April 16th, 2007

Systems Protofolio

Maintaining a forex systems portfolio is very important for any forex system or signal trader. I have reached such a conclusion after seeing how systems have their ups and downs. Not any system can maintain a track record of straight monthly profits, month after month, without suffering some months of losses. A trader who depends on his trading income for a living, will find it hard when he has losing months. The goal of any trader is to maintain an always "Winning" results, month after month.

 This can be achieved by having a portfolio of good trading systems. And as I noticed lately, for example, when one system fails, the other wins. And when this other system fails, the first one wins. So trading multiple "good" systems, and I stress "good" systems, can be a key for traders' success.

 The advice I give is:

1-     Trade 3-5 good systems

2-     Allocate the trade size for each system, according to past historical results

3-     Try to save every pip you can

4-     Try to gain every interest you can

 Trading for a living is not easy. It is a stressing full time job, which requires researching, testing, reading, learning, and innovating.

April 1st, 2007

PRICE ACTION

Indicators are nice, but they are always lagging. All indicators lag for a simple one reason: They represent past data. The indicator cannot predict what will happen the next minute, nor the next hour. When someone trades, he should look at price action. Price action is the most important thing.

However, I am not trying to defame the indicators. Indicators do have a role. They can help traders to better read the chart. So, if you are not experienced in chart reading, cannot identify patters, trends, swings, based on charts alone, then you should use indicators.

But try not to depend on indicators solely when entering trades. Always watch the PRICE ACTION.

March 2007

Stop hunters

Some time passed without adding a new tip. So here you are.

The tip today will be on how to deal with stop losses and stop orders hunters. What I mean with hunters are brokers who hunt for your stop losses. I have received many emails from people who use to follow the up with my live trading orders and results, complaining that their brokers have triggered some orders on their platforms, but not on my platform. Although me and them had the same orders' numbers, yet the low or high of their broker differed or spiked by 2-3 pips more than me. In some cases it reached 10 pips.

Unfortunately this is a very difficult situation to deal with. And it will surely cost you a lot of money. But here are the steps you should take to try to solve it:

1. First of all, if you feel that your broker is hunting for your stops, then you should open an account at another broker and start comparing your broker's lows and highs with this broker.

If you still feel that your broker is really hunting for your stops, email them and explain the situation and provide evidence (the other broker's lows and highs)

If your broker does denies this, or never tries to hear or solve this, then the only solution is to change your broker.

2. Another act you could do to make sure that your broker is honest, is to always add 2-3 pips to your orders. This method was found useful by some traders I advised to. For example, if you use hans123 and your order looks like this BUY GBP @192.10 SL 191.75 TP 193.30. Then make your order like this BUY GBP @ 192.13 SL 191.72 TP 193.33. This will surely save you from stop hunts, because it will be very wide for your broker to make such a spike, and the difference would be between his high and other brokers high would be wider and clearer. And this method would also save sometimes from false breakouts. However the drawback is that you pay more pips for this protection. However one the traders found a solution for this, by using one of my older tips, and when he closes the orders at 23:00 CET, he tries to save himslef 2-3 pips using my older tip,, and thus he is re-gaining what he paid before.

3. Putting mental stops. Which means, you actually place the stop loss in your mind. You do not put it on the platform. You say if GBP reached 191.75 I will stop it manually. This way, your broker would not know where the stop is, and would not try to hunt it.

February 27th, 2007

Slippage

Today's tip will be about slippage! Many traders if not all have experienced slippage. Slippage is a very annoying thing, as your fill price would be different from your order price. Slippage usually  occurs when there is low liquidity and / or when there are very important market news, such as the NFP.

Now, not all brokers are honest! Some brokers usually have the ability to fill your orders at the required price. But they don't! Your on-screen account will have a fill with slippage, while the real fill would be on the same required price; and the broker will put the extra income in his pocket! Now there is no way to detect such fraud. Because you never know what your broker is up to. I have heard stories from people having different account at different brokers, where they put two same orders at two different brokers. To their surprise, one broker filled their order at the require price, the other at 55 pip slippage! After contacting the broker, and explaining this, he replied that different brokers have different pools, and it is not guaranteed that the fill will be the same! Come on! If it was 5 pip or even 10 pip, we would have believed that. But 55 pips? come on!

Now here is another horror story about slippage, which happened with me! I had an account at broker x, and a friend of mine another account at same broker x. We put same orders, because we use same trading system. To our surprise, my friend called me and told me he had slippage of 20 pips. Me did not! Now this is something extraordinary! Same broker, same orders, same quantities, but different account holders, each had a different fill. It could happen, no one knows. But, would you believe that? would you continue working with such a broker?

Slippage Elimination

There are two main ways to eliminate slippage, while still putting your orders and still trading the news.

1. Most brokers have the option of max slippage, where in the preferences, or in order box, you can state exactly how is the max price you are ready to pay to take the order. The max would be entered in  pips. For example, you put +-10 pips. Which means that if the fill is not in the range of +-10 pips from the required price, the order would not be filled.

2. Another tactic, which I discovered myself, is, trying to break up your order into smaller pieces. For example, if you trade 1 lot, try to break your order into 4 equal parts, each part with 0.25 lot, or 5 small parts. If you have 2 lots, break them into 0.5 lots each part. Now this trick, will fool the computer systems and robots in one hand (for brokers who target certain traders who trade big sizes), or / and will allow your broker, (for honest brokers), to match your orders more easily with other traders from the pool, and will fill your orders more easily are required prices. (Try it)

February 21st, 2007

Spread & comissions

Spreads and comissions can play a very important role in closing the month with a winning account.

If a broker is going to eat your profits by giving you a high spread, or / and take comissions for everytrade you make, then even using a winning strategy, in day trading, you will end up losing on the longterm.

What if your broker takes a $50 USD comission for every round you make. What if you trade on daily basis, like 1-3 lots. That is on average 500 lots a year, and that is 25000 USD in comissions! A friend of mine once told me, as long as I am winning, I do not care, let the borker take 100 not $50. When I showed him the calculations, his face turned red! (he is using a regular broker, not online)

The same thing for spread. If you are paying a high spread, then watch out.

Finally, I got a tip from another friend. He is trading the CME. The spread is 1 pip!!

February 19th, 2007.

ANGER

Where shall I begin? Why it took me so long to write this tip, leave it to last. Something so important? It is not procrastination - no. it’s not insecurity. It is fear. Fear of writing a tip which may lead the trader on the wrong path to his search for the much coveted Trading for a living. No fault of mine. It is ANGER!

Last monday, I was hungry, so I thought I would go down and buy a sovlaki from the shop around the corner, on my way to a seminar. When I got there, and put my hand in pocket, a CENT fell out from my pocket, on the street.

Now here's the delimma. Since I hate throwing away money, even if it is a cent, I wanted to bend down and pick it up. But, would I risk the only button in my trouser to pop up and lose it? Provided that night I have a very important lecture/seminar for fellow business/traders where I wanted to explain some TA's for them? And thus staying the whole seminar, one hand on the blackboard and the other holding my pants? Or just leave the cent and let go?

This is exactly what happens in real forex. You lose some pips in your account. You try to get your losses back, by risking your money, and by trading not according to your rules, but according to your anger. Then you will be risking your WHOLE account.

So Today's tip is "ANGER". Don't get angry at your losses. Losses are part of the game.

Lastly, everyone wanted to know why I have taken so long to write this tip, simply:" it was the weekend!"

February 16th, 2007

Psychological Trading!

Psychology plays a very important role in trading. However a real trader should follow a system or a strategy, and thus should put fear and greed aside.

How many of you have experienced a streak of losses in his system? Many. A streak of 7 straight days of losses is not uncommon even in the best systems. Now comes the role of psyhology. How many will have the courage to pull the trigger the 8th day and enter his orders according to the same system in his live trading platform?

Even if the systsm has been working for 1 year or more, many traders will get rid of the system at this point, or will change the rules himself, or start trading according to his own instincts.

From my point of view, a working system whould ocntinue to work, and you will be amazed to see that on this day, when you stopped using the system , or you altered the rules, the system will start winning again.

The solution in such cases is to depend on money management. One rule of thumb is to risk no more than 1% of your account in every trade. This way if you lose for 7 straight days, you will still have 93% of you account to trade with. And thus you will eleminate fear, and will have the courage to pull the trigger and enter the trades again.
 

February 15th, 2007.

Interest

Today's tip will be devoted to interest on unused margin. The interest on unused margin is the interest that your broker pays everyday because you are putting your money in his hands. It is like putting your money in the bank and leaving them to get interest. However, in my opinion, it is better to find a broker which pays you interest on unused margin. My brother has been trading since Jan 1, 2006 with broker X. His broker gives him about 4.8% per year on his money, credited on daily basis. I have been trading with broker Y for the same time. We were doing the same trades, the same things. Even I used to manage his account just like my account.

After 1 year, I were astonished to find that his account was bigger than mine by 2400USD!!! This resulted due to interest that he used to get in his account.

Time passes, and you do not feel it. You will open your account one day and see that you have gained more money!

Happy Trading.

February 14th, 2007

Pips Saving

If you are trading a system, or even your own instincts, do you know that you can save 2-3 pips a day? If you trade this system on daily basis, do you know that you can save up to 50-60 pips a month? If you trade one whole lot, then this is $500-$600 more in your account!

Let us look at this example.

A trader uses Hans123 system. Hans123 system says that we should close all positions at end of day 24:00 CET or 23:00 GMT. Now if you blindly close the trades at this time exactly, then you are missing some pips. Put your chart on the 5 or 1 minute frame.

Now look at your chart, see if there are patterns in the last hour. Many times at this time of day, the market is calm since NY has closed, and you will see that GBPUSD or EURUSD for example is oscillating around a certain point. As an example, we are long GBPUSD at 196.00. The price now is 195.70. It has been oscillating around this point for 1 hour, going up 3 pips and down 3 pips.

Five minutes before 23:00 GMT, we look for best chance to close this position at 195.72. Why close it at 195.68 or 195.70. Let us save 2 pips.

However be careful. If you cannot do that in the last 5 minutes before 23:00 GMT or after 2-3 minutes of 23:00GMT, beware not to get pulled away and lose more money instead of gaining.

This needs much practicing, and needs a Hawk eye in order to catch the best close of the position.

Doing this on daily basis, especially if you have more than one open position, can save you  lots of pips.

Happy Saving!