefully, this will promote greater understanding of how I go about implementing my strategy and as to the thought process that goes into the trades.

And I hope, you'll appreciate too... the speed in which I go about my work, courtesy of the years spent as an institutional trader. FYI, I have to monitor, analyse & manually execute my trades... for 5 pairs (Cable, Euro, Geppy, Euppy and Chunnel)... PLUS having to take screenshots, post them in the chatroom AND have having to entertain question after question. :-)

Note: The small punt long from 1.4092 reached it's target at the Daily R1, 1.4131.

Note: The SL was hit and I reversed 10 pips above the Daily S1 (see below).

Note: TP sometime after this and went off. :-)

Intraday (M15) - 29 June '09

2009-06-30T10:16:00.002+01:00

Still not too happy about getting whipped out. I made 23 trades today with 12 wins, 6 losses and 5 break-evens for a 52% win rate.

I made 2 long Geppy trades to prove a point to a certain 'someone' to take out his SL at 158.50. That sequence was both enjoyable and profitable. :-)

UPDATED: Quote of the Day

2009-06-29T10:56:00.008+01:00

The Quote of the Day belongs to pumba who in response to "GJ M15 low confidence long on my part, buy order filled on 5 lots at 157.54... SL below daily PP," said:

"... but its very likely gj will reverse again and hit 156... and thats why going long now is only something inexperienced players would do... so again basically u want to do the opposite of what an trader who thinks he has experience even if its 10years tells u."

Duly took my 30 pips on that move.

So, devise a sound strategy... plan your trades and trade to your plan. It's much better than being definitive and stupid! :-)

UPDATE: and I quote, "I'm not here all the time so I can check with you guys... I've got better things to do than to make mo in FX." That explains it then... spoken like the amateur that he is.

So, case closed and no more pumba quotes. I shall just ignore him from now. As they say, "never take fashion advice from a blind man."

Intraday Trading Strategy (Version 2)

2009-06-27T11:40:00.026+01:00

*Quick history lesson: Pivot Points are based on the mathematical formula originally developed by Henry Wheeler Chase in the 1930s. Chester W. Keltner used part of the formula to develop the Keltner Bands, first published in 1960. Larry Williams "brought sexy back" in his book 'How I Made One Million Dollars... Last Year... Trading Commodities' in 1979. Don Lambert, the creator of the Commodity Channel Indicator (CCI) uses the pivot point formula to make the CCI work.

If you are unfamiliar with pivot points and the various terms, kindly read the following articles for better understanding.

http://www.investopedia.com/articles/forex/05/FXpivots.asp

http://www.investopedia.com/articles/forex/07/pivotpointstrategy.asp

http://www.babypips.com/school/pivot_points.html

Should you already be familiar with pivot points, then by all means read on.

You will realise that I've essentially kept my trading style fairly conservative and without any material changes to the basic principles. As they say, "if it's not broken, why fix it?"

Trading Rules

1. This is an intraday trading strategy adapted for trading using the M15 and H1 charts. The indicators you will need are as follows:

==> super_signal_v3.mq4 (used for alarm feature and for discretionary TP; NOT to be used for new trade entries!)
==> Pivot _Points_-_Daily_(Shifted).mq4 (my ShiftHrs is "-1" to sync with London)

==> Pivots_Weekly.mq4

==> Pivots_Monthly.mq4
==> b-clock_(h-m-s).mq4
==> Volatility.Pivot.mq4 (my atr_factor is set to the default "3.0" on H1 and "5.0" on M15)

2. Determine bias by observing the day's opening price relative to the daily pivot point. If price opens ABOVE the daily pivot point, then bias is bullish/long. If price opens BELOW the daily pivot point, then bias is bearish/short.

3. Confirm bias by observing the day's opening price relative to the volatility pivot line. If price opens ABOVE the daily pivot point AND is also ABOVE the volatility pivot line, then the bullish/long bias is strong. If price opens BELOW the daily pivot point AND is also BELOW the volatility pivot line, then the bearish/short bias is strong.

4. The BEST entries for new trades are located within a zone (sweetspot) 20 pips wide of any given pivot line (Daily PP, S1, S2, S3, R1, R2 and R3). For longs (buying supports), ideally entries should be made 'at' to 10 pips above any given pivot line. For shorts (selling resistances), ideally entries should be made 'at' to 10 pips below any given pivot line.

Note:

If price is at PP, watch for a move back to R1 or S1.

If price is at R1, expect a move to R2 or back towards PP (shorts outperform longs approx. 58% to 42%).

If price is at S1, expect a move to S2 or back towards PP (longs outperform shorts approx. 56% to 44%).

If price is at R2, expect a move to R3 or back towards R1 (shorts outperform longs approx. 83% to 17%).

If price is at S2, expect a move to S3 or back towards S1 (longs outperform shorts approx. 83% to 17%).

If there is no significant news to influence the market, price will usually move from P to S1 or R1.

If there is significant news to influence the market price may go straight through R1 or S1 and reach R2 or S2 and even R3 or S3.

R3 and S3 are a good indication for the maximum range for extremely volatile days but can be exceeded occasionally (at R3, shorts outperform longs approx. 97% to 3%; and at S3, longs outperform shorts approx. 97% to 3%).

Pivot lines work well in sideways markets as prices will most likely range between the R1 and S1 lines.

In a strong trend, price will blow through a pivot line and keep going.

Once support or resistance is broken, the level in question becomes its opposite, i.e. former support becomes resistance and former resistance becomes support.

** It is important to understand, however, that these are probabilities and not certainties.

5. Wicks pricking through pivot point levels do not constitute a valid entry. Unless the move past a pivot point level is convincingly rapid, it is advised to enter a new trade only upon the 2nd candle that has its body past the pivot point level.

6. Stop-losses (SL) though highly recommended are not an essential part of the trading strategy, for if Trading Rules no. 4 & 5 are strictly observed... any unprofitable trades will be immediately closed when the opposite entry signal is observed. However, should you require a SL... the recommended level is 20-30 pips (and preferably on the opposite side of pivot point level to your entry). For high confidence trades supported by bias, the recommended SL is 5-10 pips on the opposite side of the volatility pivot line.

7. Unless you trade one (1) lot at a time, it is advised that you split your entries into at least two separate trades.

8. Pursuant to no. 7, the way of exiting trades shall also be split... i.e. one shall be based on your discretion, and the other shall be decided by the market (via a trailing stop about 20-30 pips away). In general though, the TP level should be the nearest resistance if buying support and the nearest support if selling sesistance. (Note: The volatility surrounding the major USD-crosses have resulted in trades frequently being stopped out, be it for a loss, break-even or prematurely when in profit... far short of its eventual reversal point. I've been tinkering with a few exit strategies and was advised by an institutional trader friend of mine to utilise a volatility 'filter'. Since I do not have access to his multi-million dollar setup, I found the use of the Volatility.Pivot.mq4 to be helpful. From what I understand, despite its name, it is actually based on the ATR. I'm still in search of a more 'concrete' volatility filter. Until then, this is what I'll be using.)

Well, that's it in a nutshell. Please feel free to review the trading logs posted here to further familiarise yourself with the strategy... and remember, practice makes perfect. Should you require further clatification, you'll most probably find me here (http://www.ircforex.com/chat/) most weekdays.

Intraday (M15) - 26 June '09

2009-06-26T16:13:00.004+01:00

A very whippy Friday and a very low yielding one. In all, I made 15 trades today with 8 wins, 4 losses and 3 break-evens with a 53% winning record. Nonetheless, I managed to earn about USD14k... all of which will be donated to some of Michael Jackson's favourite charities.

So, for the week, I made 88 trades with 53 wins, 15 losses and 20 break-evens for a 53% winning record... totaling approximately USD243k. This represents a 16.21% weekly return on equity with 50:1 leverage, which works out to be 13% per annum on an unleveraged basis.

All in, another solid week. Have a good weekend everyone. :-)

Michael Jackson - Gone Too Soon

2009-06-26T13:01:00.003+01:00

"Gone Too Soon"

Like A Comet
Blazing 'Cross The Evening Sky
Gone Too Soon

Like A Rainbow
Fading In The Twinkling Of An Eye
Gone Too Soon

Shiny And Sparkly
And Splendidly Bright
Here One Day
Gone One Night

Like The Loss Of Sunlight
On A Cloudy Afternoon
Gone Too Soon

Like A Castle
Built Upon A Sandy Beach
Gone Too Soon

Like A Perfect Flower
That Is Just Beyond Your Reach
Gone Too Soon

Born To Amuse, To Inspire, To Delight
Here One Day
Gone One Night

Like A Sunset
Dying With The Rising Of The Moon
Gone Too Soon

Gone Too Soon

Be a Remora - Part 2

2009-06-26T11:04:00.004+01:00

As a "remora", we need to be aware of where the "sharks" are. One helpful indicator, is the SWFX Sentiment Index.

"The SWFX Sentiment Index can be a valuable tool for intraday currency trading. The Index is based on transaction flow information and is designed to show long and short ratio in the most popular currencies and currency pairs consolidated by liquidity consumers and providers.

Liquidity providers are participants of SWFX marketplace represented by centralized marketplaces and a number of banks which continuously provide ask and bid prices on the market. The sentiment ratio of this group is opposite to liquidity consumers’ data because, for each trade executed through SWFX, there are two equal and offsetting over-the-counter transactions."

Knowledge of market depth via volumes is also invaluable.

Here's the link: http://www.dukascopy.com/plugins/fxMarketWatch/

Michael Jackson (1958 - 2009)

2009-06-26T07:50:00.004+01:00

Goodbye, Michael. Thank you for being you... for being a part of my childhood, and indeed my life. Thank you for sharing with us your wonderful talent. Thank you for the memories...

You will always be in my heart.

I will be donating today's entire earnings to charity in his honour.

15 Day Trading Quotes :-)

2009-06-26T06:12:00.002+01:00

DAY TRADING QUOTE #1
"If you dont know what you are doing, doing nothing is better than doing you know what" - Trader Jack

DAY TRADING QUOTE #2
"Trade what you see, Not what you think"

DAY TRADING QUOTE #3
"Most traders take a good system and destroy it by trying to make it into a perfect system."

DAY TRADING QUOTE #4
"If you're going to panic, panic early."

DAY TRADING QUOTE #5
"If you look around the table and don't see a sucker, then you are the sucker."

DAY TRADING QUOTE #6
"If you find yourself in the bottom of a deep hole, the first thing to do is stop digging."

DAY TRADING QUOTE #7
"The system wasn't designed so that most people could beat it."

DAY TRADING QUOTE #8
"At all levels of play the secret of success lies not so much in playing well as in not playing badly."

DAY TRADING QUOTE #9
"The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught. What they can't do is give (people) the confidence to stick to those rules even when things are going bad." Richard Dennis, on Turtle Trading

DAY TRADING QUOTE #10
"The opportunity of a lifetime must be seized during the lifetime of the opportunity." -Leonard Ravenhill

DAY TRADING QUOTE #11
"Experienced traders control risk, inexperienced traders chase gains." - Alan Farley

DAY TRADING QUOTE #12
"The market can remain irrational longer than you can remain solvent" - John Maynard Keynes

DAY TRADING QUOTE #13
"My first rule is not to lose money. Losing an opportunity is minor in comparison, because there are always new opportunities around the corner." - Burt Dohmen

DAY TRADING QUOTE #14
"We must remove the emotional element as quickly as possible in trading. If you can do it before you put on a position, you have a good start."

DAY TRADING QUOTE #15
"There are only 3 rules...Rule number 1:- Don't lose money. Rule number 2:- don't forget rule number 1. Rule number 3:- the only thing you should be holding overnight is your dick." Trader Jack

(Source: http://www.surefirething.com/day-trading-quotes.html)

So You Think Pivot Points Don't Work?

2009-06-25T22:25:00.001+01:00

... just take a look at Cable (M15) on 25 June '09. Text-book!!!

Intraday (M15) - 25 June '09

2009-06-25T21:51:00.003+01:00

Today, I made some minor adjustments to my TP mechanics. At the suggestion of my friend who is an institutional trader for a French bank, I tested the use of Parabolic SAR (Step: 0.01, Maximum: 0.1) as a guide for exiting trades. In summary, I still set the SL at B/E with the TP level being the next pivot level in sight... whilst eliminating the use of trailing stops. However, I will have to exercise my discretion to TP, should the direction of the Parabolic SAR change before hitting the next pivot level.

The results are encouraging. I found that I'm less frequently taken out by the market mid-way through and consequently, the yield per trade has increased. In all, I made approx. USD80k from 16 trades today with 12 wins, 1 loss and 3 break-evens giving me a 75% winning record.

I will continue to test this exit strategy as it looks promising. Overall, it's been a good, solid day.

Intraday (M15) - 24 June '09

2009-06-24T22:38:00.007+01:00

A very sluggish trading day. Saw some rather whippy action at the Daily R1 for Geppy. Was a bit worried when the first 4 trades resulted in 3 losses and 1 break-even, but I kept plugging on and eventually finished Geppy with 4 wins, 5 losses and 4 break-evens. Not an easy pair to trade today.

In total, I made 24 trades today with 12 wins, 6 losses and 6 break-evens for a 50% winning record which I'm quite unhappy about. Nonetheless, it was a winning day with just over USD37k. Just one of those days... sigh.

So, in 3 days this week I've made a total of 71 trades, with 45 wins, 16 losses and 10 break-evens for a 63% winning record. At just over USD148k, this represents an aggregate leveraged return of 9.92% for the week. This in turn roughly equates to approximately 13% unleveraged return per annum which is good.

Be a Remora

2009-06-24T15:45:00.003+01:00

It's been a rather 'slow' trading day and I had the opportunity to chat with a couple of newbie traders. Trying to explain the fundamental dynamics of the market, I'm reminded of a little story told to me by an ex-colleague.

An avid scuba diver, he loved drawing upon the ocean for analogies. He'd tell this story to many people and I must've heard it far too many times as it's forever etched in my memory.

"The market is like the big, blue ocean," he'd begin. "It's full of all sorts of wonderful, colourful marine life... much like the market itself. Institutional traders, people like us, we're at the top of the food chain. We're the sharks!"

Truth be told, he's got a point. The "sharks" are institutional traders who work for international banks and other large financial organisations such as hedge funds and even Sovereign Wealth Funds. Since most of the trading volume are transacted between speculators, there's considerable room for "sharks" to roam the "ocean" in search of unsuspecting prey (in most cases, the poor retail trader).

As an ex-institutional trader, I can appreciate the considerable advantage that "sharks" have. Not only are "sharks" typically more experienced and better trained, there are a multitude of different factors in their favour, such as the availablity of greater funds to play with, more advanced technology, better acccess to information, etc. All these combined gives "sharks" the capability and capacity to influence price levels (at least in the short-term) and "feed off" the "smaller fish".

So, in the world of "small fishes" how does one prevent from being eaten by the "sharks"? Well, one way is for the small retail trader to act like a Remora. Remoras or suckerfish can be found attached to sharks, amongst others. The shark they attach to gains nothing from the 'relationship' but also loses little. The remora on the other hand, benefits from the 'free' transportation, protection, and has the added benefit of eating food scraps dropped by the shark.

What lessons can we draw then from the remora? Well, in a world where becoming a "shark" is not an option, we need to be a "remora" instead. Therefore, unlike the 90% of retail traders that are merely food for the "sharks" and lose in the market... we need to learn to hitch a free ride from "sharks", gain protection from them in the process and still fill our bellies with pips.

In order to do so, we need to understand the "sharks'" habits and behaviours, e.g. how they go about trading intraday, where and when they like to have a meal. Although there's no hard and fast answers, you'd generally want to trade according to price action like institutional traders, pay attention to areas of support and resistance (pivot levels) and to avoid placing stop-loss orders at obvious support or resistance points. Another tip, the best times to fill your "remora" belly is to trade during periods of high liquidity (London or NY sessions), for where there's a freeding frenzy with lots of other "yummy little fishes" you just tag along and eat what comes your way. Otherwise, in a quiet market... you run the risk of being eaten by your "shark"!

So, remember... be a REMORA! :-D

Quote of the Day

2009-06-24T15:28:00.003+01:00

The quote of the day belongs to a trader named "pumba", a self-proclaimed market-timing master, who longed Geppy at 158.00 and proudly said in the chatroom, and I quote, "I'm so sure of GJ I'm not even looking."

1-hour later... Geppy had dropped 86 pips!

To be fair, his view may well be correct as Geppy has since climbed back up to 157.61 as I write this. But still, I found it just too hilarious not to blog about it. :-D

Speaking of Trading Strategies & Systems...

2009-06-24T12:03:00.006+01:00

Whichever trading strategy one employs, be it fundamental, technical or a mixture of both, and whichever system one chooses to deploy the strategy, be it discretionary or system driven... I'm of the opinion that there's truly no 'holy grail'... in that, there simply doesn't exist a trading methodology that's 100% accurate. That is of course not to say that there aren't trading strategies and systems that have the ability to churn out good returns, and consistently so.

So, just because one subscribes to a particular strategy and system... it is not a licence to downplay and/or discredit any other strategy and system out there. Each will have it's own advantages and disadvantages... and for as long as they work and the trader using them is happy with its overall performance and results, then I say, "Good."

I don't mind if the 'know-it-all' takes the time and effort to succintly point out the advantages and disadvantages of a particular strategy or system... and thereafter present suggestions for improvement or even go as far as to offer a better alternative. But to simply be dismissive and then not be in a position to offer anything positive or constructive in return... is downright absurd. And in my humble opinion, such a person is acting in a very dishonest manner and has little credibility!

The strategy and system I employ is not foolproof... and you will never find me trying to 'sell' the methodology to anyone.

It is the way that it is and I share it readily. Naturally, I'm also constantly in search of improvements and readily welcome constructive discourse... like any good benevolent dictator should! :-D