Learn to walk before you try to run.
By Tom Long | October 9, 2007
Trading the financial markets is one of the most competitive fields in existence today.
I recently received an email from an FX Power Course graduate who was doing all the things necessary to become a profitable trader. He was showing the right amount of patience in waiting for the solid setups. The risk:reward ratio used was acceptable for his style of trading and all of the trades were in the direction of the daily trend. He was keeping a log of his thoughts as he entered and exited a trade and also just trading one mini lot at a time. So after six months of trading, he emailed to say that he was frustrated in that he was only a breakeven trader. In response, I emailed back congratulating him on his excellent results. After six months of live trading, this trader had not made any money and I was congratulating him. What was I thinking? I think that in any field it takes time to become a professional. Nobody would think that you could become a professional golfer or a doctor after six months of preparation and trading is no different. It is difficult to become a consistently profitable trader and most new traders will quit before they reach that status. Whether they quit because of a lack of interest, running out of money to play with or just didn’t realize how much work it was to become a trader, you have to pay proper respect to what it is you are trying to do. You are competing against traders who have been profitable for years and work all day to maintain their edge. Becoming profitable is achievable, but we have to earn that right. We want to start out easy by getting a feel for trading and that means practicing in a demo account first. However, the real lessons start when you open a live account and begin to trade you own money. When there is real money on the line, a 10 pip move against you feels different than it would in a demo account. This is why we should start out small, trading one mini lot at a time until we feel comfortable about what we are doing. With time, you will find that trading with real money becomes easier, but you should learn to walk before you start trying to run with the professionals. Then after six months of live trading, if you find yourself at breakeven, pat yourself on the back as you are on your way to being a profitable trader.
Tags: forex trading, fx power course, trades
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Trading is not about how much you win, but rather how much you lose.
By Tom Long | October 4, 2007
We often mention in the FX Power Courses that one of the key differences between a new trader and a professional trader is that new traders think about how much they can win while professional traders think about how much they can lose. It’s no coincidence that professional traders make money while many new traders do not. Often you will see a professional spend as much time determining the placement of their initial protective stop as they do in finding their entry. As the market moves in their direction, they will not hesitate to move the stop in order to protect any gains. Successful trading is all about identifying and limiting your losses. In the world of trading there is only one guarantee and that is if you trade, you will have losing trades. How you manage those losses will have as much of an influence on your long term success as any other factor. The idea is to risk no more than you are willing to lose. If you don’t want to lose half of your account balance on one trade, then don’t risk that much. You have most of the control over this by where you place your protective stop. Keep your risk down to less than 5% of your account balance and you will be able to absorb many losers and still remain in the game. Winning will take care of itself, but you have to have the funds to take the trade in order to profit. You can do that by limiting your risk to an acceptable level any time you are in a trade.
Tags: dow, forex analysis, fx power course, ssi, trades
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CHF/JPY results
By Laetitia Vaval | September 20, 2007
So i just got in the office and checked on my trades from yesterday. Especially, the CHFJPY trade that I “forced” myself not to touch once I had entered it in the system. So my limit price of 98.25 was reached and i made a 24 pip profit ($207). This really shows the benefits of letting the trade work by itself instead of “irrationally” closing my position as soon as it starts ticking a few pips against me. My only regret in this case is to not have set my limit higher because CHFJPY traded all the way up to 98.50 before trading back down to the level where I had bought the pair. Something to consider for my next trade.
Tags: currency trading, dow, forex, forex market, jpy, trades, wall street warriors
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Trading the Fed Rate Cut Announcement
By Laetitia Vaval | September 19, 2007
Yesterday was pretty exciting since the Fed was set to announce whether they were cutting interests rates and if yes, by how much (25bps or 50bps). Opinions were mainly divided between a 25bp or a 50 bp rate cut. Before, the announcement at 2:15, I prepped myself by planning out the trades I would place for each scenario.
A 25bps cut would have been bullish for the dollar whereas a 50bps would have been bearish. I decided to trade the currencies I was most familiar with — that is the EURUSD and the GBPUSD.
At 2:15pm EST, the Fed announced that they were in fact cutting rates by half a point. The reaction in the US Dollar was immediate as you can see on the 5-minute charts above (EURUSD and GBPUSD). In the case of a 50 bp cut, my plan was to get long the Euro and the Pound as soon as possible right after the announcement.
The morning of the announcement I got long the EURUSD at 1.38818. The pair did not move much until the announcement in the afternoon. Within 5 mins the EUR jumped to 1.3965 - more than an 80pips. However, soon after the pair reversed and traded down. I got out of my position at the top of the wick of the next 5-minute (red) candle at 1.3936. I made $542 on that trade. OF course, the reversal was only temporary and a few minutes later the Euro continued trading up and at 14:40 hit 1.3980, and a few hours later hit a high of 1.3987. Had i held onto my trade longer my profits could have been doubled.
My second trade involved the GBPUSD. I also got long the pound in light of the half point rate cut. I actually ended up buying 2 lots of the GBP. I bought lot #1 at 2.00419 and sold it for 2.00670 ( a 25.1 pip gain). I bought lot #2 at 2.00528 and sold it at 2.00650. Looking at the 5 minute chart from yesterday, it is easy to see that I only captured a fraction of the profits that could have been made on this explosive upmove. As you can tell from the 2nd chart above, the GBP kept trading up to hit a high of 2.0150 about 35 minutes later. Same problem here as in the EURUSD, and many of my previous trades as you can see in my past postings — I exit my trades way to early and then they keep trading my favor.
About 15 minutes after the announcement I placed a few smaller trades on the USDCAD (got long at 1.0178) and re-entered a long position in the EURUSD at 1.3960. I exited those trades a few pips higher and made some minor profits — about $100.
I really enjoy trading the news. It’s very fast paced and there is a potential to make a lot of money. However, unfortunately market moving news like the fed rate cut do not happen everyday and in the meantime, I have to make some trades in the “slower” in between phases. Today, I’m going to focus on trying to find a few range-trading currencies.
Will update on that this afternoon.
Tags: dollar, dow, eurusd, forex, forextrading, pips, rate cut, trades, wall street warrior
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The Second Day
By Laetitia Vaval | September 12, 2007
Today, I placed two trades on my demo account.
The first trade involved the GBP/USD pair. As you can see from the chart above, the pair has been trading in a range for a few days now. The wider range this pair was trading at can be set to 2.0358 - 2.0228. If you look at a shorter time frame, the range can be narrowed down to 2.0358 - 2.0281. I decided to trade that range, meaning to get long at the bottom of the range and short at the top. I got long the Sterling at 2.0316. I placed my stop 10pips below the 2.0281 support level at 2.0270.
Ialso had a long bias because the recent weakness of the USD and the relatively good unemployement news that came out in the UK overnight.
My second trade was buying the AUDUSD. On the 1yr chart (2nd chart), you can see that 0.8397 had been a resistance level in mid-April.
As far as fundamental analysis goes, the September Australian Westpac numbers came out above expectations during the night and indicated a 4.2% increase in consumer confidence since August. According to the Daily FX the Westpac number has a moderate impact on the market, however it might be partly responsible for today’s uptrend in the AUD.
At 10:18am, I got long the AUD at .8388. At 12:52pm, I’m up 32pips.
I placed my stop at 0.8277 and my limit at .0581. I placed my stop at the 50% fib level which closely matches the S1(daily) pivot level of 0.8273. My limit was placed close the nearest resistance level of 0.8600.
Tags: dailyfx, dow, forextrading, fxcm, gbp, pips, trades, wall street warriors
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First Trades
By Laetitia Vaval | September 11, 2007
Tuesday, September 11, 2007
I’ve just set up my new demo trading account and here I am with $50,000 (fake) dollars at my disposal to buy or sell a currency pair that I believe will move in the direction my combination of technical and fundamental analysis will have predicted.
The first currency pair i looked at, of course, was the EURUSD. The Euro was reaching a record high at around 10:30AM 1.38494 as you can see on the chart above.
I had seen an important resistance level @ 1.3837 and got in as soon as that resistance level was crossed. I got long at 1.3841 (where the top line is drawn). The Euro peaked at 1.3849 and traded back down to its previous levels. I sold my position at 1.3832. A 9 pip loss ($90).
Having traded previously, I can easily identify some of the mistakes I made on this trade. First, I did not clearly identify my Risk vs. Reward (and with that my Stop and my Limit). My upside was difficult to estimate since I was expecting a breakthrough all-time highs. My downside however was about 19 pips since the next closest support level can be found at 1.3822 (the bottom line on the chart). I’ve learned that a trader — especially a beginner should never enter a trade without having first identified his risk vs. reward. Had I followed this rule, I should have expecting to see at least a 40 pip upmove - since my downside was 19.
Although i’m not an expert, I believe that a 40pip upmove would have been quite important and difficult to achieve without some sort of news breaking event. I’ve traded equities before and although false breakouts exit, they seem more rare than in the Foreign Exchange market. I’m used to seeing stocks skyrocket after breaking all time highs. This didnt happen with the EURUSD — i was just the victim of a false breakout.
Another mistake I made in one of my other trades was that I got shaken out too quickly. I entered a position, the currency pair did not immediately move the way I had expected it to, and i quickly closed the position by fear of loosing too much. Of course, immediately after I got out of the position, the pair made a reversal and started moving the way my analysis had predicted. That’s most likely an old habit left from day (short-term) trading. I’m not used to waiting hours (and sometimes days) to see the results.
In my EURUSD trade, you can see that I exited my position before my stop was hit. Although it was for the best since the currency kept trading down from there, it probably shows a lack of discipline by not respecting the levels i had previously set.
For this trade i did not factor in any sort of fundamental analysis as I was looking to enter a short term position and trade a breakout.
Tags: demo trading, dollar, dow, eurusd, forex, forextrading, pips, trades, wall street warrior
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