Technical, Fundamental or Market Sentiment - Which one are you?

If you’re trading currencies, then I can bet my wooden leg (the left one) that you’re using one, some, or all of the three analytical methods common to Forex. I’m talking of course about technical analysis, fundamental analysis and sentiment analysis.

Lets check a quick definition on each shall we:

Technical Analysis - the framework in which traders study price movement
Fundamental Analysis - looking at the market by analyzing economic, social, and political forces that affect the supply and demand of an asset (in this case currency)
Sentiment Analysis - the thoughts and opinions of all traders expressed through whatever position/s they take.
So which one/s are you?

Well……..you may strictly be a technical trader and place your trades based soley on what you see on the price action charts, or, you might be a staunch fundamental trader (like the oil and gas share trading ex-accountant I live with, go Stevie!!) who follows the myriad of social, political and economic reports that are released everyday from all of the major countries around the world (with a floating currency or not……China anyone?). Or, you may just throw technical and fundamental info to the wind and trade your days away using nothing more than market sentiment as your barometer of risk and your green light for placing trades.

Whatever type of trader you are or are in the process of becoming, there are a couple of points I think one needs to consider along the way.

Allow me to vent….

1. Which of the three do you need?

In my opinion “ALL OF THEM”. (oooh I can hear the trolls roaring!!). Just like a triangle needs 3 points to be complete and a stool needs 3 legs to stand, so too trading forex needs the three foundations on which your trades can be established.

Hear me out on this one - Sentiment is derived from the overall opinions of the market………………who’s opinions are formed from technical and or fundamental info. Then, technical info (as great as it is) is the result of deceisions made using fundamental and market sentiment analysis. (stay with me here) Finally, fundamentals are the result of (or at least heavily influenced by) technical and market sentiment analysis.

Do you see the pattern?

THEY ALL INFLUENCE ONE ANOTHER!

So if you are to use only 1 or 2 of them, in my opinion, its the same as riding a tricycle with only two wheels. You can ride it for a little bit, but sooner or later you’re going to stack it. Now, am I saying you need to be an expert in each field? No…..you can still favor one over the others, but what I am saying is, take them “all” into consideration when looking to place a trade.

2. Paralysis by Analysis

I know you would have heard this term alot, however, it’s for that very reason I bring it up here. Paralysis by analysis in this context applies to all three of the above methods, but moreso to fundamental analysis…better known as fundies. ( I am so cool aren’t I?)

Fundies are made up of sooooooo many different social, economic and political reports and or announcements that are issued daily, and each of which has the ability to directly or indirectly influence your chosen trading pairs (or not).

Things like:

Interest rate decisions
Trade deficit reports
GDP figures
Retail figures
Inflation Figures
Non Farm Payroll
Unemployment figures
10yr Bond rates
Consumer Price Index
Economic Sentiment report
etc, etc, etc,
Then on top of that, you need to work out if the effects of these reports are “likely” to be negatively or positively correlated (directly or indirectly) to the pairs that you are trading, oh and dont forget that alot of these reports are released at the same time so you have to work out what effect another countries information will have on your pair when 2 announcements released at the same time affect each other…………….then you should be able to tell wether you go long or short on your pair…………(WTF?)

Wow I’m tired………..are you confused? I dont blame you!!!

Trying to piece all of that together is practically impossible. (And that’s just one of many possible scenarios). With fundies there is so much information that you can develop analysis paralysis. Fundies are a great info source to be “taken into consideration” using the summary points of only the most important reports. Combine that info with your technical and market sentiment and take an overall view of the three combined.

3. The quality and timeliness of your info

In anyone of these three areas you need the best up to date info you can get your hands on (especially if you scalp trade or event trade). For fundies, having an informative economic calender (with a countdown to each event) to let you know when the major reports are coming out is crucial. So to is up to date info feeds from the various major trading houses and independant info sources. (I know of many companies that pay big money to have infomation feed to them the second it happens so they can get the jump on the market). Having quality market sentiment indicators and economic sentiment reports from the various nations the minute they come to hand is also crucial. Lastly, having a high speed data feed and New York Close trading charts for your technical analysis will see your three way trading foundation complete.

Now for those of you that are still awake………..that is alot to take in I know……………(I am actually asleep now…), but if you’re serious about trading and moreso trading with an edge, being informed and incorporating the above methods and sources will give you an edge far beyond that of the majority of traders that are in direct competition to you. (no point in taking a knife to a gun fight I say…)

So, how is ths working out for me I hear you ask? Well, to be perfectly honest………..it’s like swimming upstream through treacle………..which is exactly what I expected. The good news is that as I go about learning these three methods each day, the technical, the fundamental and the market sentiment, my subconscious is quietly piecing it all together (whether I can feel it or not) and in a few months it will all start to flow. And that my friends is when the real leverage comes in to play, with a trading edge that has three sides to it rather than one.

Anyway, thats enough of my ranting for today as its time for me to do some more question and answer cards to test myself.

To your trades

Nick Jordan

Day 66/365

You can see my demo trading account here

Leveraged Information Retention Anyone? (Day 59)

Like it or not, the world around us is filled with sayings and affirmations. Sayings like, dont run with scissors, or an apple a day keeps the doctor away, or too much of that will make you go blind….and so on. Truth be known, I have always had a liking for the saying “knowledge is power” and equally as much the saying “to learn and not use is never to have learned at all”.

So where am I going with this you ask?

Well, I am refering to the learning of knowledge related to this wonderful (sometimes painful) world we know as FX. It seems (for a newbie any way) that the neverending mountain of things to learn, just to be able to confidently put a trade on, let alone actually become profitable is quite a sizable hill to climb. One needs more than just a good pair of hiking shoes and hat to see you ascend this treacherous terrain.

Let’s face it………..It’s a mine field of chart patterns and spreads, CoT reports and unemployment figures, leading & laging indicators and 21 day ema’s, shooting stars, inside bars, marubozu candles, spinning tops, Bond auctions, stop entry orders, pivot points, fibonnaci retracements and 698 direct and indirectly related other things. (whew….im tired)

So how does one remeber all of this, especially when your just starting out on the climb? This very question hung heavily on my mind recently after a severe brain sizzle…………so I decided to do something about it. Something simple, something so simple its laughable… and here it is….

Question & Answer Cards!

Huh?

You heard………..Question & Answer Cards…….

Ahhhh…….is that it?

Well, you may snicker, but I am telling you it works….and it works a treat!

Here’s what I did…..

I went through all of the information that I had been learning and wanted to retain (in this case it was the baby pips school of pipsology).

I wrote down all of the points that were of interest to me and my style of trading (for example, I didn’t bother with any automatic signal providers like Parabolic SAR, Average directional index, bolinger bands, etc as they are not part of my tradeing strategy).

I then made each point that I wanted to learn/memorise or was having trouble retaining into a simple question and answer.

For example:

Question - What is the difference between an EMA and an SMA?

Answer - An Ema is a fast moving weighted average of a period while an SMA is a slower smoother moving average with equal weight applied to all of its time periods…

Or

Question - What is a COT report?

Answer - The Commitment of Traders Report is a weekly report that shows the net long and net short positions taken in the futures market at any one time between commercial, non commercial and retail traders.

Or

Question - What is market sentiment?

Answer - It represents all traders thoughts and opinions, which are expressed through whatever position/s they take forming the overall sentiment of the market.

Get the picture?

So, I then got a heap of 3x5 blank palm cards and wrote each question on one side and wrote the answer on the back.

And thats it!

Then you just test yourself at random whenever you feel like. I carry mine with me everywhere in my man bag……(hey, indaina jones had a man bag!!) I pull them out at a cafe, or when I am in the car, in the kitchen, lying in bed, wherever, testing myself at will.

What this does is it changes the act of reading information on the computer screen where the answer is already in front of you, into a problem solving task for your brain. I have found the information retention benefits for this to be phenomenal!

Believe me, I have the information retention of a flour siv…………even my own mum used to say I was a sharp as a pound of wet leather……:-/, so i can vouch that this method works well.

Use the palm cards for chart patterns as well. Just draw a pattern on the front of the card and the characteristics of the pattern on the back. (eg: it’s a bearish reversal pattern which the 2nd candle must finish abouve the high of the mother candle, etc.)

At the moment I have about 70 question cards and will continue to grow that number as long as I need to.

So thats it folks, do your self a favor and test yourself if you want to retain what you have read because studies show that we lose up to 90% of what we learn within a day of reading it.

Right then, I’m off to learn abit more about CoT reports and how I can use them in my trading arsenal.

To your trades

Nick jordan

Day 59/365

You can see my trading account here ( I swear it has a hole in it….)

Are You Trading Against Yourself? (Day 52)

So there I was last week……watching the various trades I had put on, tick over in my trading account summary………and yes, I know I shouldn’t have been, but I am still in the “crack addict” stage of watching my account balance tick up…………..and moreso in my case……down.

Anywhoo, as I watched in anticipation of my forthcoming riches, I noticed that when one currency went up……….another would go down. Then the same would happen in reverse………..when that currency went down, the other would go up.

Well, not needing to be a rocket surgeon to work out something was relative, I remembered reading a little something in the School of Pipsology course, about a subject known as “Currency Correlation”.

Yes, it seems that throughout the major pairs, crosses and exotics, there are correlations ( a direct action = reaction ) between the behaviour of certain pairs.

Let me explain……

In the financial world, correlation is a statistical measure of how two securities move in relation to each other. “Currency correlation”, then, tells us whether two currency pairs move in the same, opposite, or a totally random direction, over some period of time.

When trading currencies, it’s important to remember that since currencies are traded in pairs, that no single currency pair is ever totally isolated.

IE: If currency pair ABC/DEF is rising, currency pair LMN/WXY may be positively or negatively correlated (moving with or opposite to) at the same time.

So, how do we measure these pairs? Well, there is a way to measure currency correlations with something called “The Correlation Coefficient”. Which is really just a table of data of all the currencies which are then represented by a correlation score of between -1 and +1.

When we apply this formula, a perfect “positive” correlation of two pairs (which is a coefficient of +1), implies that the two currency pairs will move in the same direction 100% of the time.

Conversely, a perfect “negative” correlation of two pairs (which is a coefficient of -1), means that the two currency pairs will move in the opposite direction 100% of the time.

Any where in between +1 and -1 is on a sliding scale. So, If the correlation is 0, the movements between two currency pairs is said to have ZERO or NO correlation.

Now hope fully you got all that because knowing this and being able to understand which pairs are positve/negative to each other is crucial.

For example…

Lets say you are trading the pair USD/CAD and you’re long. You then decide to also go long on the pair NZD/USD because you have just spotted a 1 in a million trade setup (yeah, like I get those every day…)

So now you have two long trades on and obviously, you want them both to climb like a ninja….however, heres the problem. Because these two pairs have a “negative correlation”, that means for one of them to rise the other one historically falls, and vice versa. So while your USD/CAD pair is rising in value, your NZD/USD pair will be droping in value, burning all those wonderful (elusive) pips you have just made and already mentally spent………………not ot mention the cost of the extra spread you will have paid too. :-(

But the indirect pain doesnt end there folks!

Oh no no!

What if you were trading with positively correlated pairs?

Lets say you are short EUR/CHF and you are also short AUD/JPY. In this case because the two pairs are positively correlated, meaning they both move in the same direction at the same time (up or down), you are effectivly doubling your risk because if one pair goes bad, they both go bad!

Do you get the picture?

Its just the same as doubling up on one ‘or’ the other. In fact you may as well do that so you only have to pay one spread!!

So you see, learning about and understanding how currencies correlate between one another is, in my opinion, the most important knowledge next to risk management and chart reading. Without knowing how pairs react to each other, you may be literally betting against yourself with negatively correlated pairs or doubling your risk (and spread costs) with positive pairs.

Now i know you are probably thinking………”how did I get to be so smart and work out all of these mathematical equations between all of the currencies?” (just humor me….).

Well I would love to tell you I whacked it all to gether on excel, but the truth is, I found a great resource called a Currency Correlation Table which does it all for you.

Its a great tool if you are trading more than 1 pair at a time. All you have to do is look at the table and see if there is a correlation between the trade/s you already have on and the trade you want to put on……then simply make sure they are not going to cancel each other out or expose you to any unnecessary risk. (This game is riskier than bobbing for apples in a deep fryer as it is!)

Its worth pointing out also that you can trade negatively correlated pairs, you just have to make sure that you are long on one and short on the other.

Any way, we will talk somemore about this subject later in the challenge as currency correlation can also be used for many things, including confirmation signals for your trade setups……but thats a whole other kettle ‘o’ fish!

Right then, it’s back to the books for me as I need to iron out the finer points of inside bars and fakeys over the next week to get them down pat, so I can start generating mucho grande pips!

To your trades

Nick Jordan

Day 52/365

You can see my trading account here (Ouch!)

Schools Out! The School of Pipsology that is…..(day 45)

Yep, shools out and I’m just in time for schoolies week!

Yes after starting the School Of Pipsology trading course in the 3rd week of this challenge, completing half of it, then returning to the other half a week or so ago, I can now proudly say that I have now finished and graduated……..and still feel like I know bugger all!

You know when you were younger and you thought you knew everything?….then you get a bit older and you realise you dont know as much as you thought?….then you get older again and realise you know even less?…then you get to a point where you know so much, that you realise “I dont know anything at all”!

Well, with Forex….I’m kinda at that point now. Ahh, ignorance was bliss!

On the positive side, I am happy to report that it all made sense and after some serious screen time and continued study it may just pay off. In my opinion, Forex trading is similar to the game of soccer……..Knowing the rules is easy, becoming good at it takes time, determination and skill.

All that aside, what a great free resource is the School Of Pipsology. Its pretty much an A-Z of forex trading and then some. If one were to follow the info offerred in this course diligently, the chances of success would be greatly increased to the point (in my opinion) of becoming a profitable and potentially a professional trader over time.

So whats in it?

Well at the risk of scaring you off I am going to take that chances and tell you! Why would you be scared? Because there is 298 separate lesson in this course. Yes, you read that rite….298!

Is that alot?

Yes…

Is it worth doing?

HELL YES!!!

If you are serious about honing your skills (as a newbie or an intermidiate trader), I would suggest you get on it.

In my trading group that I interact with on skype, there is a guy on there that religously goes through the entire Pipsology course “every 6 months” to keep it all fresh in his mind.
Let me tell you this…..he has been trading for 6 years and he is one sharp trader!

The course has 8 different modules ranging from Preschool all the way up to Graduation.

It covers:

Forex History
Types of analysis
Types of charts
Indicators/Signals
Chart theories and historical setups
Trading styles
Currency correlations
Time frames
Risk management
Position sizing
Scaling
News trading
Carry trades
Market sentiment
Indexes
Country Profiles
Trading plans
Self analyss
Pshycology
Choosing brokers
Scams
Etc, Etc, Etc

That is about one third of what is in the course. Take my word for it that it’s well worth doing. Oh, and did I mention that it is all free? (gotta love the free stuff!)

Anyway…..one point to take away from this post wether you choose to do this course or any of the others that are out there, and that is that you can learn FX trading for free.
All of the information is on the internet already, the trick is…you just need to know where to find it and what to do with it once you find it. Obviously, having a mentor to guide
you along the way will get you there quicker and help you avoid the inevitable wrong paths that you will wander down on your journey to FX success.

So, if you are thinking you have to shell out heaps of money to learn….think again. Its all already out there. Its just a matter of how bad you want it? (I am still yet to spend a cent on my FX education.)

On that note, I am of to do some back testing of Pinbars, Fakeys and Inside Bars, because even before you trade on a demo, you can back test your setups to make sure they work in the first place. More on that in a later post.

Here’s to your trades

Nick Jordan

Day 45/365

Earnings to date -$1802 (Demo) Ouch!
Click Here To See My Trading Account

Watch My Trading Account In Real Time! (Day 38)

So it’s November the 3rd and I find myself back in Australia for a variety of reasons.

On the flight back from Phuket to Brisbane I was thinking….. how on earth is anyone going to know how my challenge is going? I mean for real!!! I could be telling you guys that I am absoluteliy smashing the markets and raking in the bucks….but how would “you” really know? Would you take my word for it? I know i wouldnt.

And then I remebered a suggestion on a great forum that I have some FX related threads on. I remembered a guy suggested to me…”why dont you set up a Myfxbook account so we can all see how you are going and make suggestions to you along the way?”

What a great idea!

So let me explain….

Myfxbook is an online (web-based) system that files all of your trades and applies statistical analysis to them. The main benefit of this system is that it allows me to publish all of my trades in detail for all of you to see. That way there is no smoke and mirrors and my trading account can be viewed in real time by all.

This free system also offers up to date news feeds from all over the globe which is helpful to keep abreast of “and” utilise, alongside your technical analysis of the market. It boasts a detailed economic callender which lets you know when important economic reports are due to be released from all of the major currency nations.

Reports like the US non farm payroll, the British consumer confidence report, the German producer price index, Bank of Japan monetary policy minutes, the Royal Bank of NewZealand Inflation expectations and just about every other important economic report you can think of. (hopefully you are still awake after all of that……Thats the thing with fundamentals…..they are a snooze fest but they are “oh” so important!)

You can also follow other traders on MyfxBook to see how they are travelling. Traders on Myfxbook are using both live and demo accounts. In my opinion, the accounts you want to take notice of are the live ones. Trading live is far removed from trading a demo account. There is very little emotion involved when trading a demo and that little amount of emotion is still enough to cause incorrect judgement and greed. Multiply that by 10 when you start trading a live account and you jump up to another level of trader all together.

So, watch the live traders, you will learn more from them.

There is a great active forum on the site aswell with a section for new traders and a section for experience traders. There is a section for signal providers and expert advisors to promote there stuff…however there is also a section that posts comments about the success and quality of the signal providers and EA’s which is a great self policing mechanism. I have had a quick look through some of the said comments, and from what I read, most people are unhappy with what they paid for. (learn how to read charts without all the guff and forget about signal providers!)

Lastly, they have a section that runs competitions to see who can raise their demo trading account the most. The winners get a handfull of cash ($4000) which would do just nicely to go short on some Eruo dollars anytime in the next 6months. (just my humble opinion….not advice)

So there you have it folks….here is the link to myfxbook account if you would like to see how I am going. I have started with a $10k account and to be honest I have been beaten like a red headed step child in the last few days as a result of making a swag of emotionally charged trades. But not to worry, as that is why we trade demo accounts, to flush out the demons, sharpen our chart reading and hammer in the discipline…..without which we will lose dearly.

Ok, happy trades and I will talk to you next week

Nick jordan

Day 38/365

Earnings to date $-1103.00 (Demo)

Click Here To see My Trading Account

Time To Get Street Wise!! (Day 31)

So I am minding my own business a few weeks a ago, when to my surprise I get an email inviting me into an informal trading group. Yes, a bunch of guys and a girl on skype who are scattered as far as Greece the USA and Australia. Oh, and now me…Thailand!

So how did it happen? Well, through using the powerful medium of forums. You see, at the start of this 12 month challenge I have set my self….(now 31 days old), I decided to get in and become very active in several forums. 1 forum in particular is babypips. A great resource that also has possibley the most extensive free forex course going about. If you are knew to forex as I am, I recomend doing the course.

Anywhoo, whilst I have been making a bit of noise on the forums, another member started participating in my forum threads and before I knew it, that member invited me into the group.

Naturally I jumped at the chance, for a group like this is a melting pot of knopwledge, information, ideas, resources and so much more. A place to discuss ideas and get feed back from others, a place to talk about wins, losses and draws, a place to talk about whats hot in the market and whats not. A place for some humor and even a little bit of sledging.

As trading is quite a solo endevour, one needs a little interaction with others. As humans we are complex creatures that need interaction, mental stimulation and even camaraderie. All of which can be experienced from being part of such a group.

The group see’s a mix of ages……from 18 - 36, experience levels from 10 months to 6 years. It boasts people favoring the fundamentals over the technical analysis and vicea versa. It has Day traders and position traders, and those who favor price action and non price action.

Indeed an interesting and varied mix of members makes up this group of 5, who get together around the open of the New York trading session to take advantage of the highest liquidity levels during the overlap of the London session.

So there you have it folks, at day 31 of 365, this trading group is just what the doctor ordered to begin honing my street skills to match the text book skills. Having now been chatting with the group for a couple of weeks, I can recomend doing the same to anyone wanting to get the edge on there FX learning. Puting your learning on a small does of legal steroids if you will to build up your trading physique.

As one of the memnbers in the forum said to me, train hard so you can fight easy!

Till next time

Here’s To Your Trades

Nick Jordan

Day 31/365

First Trade = First Win! (Day 24)

A couple of days ago on day 20 of my challenge, I had a little run in with a monkey. Not just any monkey…..it was the trading monkey and he was firmly positioned on my back.

You see, after almost 3 weeks of constant learning (bar a short 2 day hiatus due to information overload) my mind was telling me that it had had enough…..enough of this “all work and no play” business. It told me that if it didn’t get a chance to use it’s newly discovered techniques (albeit green ones), it was going to go on strike like a 6 yr/old in the toy section at Kmart who cant have what he wants.

Naturally, I heeded this warning and I new what I had to do. So i said to myself …”rite”…. “thats it”………”its time to make a trade!” Now I must admit, the following trades that I made were not followed to the letter of research and execution as I intend to have down pat long term, but to get a trade away, I did what had to be done.

So I cracked open the FXCM web based Demo platform that I am using to learn on, eyes wide with intensity, teeth bared, and nostrils flared……I was on a mission to trade! I went straight for the EUR/USD pair and opened the H4 price chart (4 hour chart) to find prices in a bit of a range, bouncing of support and resistance levels nicely.

On closer inspection I could see a nice pinbar reversal had formed. I then waited for a confirmation candle to appear after it and BOOM, we were off!

I entered the trade long (incorrectly I mite add) on the close of the pin bar (rather than the break of the previous low which lucky for me produced more pips!)….I placed my stop at the low of the pin bar and went for a 2 times risk reward (2R) based on the amount of room to the previous swing point. (change of direction in price).

A couple of hours later and viola! We had a winner.

Trade 1. EUR/USD Long (click here to see full size)

Now, I have to be honest here, the only signals I used for this trade were a bearish pin bar reversal candle stick which indicated to me as being a “buy signal”, and a couple of support and resistance lines that I had drawn in that marked several points of confluence where price had been rejected earlier. Thats it………no moving average, no fibonacci retracement or extension, no other price action confirmation signals…nothing. Just a support line and resistance line which gave me a price channel to work with.

Now, as I am quite aware of the danger that emotion plays in trading, I removed myself from the computer upon this successful trade as this is the most vulnerable time for a trader, as ones emotions are influenced by that of a loss and equally of a win. About 2 hours had passed upon returning to my computer, I opened the same chart to revel in my victory and low and behold, a nice pinbar had now formed in the same pair in the opposite direction (short). And what’s more, this time there seemed to be room for a 3:1 risk reward! So, still having my nostrils flared, I decided to get on it.

I decided to change my entry method, and entered using a 50% retracement of the pinbar. In other words, I entered on the break of the low of the pinbar (going short this time), I placed my stop at the middle of the range of the pin bar, and went for a 3 times risk reward or 3R.

Why 3R?

Because I could see that price had already been tested previously at a level that was almost at 4R, so I figured 3R was a safe bet.

So, I set the trade, went away for a couple of hours and came back to look, and it was heading south as expected. (You rippa!) And after about 3 hours …………Bingo! The order was filled at 3:1.

WHHHOOOOOOOOOOOHHHOOOOOOOOOOOOOOOO!

Trade 2. EUR/USD Short (click here to see full size)

Was I a happy camper? You bet! Not for the wins although they were great, moreso for getting the trade monkey off my back. It felt good after learning almost every day, 7 - 8 hours a day for the last 3 weeks to have just a smidgeon of confirmation that what I am doing is working. It did and still does feel good.

On reflection of these 2 winning trades, there are so many things that I didn’t do, and couldn’t tell you other things that I should know. Like how much money I was risking or what percentage of my account I was risking and so forth. I could have added the fibonacci to it, I could have added an EMA (exponential moving average) to the longer term time frame to look for a trend resumption or reversal, and a host of other things. However, that will come with time just as driving a manual car in peak hour traffic becomes second nature. Everything will start to gel.

Overal, its a good result.

As of now I will be actively trading on a demo account for the next 2 months. I am going to be using the following 10 pairs to give myself the best chance of getting as many tradable setups as possible in that 2 month period. (that doesn’t mean forcing as many trades as possible :-))

My watch list of currency pairs:

EUR/USD
GBP/USD
AUD/USD
NZD/USD
USD/JPY
EUR/JPY
GBP/JPY
AUD/JPY
XAG/USD
XAU/USD

Ok, then……….thats it for now but if you like psychology and are interested in the psychology of why a market moves the way it does, I would suggest reading a book called “Trading For A Living” by DR. Alexander Elder. I have just read it and its well worth the read.

Till next time

To your trades

Nick Jordan

Day 24/365

Earnings to date $22.02 (Demo)

Good books, brain freezes & a bit of clarity (Day 17)

Yes that is quite a contradicting title…

But its true!

There has been much learning done over the last week since my last post, so much in fact that I had to take some time away from the screen as I was full to the brim and could not fit anymore in.

From Fibonacci retracements, to exponential moving averages, to bulls fighting bears with some sheep & pigs to pull backs and trendlines to support and resistance to short selling in ranges to pin bars and wedges. Whew…….the ol’ brain was cookin’ let me tell you. But, this ain’t no picknick I’m on here, this is a big task that will require some very hard work and well planned, highly leveraged work at that. 

Anywhoo, late last week, I was all set to start doing some demo trading after about the 12 day mark, however when I sat down to do it, I just didn’t feel confident in knowing even the basic stuff. In hindsight I put it down to having too much undigested information in my odd looking noodle. My mind was like a tangled fishing line on a reel that had been cast and turned to shite.

So i decided a couple of days away from the computer screen was in order………….sounds great right?…………….yeeeeep…………..only after a few hours I couldn’t help my self! 

Pretty soon i found myself eyes deep in a great book about the psychology of trading. Its was written by Dr Alexander Elder and it’s titled “Trading For A Living”. The basis of this book seems to be a common problem that is repeated throughout the forums and educational material online. The problem I am talking about is one of the biggest killers of traders……….  ”not being able to control there emotions consistently”. Not being able to control both fear of losing and just as important, the adrenalin of winning. Equally as dangerous and equally destructive to ones robustness and one trading account. 

Now to digress a little, One of the most interesting things I found in his book was that you can actually read price charts in the form of human behavior. The candles show you where people get greedy, where they get scared, where they are unsure, where the smart traders come in to the market, where the ‘majority crowd’ is and how to spot the inexperienced late traders. By looking at a chart in this way and understanding what is actually happing rather than just monitoring the bars on a screen, it enables one to be far more accurate in their trading decisions.  

Lucky for me, I am rather strange to begin with and have been interested in the study of human impulse, mental triggers, craving, mental weaknesses and so on for sometime. I can see (especially for me as I tend to go hard at things) that the psychology side of trading is a big one to work on. The “Set & Forget” trading strategy will be a favorite of mine. It will help me stay emotionless (we’ll see) by setting trades up offline, pressing go and then walking away till the trade either gets filled or stopped out. 

Obviously  when my skills advance as a trader i will have the ability to check on trades as they unfold and place trailing stops when there is opportunity for a runon of a long or a short position. ( like that bit of lingo there :-)) 

Dr Elders book is a pretty easy read however, I found it to be nice and raw. Almost an olden day disciplinarian approach. When reading it, many times I felt him describing the exact human characteristics in me. To the tee. (It wasn’t pretty). There didn’t seem to be any escape. It is a good thing though, as it makes me aware of certain traits that will need attention if I am to succeed in this 12 month challenge. 

Anyway, the heading of this post has the words “and a bit of clarity” in it, so I best touch on that before I scoot off.  After having a break away from the intensive learning, I could feel after the two days rest that my new trading knowledge had become a lot more familiar. Some of the very first pieces are starting to fit together.

Like understanding how the Fibonacci works and how to apply the extension for placing an exit. Using trend-lines to see support and resistance points, spotting false breaks and understanding that the majority of breaks “are” false and that there are traders that just trade false breaks as they are highly profitable with minimal risk. A small break away from study has given me a sizable step forward. The old less is more. (I will be the first to admit, I do like to go hard at things, so we will see what happens when it comes time for demo trading and my ability not to overtrade.)

Ok folks, thats it from me. By the time the next post rolls around I will have started trading on a demo account. I have gone and completed the majority of the School of Pipsology (apart from the “setups” that I don’t intend to use just yet) just to get myself more familiar with the game. BTW, it is a great free resource and it is the best overallresource so far so check it out.

Till next time

To Your Trades 

Nick Jordan

Day 16/365 

Earnings To Date $0.00

PS. Click above this post and leave a comment :-)

Trading Plans, Massive Gains & Suicide :-/ (Day 10)

Jesse Livermore also known as “Boy Plunger”

So, who is this guy?

Ahh,well….This is Jesse Livermore. One of the most iconic stock traders (mainly currency) of all time. Jesse’s trading period was the in late 1800’s to the early 1900’s and from all accounts, he was a man who liked to leverage high and take big risks.

He began his trading career at the age of 14 in what used to be known as “bucket shops”, a place where bets were placed on stocks going up or down but no stocks actually changed hands. (gambling). Any way, by 15 he had accumulated $1000 (about 20k in todays clams) from betting in the buckets and by the time 1907 rolled around, yours truly turned $1k into $3million!

Short selling the market at that time is what made him the bulk of his doe. Over the next 20 years, Livermore proceded to not only lose that money and go bankrupt, he managed to climb his way back and establish himself again by trading the “bull” markets of the 1920’s and back up to the tune of $100 million dollars by the time the crash of 1929 hit.

Unfortunately, thats about where the happy stuff ends, and it’s rather grim for JL from then on. He proceeded to lose the majority of his fortune once again and at the age of 63 and on his 4th wife, he decided to take a gun to himself in the cloak room of a Manhattan Establishment and check out permanently. Rather grim indeed! Ironically, his 4th wife had 4 previous husbands………….all of which had committed suicide!!!! WTF?

Any way, quite a remarkable fellow none the less. Here is a quote from Jesse that of his that i quite like:

All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis.

You can read more about Jesse Livermore Here or read his book How To Trade In Stocks

So, enough of the grim stuff, it’s day 10 of my 365 day journey. I have certainly been since my last post and have put together my very first trading plan. The holy Grail if you will or “the wife”……(the one that must be obeyed). Call it what you like but it seems clear to me that every trader must have a plan and not only have one but follow it and refine it also. It’s no different to any other business or endeavor one sets out on, one needs a plan to have as a guidance and as a measuring stick to gauge ones performance. Now, I’m not really telling you anything you probably dont already know, “but”, how many of you are actually “using” your trading plan? (do you have one?)

Anywhoo, I have laid out a very, very, very basic trading plan with the main focus on covering risk and knowing every step of your trade strategy “before” you go into battle. Going into battle without a plan……….well, we all know how that turns out…..rather messy.

I liken it to when people go to bid at an auction, be it a car, house, antique paintings, whatever. They turn up, they start bidding without any strategy what so ever, and then even worse, with no exit strategy. Now, we all know people including ourselves that are guilty of this. We say..”yep, I’m going to go to $18,000 and thats it”! 10 minutes into the bidding and you’ve got 3 bidders agents all over you like a cheap suit and your up to $21,500 and climbing faster than a fart in an elevator. I digress….

The point, have a plan and stick to it!!!

Here’s my embryonic attempt at a trading plan that will be ever evolving.

FX TRADING PLAN (draft one of many :-)

(the following is not financial advice)

1. Define your entry strategy.

⁃ Day/Swing trade
⁃ Focus on Pin Bar setups only on the 4hr and 1 day chart
⁃ Enter the market “with” the trend
⁃ Look for 3-4 signals of confluence
⁃ Review Charts once in the morning and end of the day (NY Closing charts)
⁃ Trade your watch-list of quality pairs “only”

Pairs to trade:

▪ EUR/USD
▪ GBP/USD
▪ AUD/USD
▪ NZD/USD
▪ USD/JPY
▪ EUR/JPY
▪ GBP/JPY
▪ AUD/JPY
▪ XAGUSD
▪ XAUUSD

Signals of confluence: (these are all i have come up with so far, i know there are “many” more)

▪ Pin bar itself (price action confirmation signal)
▪ Is there Two or more factors of confluence that support the direction of the trend
▪ 2 or more Previous bounces off the support or resistance points (depending on going long or short)
▪ Can Trending line can be drawn (a line connecting 3 higher highs or 3 lower lows)
▪ Is there a Crossover of moving averages to the upside (long) or downside (short)
▪ Do horizontal lines show any similarities in trend changes, support/resistance points, Moving average intersections

*set horizontal lines (levels) on chart after identifying swing points to identify points of confluence

2. Determine the risk to reward scenario

⁃ identify a high-quality price action trading setup (this example is short)
⁃ Calculate the risk on the trade setup first
⁃ Mark risk level on chart
⁃ Place a stop loss at one pip above the most recent high (or below the low if it was long)
⁃ The entry point is a break of the low, one pip below the low
⁃ The risk is the distance from the low to the high of the pin bar (or from the centre of the bar if using 50% retracement entry)
⁃ Calculate the reward as a multiple of the amount you have at risk (R)
⁃ Mark reward levels as multiples of risk on the chart (2R = 2:1, 3R = 3:1, 4R = 4:1) (These levels can be used to mark trailing stops)
⁃ (optional) Employ trailing stops at 1R behind the market once you have reached your initial RR setting

* Do not define the reward first
* Do not set stop losses to close to trade entry level
* By concentrating on the risk first, instead of the reward, you become more aware of the risk involved on each trade setup
* You become a “risk manager”, rather than a “trader”
* The best traders in the world know that consistent trading profits come as a result of managing risk effectively
* Always calculate your risk and reward in dollars, not in pips, only use pips to mark the risk and reward levels on your charts.

3. Adjust the position size

▪ Fit the lot size to the stop loss and not the other way around

(the following is one of nail fullers examples)

If your R value is $100 and your stop loss is 109 pips away due to the previous low or high point compared to your proposed entry point, then
adjust your per pip amount to .917 (100/109) to keep your risk at $100. Otherwise if you kept the lot size at 1 you would then be risking $109 dollars (9% more)

* You must learn to take into consideration the strength of the price action signal in question, but also the context it is occurring in as the same pin bar setup could have different RR when in an uptrend or a downtrend or a ranging market
* Adjust the position size on the trade to meet the necessary stop-loss distance, NEVER adjust the stop-loss to meet a desired position size

4. Know what your exit strategy is BEFORE entering the trade

▪ Have a set R value to place “take profit” order at.
▪ Set the Take profit order relative to RR (the confluence of signals/trend/additional factors must be considered when assessing the RR)
▪ Set stop loss 1 pip below/above previous high/low
▪ Set trailing loss after if/when you “reach” 1R above your original take profit order. Set it a 1R
▪ Do not meddle with trade once started
▪ Upon order getting filled or stopping out, remove yourself from the trading environment as this is your most emotionally vulnerable time.

Thats it so far

Tell me what you think in the comments section below

I look forward to your responses

To Your Trades

Nick Jordan

Day 10/365

Earnings To Date $0.00 

Soooooooo Much Free Info!! (Day 5)

(Nial Fuller)

Hey there

Similar to my last entry it is 11:30pm as I sit to write this post. The sounds of the nearby bars ring out with the sounds of “Livin Lavida Loca” (you love it) and I am rather content after demolishing a mini packet of chocolate biscuits in a time that would make husain Bolt proud.

It’s the end of day 5 and I have been consuming pretty much everything that is on an awsome website that I mentioned previously. It is the website of Nial Fullers and its all about Price Action Trading.

What is that? Well as Nial says in one of his many posts “it’s the art and skill of making all of your trading decisions off of a stripped down or “naked” price chart. This means no lagging indicators outside of maybe a couple moving averages to help identify dynamic support and resistance areas”. So keeping it simple and not packing ones head full of over analytical distractions, flashing lights and indicators when trying to identify and monitor trades. The plain vanilla method if you will.

In my opinion, we as humans tend to make things so much more complicated than they need to be. I have been sooooooooooooooooo guilty of this in the past even after becoming very aware of the 80/20 rule. I actually find it hard and become bored if something is too simple…..hence the need to over complicate. (something that I will need to work on throughout this challenge).

I am gelling very much towards this simple type of trading and even though I have very little to no experience in trading, I can see that a method like Price Action Trading will be one that I choose to move forward with and focus on soley.

How can I make that call now? “Me”! The totaly inexperienced novice with a total of less than 40hrs learning under my belt?…………I can make this call because I know that in any endeavour I have set out on, there are always countless ways to go about it. THATS THE PROBLEM! The more options there are (that you know about) the harder it is to choose and the less likely you are to be able to move forward. Paralysis by analysis.

Example:

You are so hungry you could eat the leg of a chair, you go to a restaurant where their are only 4 items on the menu: a burger, a salad, fish n chips and a pizza. I think it’s fair to say that it’s pretty easy to choose from this.

Now, let’s take the same scenario only this time you got to a restaurant that has 40 items on the menu: 10 different pastas, fish, fried rice, burgers, sandwiches, thai food, indian food, chinese, ribs, pies, steaks (which one of the 6 types and how would you like that sir) healthy food, fried food, tofu, mexican, blah blah blah blah blah!.

So then, when you eventually manage to decide on the steak (after 24 minutes and possibly suffering a small aneurism in the process), what is the first thing you do as soon as the waiter walks away from taking your order??? You think, “maybe i should have gone the curry”……”wait, no, the ribs”…….no wait……….I made the right choice on the steak………. didn’t I ???

Sound familiar? You know exactly what I am talking about because we have all been there. TO MUCH CHOICE!

I dont need to know anything about Forex Trading to understand that too much choice is bad. Does this mean that price action will be the method I stick with for ever, who knows…….possibly/possibly not. But it’s a starting point and if it works for someone who seems to have the largest website on the internet about this topic, well then thats a good enough indicator for me to know that I am on a good path.

Nial promotes keeping it simple. Using 4hr and 1 day charts, setting your complete trading strategy up from start to finish (or entry and exit) then using a “set and forget”. No looking at the charts every 5 minutes, no medeling with the trade you have set up because its not going the way you want it to, nothing. Set and forget.

This appeals to me so much because your time as a trader is leveraged exteremely well. You look at the price charts when you get up in the morning. If you see a set up you like you put a trading stategy together, apply it, and walk away. You then check your charts again at the close of the NewYork session to see what is happening. The next day you do it again. All the time in between is yours!!! NOT, spent staring anxiously at a computer monitor. A great example of 80/20 my friends.

Whilst I do not yet have the knowledge to read the markets and put together high probability trading strategies, I understand that using this long term (4hr charts and abouve) swing trade method, is one of great leverage.

So, where to from here. Well, as mentioned I have consumed all of Nials free stuff on his site which between that and the previous course gives me enough knowledge to be able to write a very basic Trading Plan. As the old saying goes, “failing to plan is planing to fail!”

Ok that’s it for me. Check out this inspirational video below by Will Smith. This guy is super successful and when you listen to what he says and what he believes in, you will see why.

Will Smith Talking About Success

See you on the next post

To your trades

Nick Jordan

Day 5/365 - Earnings to date $0.00