What are your thoughts on trading both forex and stocks?
Currently I’m starting to trade forex, and once I generate enough capital I want to trade stocks as well. Is this a good idea or should I focus on only one? I feel like my income would increase drastically if I could trade both successfully, but would this be difficult to balance? Has anyone here had any success trading both?
I have been trading for 3 months (6 months demo before that). Up until 3 days ago I have always traded with discipline, set SL, understood risk management and make reports out of downloadable CSV data from the broker. I even journal each trade at the end of the day. Each trade I make risks from 0.5% - 2% depending on how confident I am on the particular trade. The first 2 months of grind made 5% and 7% respectively. Several days ago, I lost 3 trades in a row and felt like George Costanza. It was especially demoralizing because I followed the technical, fundamental, trend, and confirmed with indicator, etc... yet, each went straight for my SL. I took the day off and reflected on what I did wrong. I lost 6% of my capital that day, a whole month's work. The very next day, during the Fed chair Powell speech, I focused on EUUSD, and as the chart started to run higher and higher, I am not sure what came over me, I entered long at 1.18401 and risked 20% of my capital. I was going to enter my usual 2% risk, but the greed (subconsciously?) in me added an extra 0. The very second the trade was entered, I felt a hot flash and my heart started pumping, I entered into loss territory, my heart sunk as I watch it go down 10 pips, 15 pips, if only for 15 seconds. Then it started going up, and it was exhilarating watching the profits. I had the good sense to enter TP at 1.189, and it got there 15 minutes later. I had just made a little over 10% of my capital in 15 minutes. Recovered yesterday's 6% loss and then some. I told my self that this was a one time thing, stupid and impulsive thing to do... until the next day... I saw a good opportunity with USD/JPY. I didn't even bother to check anything, technical, fundamental, indicators, NOTHING! Just that vertical cliff short candle... , my god, that full short candle, and the speed! This time, very much a conscious decision, I entered short with 30% of my capital at 106.5. 4 hours later, I hit my TP at 105.5. I had made 30% of my capital in 4 hours. In the last 2 trading days, up 40% of my capital, including my previous 2 months of measly 12% in comparison, I am roughly up 50% of my original capital in 3 months. This has been a good week to say the least. But I am afraid I have created an insatiable monster. The greed has overtaken good sense, and this is quite possibly the origin story of a blown account.
Real quick before I get into my next steps of my FX Journey, id like to say thank you to all the people who commented on my last post! All of the tips I got were really eye-opening and introduced me to different parts of FX trading that I didn't even know existed. So thank you so much, and I hope to get more interesting feedback from you guys in the future! Also Im going to probably change my writing frequency from daily to biweekly. I think writing about every little trade is not going to be as beneficial to me as writing about my overall progress at certain points throughout the week. I started this trading day out by learning up on order flow. A whole bunch of you guys suggested really interesting youtubers to watch, and I started with Mr. pip's series on order flow. After I finished up watching a few of his videos, I started to tweak my trading plan so that I could get in some chart time. I changed currency pair from EUUSD to the AUD/USD, the time frame from the 4 hour to the 1 hour, and my indicators from RSI, Stochastic, 2 SMAs and ADX to ATR, RSI, and Ichimoku Kinko Hyo. I also added a little fundamental analysis in my trading plan because I think that I am being far too reliant on my indicators. I planned to check the economic calendar and determine the general trend of the currency pairs that are strongly correlated to the AUD/USD before I began my chart analysis. In addition to all of my analysis, I tried to practice using the techniques I learned in Mr. Pip's videos and analyze the order flow of the chart. Even if my analysis of order flow is wrong, as long as I am getting practice I am learning. Eventhough I planned to use today to back-test indicators and find a solid new plan, I did not have enough time. I ended up getting on my demo account really late in the day, and started to force myself to enter a trade. Destructive habits like this could lead into some massive issues when I eventually get into live trading. To combat this harmful attitude specifically, I will restrict myself to trading on certain parts of the day (for example session overlaps, news releases, and earlier in the day). Despite this mistake I still continued with my trading strategy. I calculated all the currency correlations for AUS/USD using the past weeks economic data, and set my indicators in place. After checking the overall trend of the most strongly correlated pairs (Positive: EUUSD, GPB/USD, Negative: USD/CAD, USD/JPY) I started to analyze the order flow. All the correlated currencies, except for EUUSD, indicated that the AUD/USD would fall, while my order flow analysis indicated the opposite. Seeing as though I am extremely new to order flow, I dismissed this analysis, and ended up forcing a trade on the AUD/USD going short when my indicators seemed to line up correctly. I learned from last time that I should not alter or close my trade purely based on emotion, and to just wait till the market hits my stop loss or take profit. I included a trailing stop loss of 60 pips this time, but I have no evidence to base that number range on. The trade is currently open and I am down about 30 pips. Although I am not labeling this trade as a loser yet, I can definitely see a lot of holes in my trading strategy. The most obvious mistake in my eyes right now is my use of indicators. Currently all my trades are purely based on what my indicators say, and since I do not have any back-tested data to support the credibility of my indicators, it feels a lot like strategic gambling. Another issue is that I feel far too reliant on indicators alone. I think that if I can find ways to include various types of analysis efficiently and evenly in my trading plan I will become a much more skillful and well-rounded trader. In order to combat these two issues I will begin forming various types of trading strategies this weekend and back-test them all extensively. I also plan on researching more on price action, order flow, and Naked Forex. Once again any and all feedback is welcome. I am just beginning Forex, but it had been a huge passion of mine and I don't plan on stopping anytime soon.
Disclaimer: None of this is financial advice. I have no idea what I'm doing. Please do your own research or you will certainly lose money. I'm not a statistician, data scientist, well-seasoned trader, or anything else that would qualify me to make statements such as the below with any weight behind them. Take them for the incoherent ramblings that they are. TL;DR at the bottom for those not interested in the details. This is a bit of a novel, sorry about that. It was mostly for getting my own thoughts organized, but if even one person reads the whole thing I will feel incredibly accomplished.
For those of you not familiar, please see the various threads on this trading system here. I can't take credit for this system, all glory goes to ParallaxFX! I wanted to see how effective this system was at H1 for a couple of reasons: 1) My current broker is TD Ameritrade - their Forex minimum is a mini lot, and I don't feel comfortable enough yet with the risk to trade mini lots on the higher timeframes(i.e. wider pip swings) that ParallaxFX's system uses, so I wanted to see if I could scale it down. 2) I'm fairly impatient, so I don't like to wait days and days with my capital tied up just to see if a trade is going to win or lose. This does mean it requires more active attention since you are checking for setups once an hour instead of once a day or every 4-6 hours, but the upside is that you trade more often this way so you end up winning or losing faster and moving onto the next trade. Spread does eat more of the trade this way, but I'll cover this in my data below - it ends up not being a problem. I looked at data from 6/11 to 7/3 on all pairs with a reasonable spread(pairs listed at bottom above the TL;DR). So this represents about 3-4 weeks' worth of trading. I used mark(mid) price charts. Spreadsheet link is below for anyone that's interested.
I'm pretty much using ParallaxFX's system textbook, but since there are a few options in his writeups, I'll include all the discretionary points here:
I'm using the stop entry version - so I wait for the price to trade beyond the confirmation candle(in the direction of my trade) before entering. I don't have any data to support this decision, but I've always preferred this method over retracement-limit entries. Maybe I just like the feeling of a higher winrate even though there can be greater R:R using a limit entry. Variety is the spice of life.
I put my stop loss right at the opposite edge of the confirmation candle. NOT at the edge of the 2-candle pattern that makes up the system. I'll get into this more below - not enough trades are saved to justify the wider stops. (Wider stop means less $ per pip won, assuming you still only risk 1%).
All my profit/loss statistics are based on a 1% risk per trade. Because 1 is real easy to multiply.
There are definitely some questionable trades in here, but I tried to make it as mechanical as possible for evaluation purposes. They do fit the definitions of the system, which is why I included them. You could probably improve the winrate by being more discretionary about your trades by looking at support/resistance or other techniques.
I didn't use MBB much for either entering trades, or as support/resistance indicators. Again, trying to be pretty mechanical here just for data collection purposes. Plus, we all make bad trading decisions now and then, so let's call it even.
As stated in the title, this is for H1 only. These results may very well not play out for other time frames - who knows, it may not even work on H1 starting this Monday. Forex is an unpredictable place.
I collected data to show efficacy of taking profit at three different levels: -61.8%, -100% and -161.8% fib levels described in the system using the passive trade management method(set it and forget it). I'll have more below about moving up stops and taking off portions of a position.
And now for the fun. Results!
Total Trades: 241
TP at -61.8%: 177 out of 241: 73.44%
TP at -100%: 156 out of 241: 64.73%
TP at -161.8%: 121 out of 241: 50.20%
Adjusted Proft % (takes spread into account):
TP at -61.8%: 5.22%
TP at -100%: 23.55%
TP at -161.8%: 29.14%
As you can see, a higher target ended up with higher profit despite a much lower winrate. This is partially just how things work out with profit targets in general, but there's an additional point to consider in our case: the spread. Since we are trading on a lower timeframe, there is less overall price movement and thus the spread takes up a much larger percentage of the trade than it would if you were trading H4, Daily or Weekly charts. You can see exactly how much it accounts for each trade in my spreadsheet if you're interested. TDA does not have the best spreads, so you could probably improve these results with another broker. EDIT: I grabbed typical spreads from other brokers, and turns out while TDA is pretty competitive on majors, their minors/crosses are awful! IG beats them by 20-40% and Oanda beats them 30-60%! Using IG spreads for calculations increased profits considerably (another 5% on top) and Oanda spreads increased profits massively (another 15%!). Definitely going to be considering another broker than TDA for this strategy. Plus that'll allow me to trade micro-lots, so I can be more granular(and thus accurate) with my position sizing and compounding.
A Note on Spread
As you can see in the data, there were scenarios where the spread was 80% of the overall size of the trade(the size of the confirmation candle that you draw your fibonacci retracements over), which would obviously cut heavily into your profits. Removing any trades where the spread is more than 50% of the trade width improved profits slightly without removing many trades, but this is almost certainly just coincidence on a small sample size. Going below 40% and even down to 30% starts to cut out a lot of trades for the less-common pairs, but doesn't actually change overall profits at all(~1% either way). However, digging all the way down to 25% starts to really make some movement. Profit at the -161.8% TP level jumps up to 37.94% if you filter out anything with a spread that is more than 25% of the trade width! And this even keeps the sample size fairly large at 187 total trades. You can get your profits all the way up to 48.43% at the -161.8% TP level if you filter all the way down to only trades where spread is less than 15% of the trade width, however your sample size gets much smaller at that point(108 trades) so I'm not sure I would trust that as being accurate in the long term. Overall based on this data, I'm going to only take trades where the spread is less than 25% of the trade width. This may bias my trades more towards the majors, which would mean a lot more correlated trades as well(more on correlation below), but I think it is a reasonable precaution regardless.
Time of Day
Time of day had an interesting effect on trades. In a totally predictable fashion, a vast majority of setups occurred during the London and New York sessions: 5am-12pm Eastern. However, there was one outlier where there were many setups on the 11PM bar - and the winrate was about the same as the big hours in the London session. No idea why this hour in particular - anyone have any insight? That's smack in the middle of the Tokyo/Sydney overlap, not at the open or close of either. On many of the hour slices I have a feeling I'm just dealing with small number statistics here since I didn't have a lot of data when breaking it down by individual hours. But here it is anyway - for all TP levels, these three things showed up(all in Eastern time):
7pm-4am: Fewer setups, but winrate high.
5am-6am: Lots of setups, but but winrate low.
12pm-3pm Medium number of setups, but winrate low.
I don't have any reason to think these timeframes would maintain this behavior over the long term. They're almost certainly meaningless. EDIT: When you de-dup highly correlated trades, the number of trades in these timeframes really drops, so from this data there is no reason to think these timeframes would be any different than any others in terms of winrate. That being said, these time frames work out for me pretty well because I typically sleep 12am-7am Eastern time. So I automatically avoid the 5am-6am timeframe, and I'm awake for the majority of this system's setups.
Moving stops up to breakeven
This section goes against everything I know and have ever heard about trade management. Please someone find something wrong with my data. I'd love for someone to check my formulas, but I realize that's a pretty insane time commitment to ask of a bunch of strangers. Anyways. What I found was that for these trades moving stops up...basically at all...actually reduced the overall profitability. One of the data points I collected while charting was where the price retraced back to after hitting a certain milestone. i.e. once the price hit the -61.8% profit level, how far back did it retrace before hitting the -100% profit level(if at all)? And same goes for the -100% profit level - how far back did it retrace before hitting the -161.8% profit level(if at all)? Well, some complex excel formulas later and here's what the results appear to be. Emphasis on appears because I honestly don't believe it. I must have done something wrong here, but I've gone over it a hundred times and I can't find anything out of place.
Moving SL up to 0% when the price hits -61.8%, TP at -100%
Adjusted Proft % (takes spread into account): 5.36%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%
Adjusted Proft % (takes spread into account): -1.01% (yes, a net loss)
Now, you might think exactly what I did when looking at these numbers: oof, the spread killed us there right? Because even when you move your SL to 0%, you still end up paying the spread, so it's not truly "breakeven". And because we are trading on a lower timeframe, the spread can be pretty hefty right? Well even when I manually modified the data so that the spread wasn't subtracted(i.e. "Breakeven" was truly +/- 0), things don't look a whole lot better, and still way worse than the passive trade management method of leaving your stops in place and letting it run. And that isn't even a realistic scenario because to adjust out the spread you'd have to move your stoploss inside the candle edge by at least the spread amount, meaning it would almost certainly be triggered more often than in the data I collected(which was purely based on the fib levels and mark price). Regardless, here are the numbers for that scenario:
Moving SL up to 0% when the price hits -61.8%, TP at -100%
Winrate(breakeven doesn't count as a win): 46.4%
Adjusted Proft % (takes spread into account): 17.97%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%
Winrate(breakeven doesn't count as a win): 65.97%
Adjusted Proft % (takes spread into account): 11.60%
From a literal standpoint, what I see behind this behavior is that 44 of the 69 breakeven trades(65%!) ended up being profitable to -100% after retracing deeply(but not to the original SL level), which greatly helped offset the purely losing trades better than the partial profit taken at -61.8%. And 36 went all the way back to -161.8% after a deep retracement without hitting the original SL. Anyone have any insight into this? Is this a problem with just not enough data? It seems like enough trades that a pattern should emerge, but again I'm no expert. I also briefly looked at moving stops to other lower levels (78.6%, 61.8%, 50%, 38.2%, 23.6%), but that didn't improve things any. No hard data to share as I only took a quick look - and I still might have done something wrong overall. The data is there to infer other strategies if anyone would like to dig in deep(more explanation on the spreadsheet below). I didn't do other combinations because the formulas got pretty complicated and I had already answered all the questions I was looking to answer.
2-Candle vs Confirmation Candle Stops
Another interesting point is that the original system has the SL level(for stop entries) just at the outer edge of the 2-candle pattern that makes up the system. Out of pure laziness, I set up my stops just based on the confirmation candle. And as it turns out, that is much a much better way to go about it. Of the 60 purely losing trades, only 9 of them(15%) would go on to be winners with stops on the 2-candle formation. Certainly not enough to justify the extra loss and/or reduced profits you are exposing yourself to in every single other trade by setting a wider SL. Oddly, in every single scenario where the wider stop did save the trade, it ended up going all the way to the -161.8% profit level. Still, not nearly worth it.
As I've said many times now, I'm really not qualified to be doing an analysis like this. This section in particular. Looking at shared currency among the pairs traded, 74 of the trades are correlated. Quite a large group, but it makes sense considering the sort of moves we're looking for with this system. This means you are opening yourself up to more risk if you were to trade on every signal since you are technically trading with the same underlying sentiment on each different pair. For example, GBP/USD and AUD/USD moving together almost certainly means it's due to USD moving both pairs, rather than GBP and AUD both moving the same size and direction coincidentally at the same time. So if you were to trade both signals, you would very likely win or lose both trades - meaning you are actually risking double what you'd normally risk(unless you halve both positions which can be a good option, and is discussed in ParallaxFX's posts and in various other places that go over pair correlation. I won't go into detail about those strategies here). Interestingly though, 17 of those apparently correlated trades ended up with different wins/losses. Also, looking only at trades that were correlated, winrate is 83%/70%/55% (for the three TP levels). Does this give some indication that the same signal on multiple pairs means the signal is stronger? That there's some strong underlying sentiment driving it? Or is it just a matter of too small a sample size? The winrate isn't really much higher than the overall winrates, so that makes me doubt it is statistically significant. One more funny tidbit: EUCAD netted the lowest overall winrate: 30% to even the -61.8% TP level on 10 trades. Seems like that is just a coincidence and not enough data, but dang that's a sucky losing streak. EDIT: WOW I spent some time removing correlated trades manually and it changed the results quite a bit. Some thoughts on this below the results. These numbers also include the other "What I will trade" filters. I added a new worksheet to my data to show what I ended up picking.
Total Trades: 75
TP at -61.8%: 84.00%
TP at -100%: 73.33%
TP at -161.8%: 60.00%
Moving SL up to 0% when the price hits -61.8%, TP at -100%: 53.33%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%: 53.33% (yes, oddly the exact same winrate. but different trades/profits)
Adjusted Proft % (takes spread into account):
TP at -61.8%: 18.13%
TP at -100%: 26.20%
TP at -161.8%: 34.01%
Moving SL up to 0% when the price hits -61.8%, TP at -100%: 19.20%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%: 17.29%
To do this, I removed correlated trades - typically by choosing those whose spread had a lower % of the trade width since that's objective and something I can see ahead of time. Obviously I'd like to only keep the winning trades, but I won't know that during the trade. This did reduce the overall sample size down to a level that I wouldn't otherwise consider to be big enough, but since the results are generally consistent with the overall dataset, I'm not going to worry about it too much. I may also use more discretionary methods(support/resistance, quality of indecision/confirmation candles, news/sentiment for the pairs involved, etc) to filter out correlated trades in the future. But as I've said before I'm going for a pretty mechanical system. This brought the 3 TP levels and even the breakeven strategies much closer together in overall profit. It muted the profit from the high R:R strategies and boosted the profit from the low R:R strategies. This tells me pair correlation was skewing my data quite a bit, so I'm glad I dug in a little deeper. Fortunately my original conclusion to use the -161.8 TP level with static stops is still the winner by a good bit, so it doesn't end up changing my actions. There were a few times where MANY (6-8) correlated pairs all came up at the same time, so it'd be a crapshoot to an extent. And the data showed this - often then won/lost together, but sometimes they did not. As an arbitrary rule, the more correlations, the more trades I did end up taking(and thus risking). For example if there were 3-5 correlations, I might take the 2 "best" trades given my criteria above. 5+ setups and I might take the best 3 trades, even if the pairs are somewhat correlated. I have no true data to back this up, but to illustrate using one example: if AUD/JPY, AUD/USD, CAD/JPY, USD/CAD all set up at the same time (as they did, along with a few other pairs on 6/19/20 9:00 AM), can you really say that those are all the same underlying movement? There are correlations between the different correlations, and trying to filter for that seems rough. Although maybe this is a known thing, I'm still pretty green to Forex - someone please enlighten me if so! I might have to look into this more statistically, but it would be pretty complex to analyze quantitatively, so for now I'm going with my gut and just taking a few of the "best" trades out of the handful. Overall, I'm really glad I went further on this. The boosting of the B/E strategies makes me trust my calculations on those more since they aren't so far from the passive management like they were with the raw data, and that really had me wondering what I did wrong.
What I will trade
Putting all this together, I am going to attempt to trade the following(demo for a bit to make sure I have the hang of it, then for keeps):
"System Details" I described above.
TP at -161.8%
Static SL at opposite side of confirmation candle - I won't move stops up to breakeven.
Trade only 7am-11am and 4pm-11pm signals.
Nothing where spread is more than 25% of trade width.
Looking at the data for these rules, test results are:
Adjusted Proft % (takes spread into account): 47.43%
I'll be sure to let everyone know how it goes!
Other Technical Details
ATR is only slightly elevated in this date range from historical levels, so this should fairly closely represent reality even after the COVID volatility leaves the scalpers sad and alone.
The sample size is much too small for anything really meaningful when you slice by hour or pair. I wasn't particularly looking to test a specific pair here - just the system overall as if you were going to trade it on all pairs with a reasonable spread.
Here's the spreadsheet for anyone that'd like it. (EDIT: Updated some of the setups from the last few days that have fully played out now. I also noticed a few typos, but nothing major that would change the overall outcomes. Regardless, I am currently reviewing every trade to ensure they are accurate.UPDATE: Finally all done. Very few corrections, no change to results.) I have some explanatory notes below to help everyone else understand the spiraled labyrinth of a mind that put the spreadsheet together.
I'm on the East Coast in the US, so the timestamps are Eastern time.
Time stamp is from the confirmation candle, not the indecision candle. So 7am would mean the indecision candle was 6:00-6:59 and the confirmation candle is 7:00-7:59 and you'd put in your order at 8:00.
I found a couple AM/PM typos as I was reviewing the data, so let me know if a trade doesn't make sense and I'll correct it.
Insanely detailed spreadsheet notes
For you real nerds out there. Here's an explanation of what each column means:
Pair - duh
Date/Time - Eastern time, confirmation candle as stated above
Win to -61.8%? - whether the trade made it to the -61.8% TP level before it hit the original SL.
Win to -100%? - whether the trade made it to the -100% TP level before it hit the original SL.
Win to -161.8%? - whether the trade made it to the -161.8% TP level before it hit the original SL.
Retracement level between -61.8% and -100% - how deep the price retraced after hitting -61.8%, but before hitting -100%. Be careful to look for the negative signs, it's easy to mix them up. Using the fib% levels defined in ParallaxFX's original thread. A plain hyphen "-" means it did not retrace, but rather went straight through -61.8% to -100%. Positive 100 means it hit the original SL.
Retracement level between -100% and -161.8% - how deep the price retraced after hitting -100%, but before hitting -161.8%. Be careful to look for the negative signs, it's easy to mix them up. Using the fib% levels defined in ParallaxFX's original thread. A plain hyphen "-" means it did not retrace, but rather went straight through -100% to -161.8%. Positive 100 means it hit the original SL.
Trade Width(Pips) - the size of the confirmation candle, and thus the "width" of your trade on which to determine position size, draw fib levels, etc.
Loser saved by 2 candle stop? - for all losing trades, whether or not the 2-candle stop loss would have saved the trade and how far it ended up getting if so. "No" means it didn't save it, N/A means it wasn't a losing trade so it's not relevant.
Spread(ThinkorSwim) - these are typical spreads for these pairs on ToS.
Spread % of Width - How big is the spread compared to the trade width? Not used in any calculations, but interesting nonetheless.
True Risk(Trade Width + Spread) - I set my SL at the opposite side of the confirmation candle knowing that I'm actually exposing myself to slightly more risk because of the spread(stop order = market order when submitted, so you pay the spread). So this tells you how many pips you are actually risking despite the Trade Width. I prefer this over setting the stop inside from the edge of the candle because some pairs have a wide spread that would mess with the system overall. But also many, many of these trades retraced very nearly to the edge of the confirmation candle, before ending up nicely profitable. If you keep your risk per trade at 1%, you're talking a true risk of, at most, 1.25% (in worst-case scenarios with the spread being 25% of the trade width as I am going with above).
Win or Loss in %(1% risk) including spread TP -61.8% - not going to go into huge detail, see the spreadsheet for calculations if you want. But, in a nutshell, if the trade was a win to 61.8%, it returns a positive # based on 61.8% of the trade width, minus the spread. Otherwise, it returns the True Risk as a negative. Both normalized to the 1% risk you started with.
Win or Loss in %(1% risk) including spread TP -100% - same as the last, but 100% of Trade Width.
Win or Loss in %(1% risk) including spread TP -161.8% - same as the last, but 161.8% of Trade Width.
Win or Loss in %(1% risk) including spread TP -100%, and move SL to breakeven at 61.8% - uses the retracement level columns to calculate profit/loss the same as the last few columns, but assuming you moved SL to 0% fib level after price hit -61.8%. Then full TP at 100%.
Win or Loss in %(1% risk) including spread take off half of position at -61.8%, move SL to breakeven, TP 100% - uses the retracement level columns to calculate profit/loss the same as the last few columns, but assuming you took of half the position and moved SL to 0% fib level after price hit -61.8%. Then TP the remaining half at 100%.
Overall Growth(-161.8% TP, 1% Risk) - pretty straightforward. Assuming you risked 1% on each trade, what the overall growth level would be chronologically(spreadsheet is sorted by date).
Based on the reasonable rules I discovered in this backtest:
Date range: 6/11-7/3
Adjusted Proft % (takes spread into account): 47.43%
Demo Trading Results
Since this post, I started demo trading this system assuming a 5k capital base and risking ~1% per trade. I've added the details to my spreadsheet for anyone interested. The results are pretty similar to the backtest when you consider real-life conditions/timing are a bit different. I missed some trades due to life(work, out of the house, etc), so that brought my total # of trades and thus overall profit down, but the winrate is nearly identical. I also closed a few trades early due to various reasons(not liking the price action, seeing support/resistance emerge, etc). A quick note is that TD's paper trade system fills at the mid price for both stop and limit orders, so I had to subtract the spread from the raw trade values to get the true profit/loss amount for each trade. I'm heading out of town next week, then after that it'll be time to take this sucker live!
Date range: 7/9-7/30
Adjusted Proft % (takes spread into account): 20.73%
Starting Balance: $5,000
Ending Balance: $6,036.51
Live Trading Results
I started live-trading this system on 8/10, and almost immediately had a string of losses much longer than either my backtest or demo period. Murphy's law huh? Anyways, that has me spooked so I'm doing a longer backtest before I start risking more real money. It's going to take me a little while due to the volume of trades, but I'll likely make a new post once I feel comfortable with that and start live trading again.
The strong rise in US yields was a chance for the US dollar to shine, but it largely failed to do so, merely backing up slightly over yesterday and into today as risk appetite staged a comeback and the slide in bonds and especially precious metals prices yielded to a bounce. Yesterday’s monster $38 billion 10-year treasury auction went off smoothly and is followed later today by a large 30-year auction.
Elsewhere, the rise in yields has proven more decisive for the Japanese yen, as USDJPY has now fully rejected the recent breakdown attempt (only placing it back in the range limbo higher and needing some heavy lifting before we can call this anything but a neutralization of downside threat). With the euro beating a path higher again this morning, this has EURJPY on a rocket launch trajectory and at its highest levels since early 2019, a move I find a bit mystifying. EURUSD for its part is launching a fresh bid at the cycle highs as we discuss in the chart comment below.
On the strong side, we find NOK leading the G-10 pack higher, followed by CAD, both of which are soaring despite only modest support from a bounce-back in oil prices (though many may see vaccine hopes feeding most quickly into oil prices on the assumption that a supply shock could await if demand normalizes more quickly than expected.)
TODAY’S JPY STRENGTH AND LIVE FOREX TRADING SIGNALS
Today in the main session forex trading the JPY was strong on all pairs in this currency group. This drove strong price movements during the main trading session. Images of the live forex trading signals from The Forex Heatmap® and price chart movement for these pairs is shown below. Pairs like the USD/JPY and CAD/JPY sold off on the smaller time frames. The movement cycles were strong, but there was no support from the larger time frame trends. So these look like short term sells or day trades. These live currency trading signals and trend based trading plans for 28 pairs can be found on our website at Forexearlywarning.com.
Trading Update: exited FET for 1.5% loss, into MVIS
I'm not quite sure what the best method is of letting you guys know what I'm doing with my trades. I try to be transparent (I posted about me exiting the FET trade this morning) but I also want you guys to be able to make your own informed decisions. Maybe at the end of the trading day, I can do a recap and then show you what I'm looking for tomorrow. Here's mine from today: Overview for FET. This cypher pattern formed. I entered at $0.3580, not great entry but I was confident after seeing that little white reversal candle, second from the right, yesterday. Then today happened and I wasn't convinced while watching the price action and level two data. Just not much buy side pressure. I sold for really small loss this morning. Ideally today should've been a bullish daily candle, the start of that move up, but it just wasn't. https://preview.redd.it/mn05wq0r8sz41.png?width=1828&format=png&auto=webp&s=62303d393d66a9a139dc8d4321eab489a6eb6f0e Then this happened today: https://preview.redd.it/i135hwa0asz41.png?width=1828&format=png&auto=webp&s=39372d64753ea7caee1cd02fdc2288fdff36c91f Smaller timeframe for FET: This is called a head and shoulders pattern. I haven't seen it in a while but saw it when it formed. The target downwards is from the top of the head to the neckline. It just wasn't a good day for FET so I dipped. No worries on a 1.5% loss. It could go back up, but I trade off the charts and this one wasn't looking great today. So far we can consider my $0.5976 prediction a failure unless we see some strong bullish momentum tomorrow. And I got into MVIS: https://preview.redd.it/gnaycg42bsz41.png?width=1828&format=png&auto=webp&s=7bafe1b9ca6104f883f6bf7b4c243090a979ce71 That daily candle looks strong. It closed above the wick of the previous candle. The next resistance is the red line as a daily level of resistance, which you can also see that the price has already pierced it previously. https://preview.redd.it/lpr7kcp9csz41.png?width=1828&format=png&auto=webp&s=8a0c1f1cf299f4e222d72f5119cbc48ad2f27415 15min chart. The first arrow, the price failed in the pennant pattern, but rebounded nicely in the afternoon. This is what caught my attention. I love fibonacci trading, so on the smaller blue arrow, I saw it bounce off a fib level and the fifteen minute candle that closed as bullish engulfing, I bought. Then it formed the rest of the pennant. Admittedly, this week I've been struggling with entries. I think this being my first week with webull is part of that, but maybe I'm just a retarded trader lol. I set my stop loss and take profits when I bought, and I've learned to never change those levels after I set them. It sucks but things can become way worse once you start moving your stop loss lower and lower. It is technically underneath a level of daily support, so that's good I guess. MVIS hit my previous target of $1.0346 (weekly resistance) today. If MVIS has downwards momentum and starts to break the $0.9513 level, that would be a bad sign. Although it did fail that pattern this morning and rebound nicely afternoon, so I'll assess things if that happens and might enter another trade here. Risk is standard 5% of my account So that's what I'm doing. Currently 0/1 this week in penny stocks, but I made 5% in forex from betting on usd strength against jpy. So I'm still feeling good. Sorry there isn't a great way to notify my 1,000 followers about what I'm doing immediately. I hope this helps. Cheers!
The majority of this sub is focused on technical analysis. I regularly ridicule such "tea leaf readers" and advocate for trading based on fundamentals and economic news instead, so I figured I should take the time to write up something on how exactly you can trade economic news releases. This post is long as balls so I won't be upset if you get bored and go back to your drooping dick patterns or whatever.
How economic news is released
First, it helps to know how economic news is compiled and released. Let's take Initial Jobless Claims, the number of initial claims for unemployment benefits around the United States from Sunday through Saturday. Initial in this context means the first claim for benefits made by an individual during a particular stretch of unemployment. The Initial Jobless Claims figure appears in the Department of Labor's Unemployment Insurance Weekly Claims Report, which compiles information from all of the per-state departments that report to the DOL during the week. A typical number is between 100k and 250k and it can vary quite significantly week-to-week. The Unemployment Insurance Weekly Claims Report contains data that lags 5 days behind. For example, the Report issued on Thursday March 26th 2020 contained data about the week ending on Saturday March 21st 2020. In the days leading up to the Report, financial companies will survey economists and run complicated mathematical models to forecast the upcoming Initial Jobless Claims figure. The results of surveyed experts is called the "consensus"; specific companies, experts, and websites will also provide their own forecasts. Different companies will release different consensuses. Usually they are pretty close (within 2-3k), but for last week's record-high Initial Jobless Claims the reported consensuses varied by up to 1M! In other words, there was essentially no consensus. The Unemployment Insurance Weekly Claims Report is released each Thursday morning at exactly 8:30 AM ET. (On Thanksgiving the Report is released on Wednesday instead.) Media representatives gather at the Frances Perkins Building in Washington DC and are admitted to the "lockup" at 8:00 AM ET. In order to be admitted to the lockup you have to be a credentialed member of a media organization that has signed the DOL lockup agreement. The lockup room is small so there is a limited number of spots. No phones are allowed. Reporters bring their laptops and connect to a local network; there is a master switch on the wall that prevents/enables Internet connectivity on this network. Once the doors are closed the Unemployment Insurance Weekly Claims Report is distributed, with a heading that announces it is "embargoed" (not to be released) prior to 8:30 AM. Reporters type up their analyses of the report, including extracting key figures like Initial Jobless Claims. They load their write-ups into their companies' software, which prepares to send it out as soon as Internet is enabled. At 8:30 AM the DOL representative in the room flips the wall switch and all of the laptops are connected to the Internet, releasing their write-ups to their companies and on to their companies' partners. Many of those media companies have externally accessible APIs for distributing news. Media aggregators and squawk services (like RanSquawk and TradeTheNews) subscribe to all of these different APIs and then redistribute the key economic figures from the Report to their own subscribers within one second after Internet is enabled in the DOL lockup. Some squawk services are text-based while others are audio-based. FinancialJuice.com provides a free audio squawk service; internally they have a paid subscription to a professional squawk service and they simply read out the latest headlines to their own listeners, subsidized by ads on the site. I've been using it for 4 months now and have been pretty happy. It usually lags behind the official release times by 1-2 seconds and occasionally they verbally flub the numbers or stutter and have to repeat, but you can't beat the price! Important - I’m not affiliated with FinancialJuice and I’m not advocating that you use them over any other squawk. If you use them and they misspeak a number and you lose all your money don’t blame me. If anybody has any other free alternatives please share them!
How the news affects forex markets
Institutional forex traders subscribe to these squawk services and use custom software to consume the emerging data programmatically and then automatically initiate trades based on the perceived change to the fundamentals that the figures represent. It's important to note that every institution will have "priced in" their own forecasted figures well in advance of an actual news release. Forecasts and consensuses all come out at different times in the days leading up to a news release, so by the time the news drops everybody is really only looking for an unexpected result. You can't really know what any given institution expects the value to be, but unless someone has inside information you can pretty much assume that the market has collectively priced in the experts' consensus. When the news comes out, institutions will trade based on the difference between the actual and their forecast. Sometimes the news reflects a real change to the fundamentals with an economic effect that will change the demand for a currency, like an interest rate decision. However, in the case of the Initial Jobless Claims figure, which is a backwards-looking metric, trading is really just self-fulfilling speculation that market participants will buy dollars when unemployment is low and sell dollars when unemployment is high. Generally speaking, news that reflects a real economic shift has a bigger effect than news that only matters to speculators. Massive and extremely fast news-based trades happen within tenths of a second on the ECNs on which institutional traders are participants. Over the next few seconds the resulting price changes trickle down to retail traders. Some economic news, like Non Farm Payroll Employment, has an effect that can last minutes to hours as "slow money" follows behind on the trend created by the "fast money". Other news, like Initial Jobless Claims, has a short impact that trails off within a couple minutes and is subsequently dwarfed by the usual pseudorandom movements in the market. The bigger the difference between actual and consensus, the bigger the effect on any given currency pair. Since economic news releases generally relate to a single currency, the biggest and most easily predicted effects are seen on pairs where one currency is directly effected and the other is not affected at all. Personally I trade USD/JPY because the time difference between the US and Japan ensures that no news will be coming out of Japan at the same time that economic news is being released in the US. Before deciding to trade any particular news release you should measure the historical correlation between the release (specifically, the difference between actual and consensus) and the resulting short-term change in the currency pair. Historical data for various news releases (along with historical consensus data) is readily available. You can pay to get it exported into Excel or whatever, or you can scroll through it for free on websites like TradingEconomics.com. Let's look at two examples: Initial Jobless Claims and Non Farm Payroll Employment (NFP). I collected historical consensuses and actuals for these releases from January 2018 through the present, measured the "surprise" difference for each, and then correlated that to short-term changes in USD/JPY at the time of release using 5 second candles. I omitted any releases that occurred simultaneously as another major release. For example, occasionally the monthly Initial Jobless Claims comes out at the exact same time as the monthly Balance of Trade figure, which is a more significant economic indicator and can be expected to dwarf the effect of the Unemployment Insurance Weekly Claims Report. USD/JPY correlation with Initial Jobless Claims (2018 - present) USD/JPY correlation with Non Farm Payrolls (2018 - present) The horizontal axes on these charts is the duration (in seconds) after the news release over which correlation was calculated. The vertical axis is the Pearson correlation coefficient: +1 means that the change in USD/JPY over that duration was perfectly linearly correlated to the "surprise" in the releases; -1 means that the change in USD/JPY was perfectly linearly correlated but in the opposite direction, and 0 means that there is no correlation at all. For Initial Jobless Claims you can see that for the first 30 seconds USD/JPY is strongly negatively correlated with the difference between consensus and actual jobless claims. That is, fewer-than-forecast jobless claims (fewer newly unemployed people than expected) strengthens the dollar and greater-than-forecast jobless claims (more newly unemployed people than expected) weakens the dollar. Correlation then trails off and changes to a moderate/weak positive correlation. I interpret this as algorithms "buying the dip" and vice versa, but I don't know for sure. From this chart it appears that you could profit by opening a trade for 15 seconds (duration with strongest correlation) that is long USD/JPY when Initial Jobless Claims is lower than the consensus and short USD/JPY when Initial Jobless Claims is higher than expected. The chart for Non Farm Payroll looks very different. Correlation is positive (higher-than-expected payrolls strengthen the dollar and lower-than-expected payrolls weaken the dollar) and peaks at around 45 seconds, then slowly decreases as time goes on. This implies that price changes due to NFP are quite significant relative to background noise and "stick" even as normal fluctuations pick back up. I wanted to show an example of what the USD/JPY S5 chart looks like when an "uncontested" (no other major simultaneously news release) Initial Jobless Claims and NFP drops, but unfortunately my broker's charts only go back a week. (I can pull historical data going back years through the API but to make it into a pretty chart would be a bit of work.) If anybody can get a 5-second chart of USD/JPY at March 19, 2020, UTC 12:30 and/or at February 7, 2020, UTC 13:30 let me know and I'll add it here.
So without too much effort we determined that (1) USD/JPY is strongly negatively correlated with the Initial Jobless Claims figure for the first 15 seconds after the release of the Unemployment Insurance Weekly Claims Report (when no other major news is being released) and also that (2) USD/JPY is strongly positively correlated with the Non Farms Payroll figure for the first 45 seconds after the release of the Employment Situation report. Before you can assume you can profit off the news you have to backtest and consider three important parameters. Entry speed: How quickly can you realistically enter the trade? The correlation performed above was measured from the exact moment the news was released, but realistically if you've got your finger on the trigger and your ear to the squawk it will take a few seconds to hit "Buy" or "Sell" and confirm. If 90% of the price move happens in the first second you're SOL. For back-testing purposes I assume a 5 second delay. In practice I use custom software that opens a trade with one click, and I can reliably enter a trade within 2-3 seconds after the news drops, using the FinancialJuice free squawk. Minimum surprise: Should you trade every release or can you do better by only trading those with a big enough "surprise" factor? Backtesting will tell you whether being more selective is better long-term or not. Hold time: The optimal time to hold the trade is not necessarily the same as the time of maximum correlation. That's a good starting point but it's not necessarily the best number. Backtesting each possible hold time will let you find the best one. The spread: When you're only holding a position open for 30 seconds, the spread will kill you. The correlations performed above used the midpoint price, but in reality you have to buy at the ask and sell at the bid. Brokers aren't stupid and the moment volume on the ECN jumps they will widen the spread for their retail customers. The only way to determine if the news-driven price movements reliably overcome the spread is to backtest. Stops: Personally I don't use stops, neither take-profit nor stop-loss, since I'm automatically closing the trade after a fixed (and very short) amount of time. Additionally, brokers have a minimum stop distance; the profits from scalping the news are so slim that even the nearest stops they allow will generally not get triggered. I backtested trading these two news releases (since 2018), using a 5 second entry delay, real historical spreads, and no stops, cycling through different "surprise" thresholds and hold times to find the combination that returns the highest net profit. It's important to maximize net profit, not expected value per trade, so you don't over-optimize and reduce the total number of trades taken to one single profitable trade. If you want to get fancy you can set up a custom metric that combines number of trades, expected value, and drawdown into a single score to be maximized. For the Initial Jobless Claims figure I found that the best combination is to hold trades open for 25 seconds (that is, open at 5 seconds elapsed and hold until 30 seconds elapsed) and only trade when the difference between consensus and actual is 7k or higher. That leads to 30 trades taken since 2018 and an expected return of... drumroll please... -0.0093 yen per unit per trade. Yep, that's a loss of approx. $8.63 per lot. Disappointing right? That's the spread and that's why you have to backtest. Even though the release of the Unemployment Insurance Weekly Claims Report has a strong correlation with movement in USD/JPY, it's simply not something that a retail trader can profit from. Let's turn to the NFP. There I found that the best combination is to hold trades open for 75 seconds (that is, open at 5 seconds elapsed and hold until 80 seconds elapsed) and trade every single NFP (no minimum "surprise" threshold). That leads to 20 trades taken since 2018 and an expected return of... drumroll please... +0.1306 yen per unit per trade. That's a profit of approx. $121.25 per lot. Not bad for 75 seconds of work! That's a +6% ROI at 50x leverage.
Make it real
If you want to do this for realsies, you need to run these numbers for all of the major economic news releases. Markit Manufacturing PMI, Factory Orders MoM, Trade Balance, PPI MoM, Export and Import Prices, Michigan Consumer Sentiment, Retail Sales MoM, Industrial Production MoM, you get the idea. You keep a list of all of the releases you want to trade, when they are released, and the ideal hold time and "surprise" threshold. A few minutes before the prescribed release time you open up your broker's software, turn on your squawk, maybe jot a few notes about consensuses and model forecasts, and get your finger on the button. At the moment you hear the release you open the trade in the correct direction, hold it (without looking at the chart!) for the required amount of time, then close it and go on with your day. Some benefits of trading this way: * Most major economic releases come out at either 8:30 AM ET or 10:00 AM ET, and then you're done for the day. * It's easily backtestable. You can look back at the numbers and see exactly what to expect your return to be. * It's fun! Packing your trading into 30 seconds and knowing that institutions are moving billions of dollars around as fast as they can based on the exact same news you just read is thrilling. * You can wow your friends by saying things like "The St. Louis Fed had some interesting remarks on consumer spending in the latest Beige Book." * No crayons involved. Some downsides: * It's tricky to be fast enough without writing custom software. Some broker software is very slow and requires multiple dialog boxes before a position is opened, which won't cut it. * The profits are very slim, you're not going to impress your instagram followers to join your expensive trade copying service with your 30-second twice-weekly trades. * Any friends you might wow with your boring-ass economic talking points are themselves the most boring people in the world. I hope you enjoyed this long as fuck post and you give trading economic news a try!
One of my favourite ways to enter a trade - what market makers do
Hey Forex. Been a while since I've made an actual post. I still think 90%+ of the posts in here are a toxic wasteland, unfortunately. That being said, I wanted to share one of my entry tips with all of you. This is especially helpful given the dramatic increase in volatility we have seen across the currency markets. This isn't technical, there's no magic chart pattern or indicator. Rather, it is a concept. From what I've seen posted here, a common struggle is "where and how do I enter the trade?". This is a big question... and it can separate the analysts from the traders. How often have you had a view that xxx/xxx is going up/down and in fact... it does just that? The only problem is, you weren't onboard the trade. You either missed out entirely, or you chased it and bought the high/sold the low. The title for this post isn't just clickbait, this is in fact what market makers do. I have to emphasize this point once more, this is NOT a technical strategy. It is a different perspective on risk management that the retail crowd is largely unfamiliar with. I'm going to use point form to cover this concept from now on: Don't (DO NOT DO THESE THINGS): - Think of your entry as an all-or-nothing proposition - Think that you must shoot your entire shot all at once - That there's a perfect point at which you must pull the trigger, and if you miss this point then you miss the trade Do: - Split your risk allocation for a specific idea into different parts (for example if you want to risk $100,000 notional value on a USD/JPY trade, split your entry into 4 parts. Maybe that means each tranche is 25k, maybe it means that you go 10k, 20k, 30k, 40k) - Be a scale down buyer and a scale up seller - Pick bands in which you want to take action. For example if you think USD/JPY is a buy from 108.5 to 110, then pick a band in which you will be a buyer. Maybe it is between 108.5 and 108. That gives you a lot of room to stack orders (whether these are limits or market orders is up to you). The best case scenario is that all your orders get filled, and you have a fantastic overall average price point. The worst case scenario (other than simply being wrong) is that only your initial order is filled and price starts running away. Remember, you'll always be too light when it is going your way and too heavy when it is going in your face. - This also works on the way out when you want to exit. You can scale out of the trade, just as you scaled into it. This takes a lot of pressure off in terms of "sniping" an entry. I hear that term a lot, and it drives me crazy. Unless I'm hedging my options in the spot and I'm scalping for small points here and there, I'm not looking for a "sniper" entry. I'm looking for structural plays. Other hedge funds, banks, central banks, they're not dumping their entire load all at once. This approach allows you to spread your risk out across a band rather than being pigeonholed into picking a perfect level. It allows you to improve your dollar-cost average with clearly defined risk parameters. Unless you are consistently getting perfect entries with zero drawdown, this method just makes so much sense. The emotional benefit is incredible, as you don't have to worry about the price moving against you. Obviously you pick a stop where your idea is simply wrong, but otherwise this should help you remain (more) relaxed.
I'll try to explain. The context is the concept of purchasing power parity: https://www.reddit.com/Forex/comments/fliz8m/purchasing_power_parity_ppp_in_fx/ The concept is that the numbers themselves can tell you a lot, for example, the rate of a pair, say AUD/CAD specifically state what the AUDJPY and CADJPY should be. The AUDCAD is 0.83183 which means 1 CAD is equal to 1.20216 AUD. So however many JPY you can get for a AUD you should be able to get 1.20216 times more JPY for a CAD. AUDJPY = 64.201 64.201 x 1.20216 = CADJPY = 77.17987 DISEQUILLIBRIUM: But the actual market price is CADJPY=76.974. Which means there is a disequilibrium between what the actual rate is. It can be quantified as the difference, -0.20587. I've taken that concept and expanded it to all currencies in a pretty large spreadsheet. The aggregate disequilibrium is accounted for each pair. CURRENCY WEIGHT: For this example, both the AUD is putting -0.20587 "weight" on the CADJPY and the CAD is putting -0.20587 "wieght" on the AUDJPY. This is collected for each individual currency and added together to represent the weight. INDEX STRENGTH: For example: EUGBP 0.91447 USD/GBP 0.86211 CHF/GBP 0.87428 CAD/GBP 0.60099 AUD/GBP 0.50116 NZD/GBP 0.50600 JPY/GBP 0.007776594 ZAGBP 0.0484013 NOKGBP 0.0717705 HKD/GBP 0.110299 CNH/GBP 0.119747 SGD/GBP 0.588505 TRY/GBP 0.129911 SEK/GBP 0.0821385 DKK/GBP 0.12234 PLN/GBP 0.200372 MXN/GBP 0.0348339 RUB/GBP 0.0106524 Which averages out to 12.20271181 for the GBP. When this is done for each currency and added together which comes to 80.2174589. GBP 12.20271181 15.21% EUR 10.70881522 13.35% USD 10.43321516 13.01% CHF 9.209341569 11.48% CAD 7.268234336 9.06% SGD 7.16468796 8.93% AUD 6.058258744 7.55% NZD 6.065011193 7.56% PLN 2.411473714 3.01% TRY 1.541615401 1.92% DKK 1.441292277 1.80% CNH 1.411273128 1.76% HKD 1.290361376 1.61% SEK 0.952565391 1.19% NOK 0.839225708 1.05% ZAR 0.54313985 0.68% MXN 0.507674255 0.63% JPY 0.094083269 0.12% RUB 0.074478539 0.09% I've found that charting isn't needed to understand what prices should be now. They help in understanding what motivates people to have money exposed. Charts are in the psychological part of trading. Edit: The JPY pairs are calculated times 0.01, that's why it's index is greater than RUB. I guess I can't post the charts anymore.
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I’ve been reading these posts on an off for quite some time now and it saddened me to see someone had recently posted their “I quit the game” statement. We all walk through fire to stand in the green valley...and the journey has to be made on foot. And alone. And it’s tough. In response, I wanted to add a list of pointers for people starting out in this insane game and to address what I’ve learned from over a decade of trading Forex. It’s long-ish but it’s based on reality and not a bunch of meaningless retail junk systems and “insider knowledge” by nitwits on YouTube or some 19-year old “whiz kid” who apparently makes ten billion dollars a week with a mystical set-up that’ll only cost you $1,999 to buy! I became a profitable trader by keeping everything simple. I lost thousands when I started out, but I look back now and realise how easily I could’ve avoided those losses. Keep Everything Simple. For the sake of disclosure, I worked for Morgan Stanley for over a decade in fixed income but learned almost everything I know from the forex guys whom I got to know as good friends. They make markets but there’s still a lot to learn from them as a small fry trader. I got into all this as a hobby after annoying the traders with questions, and all these years later it still pays me. There are still occasional nightmare accidents but they’re far rarer to the point where they don’t affect my ROI. Possibly the most clear statement I could make about Forex trading in the large institutional setting is actually a pretty profound one: Forex traders are not what you think they are: every single forex trader I ever worked with (and who lasted the test of time) had the exact same set of personality traits: 1. NOT ONE of them was a gung-ho high-five loudmouth, 2. Every single one of them analysed their mistakes to the point of obsession, 3. They were bookish and not jocks, 4. They had the humility to admit that many early errors were the result of piss-poor planning. The loudmouths last a year and are gone. Guys who last 5, 10, 20 years in a major finance house on the trading floor are nothing like the absurd 1980s Hollywood images you see on your tv; they’re the perfect opposite of that stereotype. The absolute best I ever met was a studious Irish-Catholic guy from Boston who was conscientious, helpful, calm, and utterly committed to one thing: learning from every single error of judgement. To quote him: “Losing teaches you far more than winning”. Enough of that. These points are deliberately broad. Here goes:
Know The Pairs. It amazes me to see countless small account traders speak as though “systems” work across all pairs. They don’t. Trading GBP/CHF is an entirely different beast to trading CHF/JPY. If you don’t know the innate properties of the CHF market or the JPY or the interplay between the AUD and NZD etc then leave them alone until you do. —There’s no rush— Don’t trade pairs until you are clear on what drives ‘commodity currencies’, or what goes on behind currencies which are easily manipulated, or currencies which simply tend to range for months on end instead of having clear trends. Every pair has its own benefits and drawbacks. Google “Tips on trading the JPY” etc etc etc and get to know the personality of these currencies. They’re just products like any other....Would you buy a Honda without knowing a single thing about the brand or its engine or its durability? So why trade a currency you know nothing about?
Indicators are only telling you what you should be able to see in front of you: PRICE AND MARKET STRUCTURE. Take everything off your charts and simply ask one question: What do I see happening right here and right now? What time frame do I see it on? If you can’t spot a simple consolidation, an uptrend, or a downtrend on a quick high-versus-low time frame scan then no indicator on the planet will help you.
Do you know why momentum indicators work on clear trends but are often a complete disaster on ranges? If not, why not? Do you know why such indicators are losing you tons of trades on low TFs? Do you actually understand the simple mathematics of any indicator? If the answer to these questions is “no” then why are you using these things and piling on indicator after indicator after indicator until you have some psychedelic disco on your screen that looks like an intergalactic dogfight in Star Wars? Keep it simple. Know thy indicator.
Risk:Reward Addiction. The greatest profit killer. So you set up your stops and limits at 1:1.5 or whatever and say “That’s me done” only to come back and see that your limit was missed by a soul-crushing 5 pips before reversing trend to cost you $100, $200, $1000. So you say “Ah but the system is fine”. Guys...this isn’t poker; it doesn’t have to be a zero sum game. Get over your 1:1.5 addiction —The Market Does Not Owe You 50 Pips— Which leads to the next point which, frankly, is what has allowed me to make money consistently for my entire trading life...
YOU WILL NEVER GO BROKE TAKING A PROFIT. So you want to take that 50-pip profit in two hours because some analyst says it’ll happen or because your trend lines say it has to happen. You set your 1:1.5 order. “I’ll check where I’m at in an hour” you say. An hour later you see you’re up 18 pips and you feel you’re owed more by now. “If I close this trade now I could be missing out on a stack”. So what?! Here’s an example: I trade in sterling. I was watching GBP climb against it’s post-GDP flop report and once I was up £157 I thought “This is going to start bouncing off resistance all morning and I don’t need the hassle of riding the rollercoaster all day long”. So I closed it, took the £157, went to make breakfast. Came back shortly afterwards and looked at the chart and saw that I could’ve made about £550 if I’d trusted myself. Do I care? Absolutely not...in fact it usually makes me laugh. So I enter another trade, make another quick £40, then another £95. Almost £300 in less than 45 mins and I’m supposed to cry over the £250 I “missed out on”?
£300 in less than an hour for doing nothing more than waiting for some volatility then tapping a keyboard. It’s almost a sin to make money that easily and I don’t “deserve” any of it. Shut off the laptop. Go out for the day. Does the following sound familiar? “Okay I’m almost at my take-profit...almost!.....almost!....okay it’s bouncing away from me but it’ll come back. Come back, damnit!! Jesus come back to my limit! Ah for F**k’s sakes!! This is complete crap; that trade was almost done! This is rigged! This is worse than poker! This is total BS!!” So when you were 50% or 75% toward your goal and could see the trade slipping away why wasn’t $100 or $200 enough? You need more than that?...really?! So point 6:
Tomorrow Is Another Day. Lordy Lordy, you only made $186 all day. What a disaster! Did you lose anything? Nope. Will the market be open again tomorrow? Yep. Does London open in just four hours? Yep. Is the NOK/SGD/EUR whatever still looking shitty? Yep. So let it go- there are endless THOUSANDS of trades you can make in your lifetime and you need to let a small gain be seen for what it is: ANOTHER BEAUTIFUL PROFIT.
Four or five solid but small profits in a day = One Large Profit. I don’t care how I make it, I don’t care if it’s ten lots of £20, I don’t care if I make the lot in a single trade in 30 seconds either. And once I have a nice sum I switch the computer off and leave it the Fk alone. I don’t care if Brexit is due to detonate the pound or if some Fed guy is going to crap all over the USD in his speech; I’ve made my money and I’m out for the day. There will be other speeches, other detonations. I could get into the entire process by which I trade but it’s aggravatingly basic trend-following mostly based on fundamentals. Losing in this business really does boil down to the same appalling combination of traits that kill most traders: Greed, Impatience, Addiction. Do I trade every day? Absolutely not; if there’s nothing with higher probability trades then I just leave it alone. When I hit my target I’m out for the day- the market doesn’t give a crap about me and I don’t give a crap about the market, if you see my meaning. I played poker semi-professionally for two years and it’s absolutely soul-destroying to be “cold decked” for a whole week. But every player has to experience it in order to lose the arrogance and the bravado; losing is fine as long as you learn from it. One day you’ll be in a position to fold pocket Kings because you’ll know you’re dead in the water. The currency markets are exactly the same in that one regard: if you learn from the past you’ll know when it’s time to get out of that stupid trade or that stupid “system” that sounded so great when you had a demo account. Bank a profit. Keep your charts simple. Know the pairs. Be patient. Touch nothing till you understand it inside out. And if you’re not enjoying the game....STOP PLAYING. [if people find this helpful I might post a thread on the best books I’ve studied from and why most forex books are utterly repetitious bullshit]. Peace.
I am a professional Day Trader working for a Prop Fund, Hope I can help people out and answer some questions
Howdy all, I work professionally for a proprietary trading fund, and have worked for quite a few in my time, hope I can offer some insights on trading etc you guys might have. Bonus for you guys Here are the columns in my trading journal and various explanations where appropriate: Trade Number – Simply is this the first trade of the year? The 10th?, The 50th? I count a trade that you opened and closed just one trade number. For example if you buy EUUSD today and sell it 50 pips later in the day and close out the trade, then that is just one trade for recording purposes. I do not create a second trade number to describe the exit. Both the entry and exit are under the same trade number. Ticket Number – This is ticket number / order ID number that your broker gives you for the trade on your platform. Day of the Week – This would be simply the day of the week the trade was initiated Financial Instrument / Currency Pair – Whatever Financial Instrument or currency pair you are trading. If you are trading EUUSD, put EUUSD. If you are trading the EuroFX futures contract, then put in Euro FX. If you are trading the emini S&P, then put in Emini S&P 500. If you are trading a stock, put in the ticker symbol. Etc. Buy/Sell or Long/Short – Did you buy or sell to open the new trade? If you bought something to open the trade, then write in either BUY or LONG. If you sold(shorted) something to open a trade, then write in SOLD, or SHORT. This is a personal preference. Some people like to put in their journals as BUY/SELL. Other people like to write in Long/Short. My preference is for writing in long/short, since that is the more professional way to say it. I like to use the lingo where possible. Order Type – Market or Limit – When you entered the trade was it a market order or limit order? Some people can enter a trade using a combination of market and limit orders. If you enter a trade for $1 million half of which was market order and the other half was limit order, then you can write in $500,000 Market, $500,000 Limit as a bullet points. Position Size / Units / Contracts / Shares – How big was the total trade you entered? If you bought 1 standard lot of a currency pair, then write in $100,000 or 1 standard lot. If you bought 5 gold futures contracts, then write in 5 contracts. If you bought 1,000 shares of stock, then write in 1,000 shares. Etc. Entry Price – The entry price you received entering your opening position. If you entered at multiple prices, then you can either write in all the different fills you got, or specify the average price received. Entry Date – Date that you entered the position. For example January 23, 2012. Or you can write in 1/23/12 . Entry Time – Time that you opened the position. If it is multiple positions, then you can specify each time for each various fill, or you can specify the time range. For example if you got $100,000 worth of EUUSD filled at 3:00 AM EST, and another $100,000 filled at 3:05 and another $100,000 filled at 3:25, then you can write all those in, or you can specify a range of 3:00 – 3:30 AM EST. Entry Spread Cost (in pips) – This is optional if you want to keep track of your spread cost in pips. If you executed a market order, how many pips did you pay in spread. Entry Spread Cost (in dollars) – This is optional if you want to keep track of your spread cost in dollars. If you executed a market order, how many dollars did you pay in spread. Stop Loss Size – How big is your stop loss size? If you are trading a currency pair, then you write in the pips. If you are trading the S&P futures contract, then write in the number of points. If you are trading a stock, then write in how many cents or dollars your stop is away from your entry price. % Risk – If you were to get stopped out of the trade, how much % loss of your equity is that? This is where you input your risk per trade expressed in % terms if you use such a position sizing method. If you risked 0.50% of your account on the trade, then put in 0.50% Risk in dollars – If you were to get stopped out of the trade, how much loss in dollars is that. For example if you have a $100,000 account and you risked 1% on a trade, then write in $1,000 dollars Potential Reward: Risk Ratio – This is a column that I only sometimes fill in. You write in what the potential reward risk ratio of the trade is. If you are trading using a 100 pip stop and you expect that the market can reasonably move 300 pips, then you can write in 3:1. Of course this is an interesting column because you can look at it after the trade is finished and see how close you were or how far removed from reality your initial projections were. Potential Win Rate – This is another column that I only sometimes fill in. You write in what you believe the potential win rate of this trade is. If you were to place this trade 10 times in a row, how many times do you think you would win? I write it in as percentage terms. If you believe the trade has a 50% chance to win, then write in 50%. Type of Inefficiency – This is where you write in what type of inefficiency you are looking to capture. I use the word inefficiency here. I believe it is important to think of trading setups as inefficiencies. If you think in terms of inefficiencies, then you will think in terms of the market being mispriced, then you will think about the reasons why the market is mispriced and why such market expectations for example are out of alignment with reality. In this category I could write in different types of trades such as fading the stops, different types of news trades, expecting stops to get tripped, betting on sentiment intensifying, betting on sentiment reversing, etc. I do not write in all the reasons why I took the trade in this column. I do that in another column. This column is just to broadly define what type of inefficiency you are looking to capture. Chart Time Frame – I do not use this since all my order flow based trades have nothing to do with what chart time frame I look at. However, if you are a chartist or price action trader, then you may want to include what chart time frame you found whatever pattern you were looking at. Exit Price – When you exit your trade, you enter the price you received here. Exit Date – The date you exited your trade. Exit Time – The time you exited your trade. Trade Duration – In hours, minutes, days or weeks. If the trade lasts less than an hour, I will usually write in the duration in minutes. Anything in between 1 and 48 hours, I write in the hours amount. Anything past that and I write it as days or weeks as appropriate, etc. Pips the trade went against you before turning into a winner – If you have a trade that suffered a draw down, but did not stop you out and eventually was a winner, then you write it how many pips the trade went against you before it turned into a profitable trade. The reason you have this column is to compare it to your stop loss size and see any patterns that emerge. If you notice that a lot of your winning trades suffer a big draw down and get near your stop loss points but turn out to be a profitable trade, then you can further refine your entry strategy to get in a better price. Slippage on the Exit – If you get stopped out for a loss, then you write in how many pips you suffered as slippage, if any. For example if you are long EUUSD at 1.2500 and have your stop loss at 1.2400 and the market drops and you get filled at 1.2398, then you would write in -2 pips slippage. In other words you lost 2 pips as slippage. This is important for a few different reasons. Firstly, you want to see if the places you put your stop at suffer from slippage. If they do, perhaps you can get better stop loss placement, or use it as useful information to find new inefficiencies. Secondly, you want to see how much slippage your broker is giving you. If you are trading the same system with different brokers, then you can record the slippage from each one and see which has the lowest slippage so you can choose them. Profit/Loss -You write in the profit and/or loss in pips, cents, points, etc as appropriate. If you bought EUUSD at 1.2500 and sell it at 1.2550, you made 50 pips, so write in +50 pips. If you bought a stock at $50 and you sell it at $60, then write in +$10. If you buy the S&P futures at 1,250 and sell them at 1,275, then write in +25 points. If you buy the GBP/USD at 1.5000 and you sell it at 1.4900, then write in -100 pips. Etc. I color code the box background to green for profit and red for loss. Profit/Loss In Dollars – You write the profit and/or loss in dollars (or euros, or jpy, etc whatever currency your account is denominated in). If you are long $100,000 of EUUSD at 1.2500 and sell it at 1.2600, then write in +$1,000. If you are short $100,000 GBP/USD at 1.5900 and it rises to 1.6000 and you cover, then write in -$1,000. I color code the box background to green for profit and red for loss. Profit/Loss as % of your account – Write in the profit and/or loss as % of your account. If a trade made you 2% of your account, then write in +2%. If a trade lost 0.50%, then write in -0.50%. I color code the box background to green for profit and red for loss. Reward:Risk Ratio or R multiple: If the trade is a profit, then write in how many times your risk did it pay off. If you risked 0.50% and you made 1.00%, then write in +2R or 2:1 or 2.0. If you risked 0.50% and a trade only makes 0.10%, then write in +0.20R or 0.2:1 or 0.2. If a trade went for a loss that is equal to or less than what you risked, then I do not write in anything. If the loss is greater than the amount you risked, then I do write it in this column. For example lets say you risk 0.50% on a stock, but overnight the market gaps and you lose 1.50% on a trade, then I would write it in as a -3R. What Type of trading loss if the trade lost money? – This is where I describe in very general terms a trade if it lost money. For example, if I lost money on a trade and the reason was because I was buying in a market that was making fresh lows, but after I bought the market kept on going lower, then I would write in: “trying to pick a bottom.” If I tried shorting into a rising uptrend and I take a loss, then I describe it as “trying to pick a top.” If I am buying in an uptrend and buy on a retracement, but the market makes a deeper retracement or trend change, then I write in “tried to buy a ret.” And so on and so forth. In very general terms I describe it. The various ways I use are: • Trying to pick a bottom • Trying to pick a top • Shorting a bottom • Buying a top • Shorting a ret and failed • Wrongly predicted news • Bought a ret and failed • Fade a resistance level • Buy a support level • Tried to buy a breakout higher • Tried to short a breakout lower I find this category very interesting and important because when performing trade journal analysis, you can notice trends when you have winners or losing trades. For example if I notice a string of losing trades and I notice that all of them occur in the same market, and all of them have as a reason: “tried to pick a bottom”, then I know I was dumb for trying to pick a bottom five times in a row. I was fighting the macro order flow and it was dumb. Or if I notice a string of losers and see that I tried to buy a breakout and it failed five times in a row, but notice that the market continued to go higher after I was stopped out, then I realize that I was correct in the move, but I just applied the wrong entry strategy. I should have bought a retracement, instead of trying to buy a fresh breakout. That Day’s Weaknesses (If any) – This is where I write in if there were any weaknesses or distractions on the day I placed the trade. For example if you are dead tired and place a trade, then write in that you were very tired. Or if you place a trade when there were five people coming and out of your trading office or room in your house, then write that in. If you placed the trade when the fire alarm was going off then write that in. Or if you place a trade without having done your daily habits, then write that in. Etc. Whatever you believe was a possible weakness that threw you off your game. That Day’s Strengths (If any) – Here you can write in what strengths you had during the day you placed your trade. If you had complete peace and quiet, write that in. If you completed all your daily habits, then write that in. Etc. Whatever you believe was a possible strength during the day. How many Open Positions Total (including the one you just placed) – How many open trades do you have after placing this one? If you have zero open trades and you just placed one, then the total number of open positions would be one, so write in “1.” If you have on three open trades, and you are placing a new current one, then the total number of open positions would be four, so write in “4.” The reason you have this column in your trading journal is so that you can notice trends in winning and losing streaks. Do a lot of your losing streaks happen when you have on a lot of open positions at the same time? Do you have a winning streak when the number of open positions is kept low? Or can you handle a lot of open positions at the same time? Exit Spread Cost (in pips) – This is optional if you want to keep track of your spread cost in pips. If you executed a market order, how many pips did you pay in spread. Exit Spread Cost (in dollars) – This is optional if you want to keep track of your spread cost in dollars. If you executed a market order, how many dollars did you pay in spread. Total Spread Cost (in pips) – You write in the total spread cost of the entry and exit in pips. Total Spread Cost (in dollars) – You write in the total spread cost of the entry and exit in dollars. Commission Cost – Here you write in the total commission cost that you incurred for getting in and out of the trade. If you have a forex broker that is commission free and only gets compensated through the spread, then you do not need this column. Starting Balance – The starting account balance that you had prior to the placing of the trade Interest/swap – If you hold forex currency pairs past the rollover, then you either get interest or need to pay out interest depending on the rollover rates. Or if you bought a stock and got a dividend then write that in. Or if you shorted a stock and you had to pay a dividend, then write that in. Ending Balance – The ending balance of your account after the trade is closed after taking into account trade P&L, commission cost, and interest/swap. Reasons for taking the trade – Here is where you go into much more detail about why you placed the trade. Write out your thinking. Instead of writing a paragraph or two describing my thinking behind the trade, I condense the reasons down into bullet points. It can be anywhere from 1-10 bullet points. What I Learned – No matter if the trade is a win or loss, write down what you believed you learned. Again, instead of writing out a paragraph or two, I condense it down into bullet points. it can be anywhere from 1-10 bullet points. I do this during the day the trade closed as a profit or loss. What I learned after Long Term reflection, several days, weeks, or months – This is the very interesting column. This is important because after you have a winning or losing trade, you will not always know the true reasons why it happened. You have your immediate theories and reasons which you include in the previous column. However, there are times when after several days, weeks, or months, you find the true reason and proper market belief about why your trade succeeded or failed. It can take a few days or weeks or months to reach that “aha” moment. I am not saying that I am thinking about trades I placed ten months ago. I try to forget about them and focus on the present moment. However, there will be trades where you have these nagging questions about they failed or succeeded and you will only discover those reasons several days, weeks, or months later. When you discover the reasons, you write them in this column.
Hard. Following up on my post about trading economic news, here are some hard numbers about news releases. If you can't be bothered to read any further, just know that a high S value means there is money to be made by trading the release of that economic metric. I collected historical data (consensus and actual) for each of these economic metrics from January 2018 to the present. These are mostly monthly metrics; one is quarterly, one is biweekly, and one is weekly. I did this manually from an economic news aggregation website because I'm too cheap to pay for exported data. I also noted whether each release was the primary (or only) news being released at that precise moment or whether there were other important economic metrics being released at the same time. Then I wrote software to fetch 2 minutes of USD/JPY price data (in 5 second candles) starting at the time of each release and correlated each candle to the "surprise" in the metric (the difference between the consensus and the actual). That produced data for each metric that looks like this and give you an idea how reliably the news predicts the short-term price move. Next the software went back through the price history and measured the "coordinated movement" of the currency pair during each candle. By that I mean it measured the size of each candle in pips and then set the sign to be positive if its moving in the same direction as the first candle or negative otherwise, and averaged all those numbers together. These charts look like this and give you an idea how dramatically the price moves in response to the news. Then, for each candle, the absolute value of the correlation is multiplied against the coordinated movement, creating a "tradeability" score. The idea is that a strong (positive or negative) correlation and a strong coordinated movement yields a high score, and either a weak correlation or a small price movement yields a low score. These charts look like this. Finally, for each news release I measured the maximum value of the correlation (R) and the maximum value of the tradeability score (S). Since I don't have access to anything with finer granularity than 5 seconds, it's no surprise that candle 0 had the maximum correlation and maximum tradeability for each metric. I did this process twice for every metric: first over all releases and second over only those releases that were the primary or only release happening at that moment. I kept the results from the one that returned the better net maximum tradeability score. The net maximum tradeability score is just the product of the maximum tradeability score and the number of releases being considered, either all of them or some smaller number. (This helps avoid bias in the results for metrics that are often released at the same time as other metrics.) In the results linked at the top of this post, the metrics are ordered by decreasing maximum tradeability score (S) with maximum correlation (R) also shown. Remember, R = +1 means perfect positive linear correlation, R = -1 means perfect negative linear correlation, and R = 0 means no correlation. S values less than 3 are essentially untradeable due to the spread. A couple notes:
Non Farms Payroll, one of the most closely watched economic indicators, is the most tradeable by far. Although not shown here, the correlation is even higher (0.8xx) if you omit those releases that occur simultaneously as other news, but because of the strong correlation and high pip movement it's better overall to consider all NFP releases.
Retail Sales is tradeable, but Personal Income and Personal Spending is not. This was a surprise to me, I haven't traded any of these metrics before. I'll have to look into what is exactly in each one to understand why this is.
With the exception of Michigan Consumer Sentiment, all of these releases are correlated with the price movement, but many of them aren't practical to trade because the movement is too small.
The negative sign and weak correlation on Inflation Rate MoM is a bug, I think. I got a different (positive) number when I ran it earlier, but then I was on a conference call while reformatting the data and I may have done something dumb. I'll go back and review it.
It takes me about 15 minutes to scrape 2 years of monthly data by hand and type it up, and then the software takes about 10 seconds to run per metric. If there are regular forecasted economic releases that you'd like to see correlated and scored, let me know! I can do other currency pairs and other country's economic news as well, it's just a matter of data collection.
CMC Markets: is everything in CFDs? If so, how do the forward date ones work?
I just started a demo account with CMC Markets, and I was wondering if every single asset listed is traded as a CFD? When learning about forex from BabyPips I had the mentality as if I'm literally trading the currency; as in if it were in person, I'd be giving some coins in one currency and receiving another. I guess since CFDs are linear derivatives it doesn't matter as much, but I still feel like there are some additional considerations when trading CFDs vs "actual currency"? Also, what are the maturities on these? Are there even maturities? All the quotes just say "USD/CAD", "EUJPY" etc, but from my understanding of a CFD, you agree to pay the difference from actual and agreed, much like a future, so why are there no maturities? Question 2: For CFDs on things like equity indices, they seem to trade the whole day unlike their underlying. Does this mean say at 9pm EST the S&P500 CFD is just people essentially betting on tomorrow's open? And again with the futures thing, does after-market hours trading in these CFDs affect the real opening price the next day? (If markets are efficient and we assume there are people watching CFD prices like future prices, and then tomorrow's early trades become based on what the futures markets seem to say about the S&P, holding news and other things constant). Question 3: For CFDs with maturity dates like commodities on this platform, how does that work? Again, I'm mostly confused at how CFDs operate without maturities and how they different from futures. On the CMC markets platform, many agricultural commodities come with the suffixes like either "cash" or a maturity date, but currencies and equity indices do not. What does this mean? Those commodities I'm clicking trade on...am I trading a corn CFD? Or a CFD on corn futures? What exactly is the underlying mechanic? Question 4: yet another example. For the bond indices...what am I looking at on the platform? I just want to get a chart of US treasury yields but I don't think that is available on CMC. What am I looking at when I click UK Gilt Cash or US T-Bond Cash or US T-Bond Jun 2020? Tl;dr Don't understand the mechanics of CFDs and thus I'm not sure what EXACTLY I'm actually trading when I trade things like currency, equity indices, commodities. Surely I'm not actually trading a physical commodity or actual shares. Please note this is specific to CMC markets. Thanks :)
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