Forex Trading

[Milk Man]

Hi Smurf, do you use EOD data or intraday/live data? Ive only got eod at present and I cant find a system that works. Not yet anyway . A nudge in the right direction would be good.....

 

[Smurf1976]

I use a OHLC (open, high, low, close) chart. For most pairs this is a daily chart although for 3 of them it's a weekly chart. In practice I look only at the high and low price for the day/week unless the close is either very near the top or bottom of the day's range.

If a buy signal is triggered by the high / low price but the close is right near the low then I will set a limit order to catch the trade if it breaks out rather than risk the very real possibility that the signal is false. Reverse situation for shorts.

In general I trade my account once per day in the morning before going to work. In my testing I always assumed a worst case scenario for the time of day that trades are started. So I always assumed buying at the high for the day (or selling at the low if going short). My actual trading results ought to be a little better than the back testing indicates since, in practice, I won't generally be entering the trade at the worst possible time on that day.

It takes approximately 15 minutes to check for all possible trades each morning. I find that doing it whilst in a reasonable hurry (before leaving home to go to work) assists in reducing emotional decision making as there simply isn't enough time to think about it. I just follow the rules and check to see if they have been met. I do check again in the evening though just to make sure that I haven't missed anything although in practice I have only found one error with incorrect stop setting which fortunately was of no consequence. I do not enter trades in the evening.

All of my trades are closed by hitting a stop loss. I do not manually close trades (except if there's a good reason such as being unable to trade for a while). My stop loss orders are always set 4 pips from the trigger they relate to. So if I were long AUD/USD and wished to exit should it fall below 0.7480 (hypothetical - that's not a current trade) then I would set the stop at 0.7476. During my system development I became aware that this would, on average, boost profits by reducing tradign on false breakouts. IT MAY NOT WORK FOR ALL SYSTEMS THOUGH.

In general my trades are opened manually. However, I wait for a clear breakout following a failed trade (defined as a trade taken out by the stop with minimal price movement (relative to typical price movements for that pair based on the chart) regardless of whether it was a profit or a loss) before entering any more trades for that pair in the current cycle. By cycle I mean when the price has clearly moved in a sustained trend either up or down from the present level.

Charts. Most charts show bid price. Be VERY careful when setting limit orders or stop loss to take bid/ask spread into account otherwise you will find orders executing when they shouldn't. THIS IS IMPORTANT.

If you use indicators then be aware that they aren't valid until the end of the trading period they relate to. And remember that forex runs 24 hours a day during the week so know what the cut off time for the end of a day is on your charts. Just because the RSI has crossed some threshold half way through the day doesn't mean it will still be over/under that level at the end of the day. Get this wrong and you'll be entering / exiting lots of trades when in fact your system hasn't given a signal to do so.

I only enter trades when ALL conditions are met. Whilst an individual opportunity may appear good, my system is based on probability and profit / loss per trade using strict entry criteria. Hence my willingness to ignore anything which doesn't meet all the criteria.

Actual system development. Whilst incredibly time consuming, I like doing things manually where possible. My system was developed by proposing rules and then MANUALLY back testing them over 12 months. This is very time consuming but leads to the discovery of what you should have actually done whereas automated back testing will only give a yes/no on a proposed method. Do it manually and it becomes easier to identify methods to test. Of course automated testing has a role for verification of results.

There's no rule that says you can't change the settings on indicators to some unconventional value. Make sure to keep using those values if you develop a system based on them though.

Don't forget to factor spread and any other broker costs into your testing.

Make sure you know the maximum drawdown of your system and adjust leverage accordingly.

Don't try to develop a system which exploits inefficiencies in your broker's systems. Such things are possible but brokers do have software to detect such things and you'll be shut down if you do. (This isn't from personal experience).

Be aware that money deposited with a forex broker is NOT safe IMO. They are not banks and may well go out of business. I therefore deposited only the minimum necessary funds to my account fully aware that I may need to deposit additional funds in the event of a substantial drawdown happening before substantial profits were made. I based my leverage on the notional amount of funds, most of which were sitting in a bank account, rather than the funds actually with the broker. I plan to remove funds periodically, keeping only enough in the account to operate the system plus allow for expected drawdowns without having to constantly withdraw and deposit funds.

Take ALL trades triggered by your system.

I have not needed to use any expensive software, computer equipment or data services. If the system is running profitably near the end of this financial year then I intend buying a laptop with suitable modem in order to continue trading whilst travelling. (It's only 15 minutes a day...). 2 monitors on my PC would be nice, one for charts and the other for order entry, to save time but I don't have that at present and am in no hurry to get it. I've kept all costs as low as possible without affecting the actual trading in any way. I have dialup internet.

My system is based on all trades being approximately the same size when converted to AUD.

 

[Milk Man]

Thanks smurf, I just saw this (Joes gettin too many posts for it to show up on home page!). Excellent advice, oops, I mean guidance . How did you decide long and short on pairs- trends, positive roll, or just plain probability?

Manual testing huh, your eyes must be sore!
:bier: :bier: :bier:
Three cheers for Smurf!

 

[Smurf1976]

Probability, a desire to avoid overly complex trading methods and the effect on drawdown are the reasons for leaving a few pairs out either in long or short direction.

(Just thought I'd make a nice short post for a change... )

 

[traderob]

I trade forex. Have been a prop stock trader and futures trader but find advantages in forex. I stick to the majors plus nZD and AUD.

Fundamentals and technicals are needed to be successful IMHO.

 

[Milk Man]

Anyone know why the yen took a dive recently?

 

[money tree]

G7 putting pressure on asian leaders to revalue their currencies. Its mainly the U.S demanding China revalue the yuan.

 

[wayneL]

Anyone know why the yen took a dive recently?

Actually it' the US$ that took the dive as it's quoted USD/JPY

If you look at the Futures, which is quoted JPY/USD, the yen is flying

Cheers

 

[Smurf1976]

With Japan strongly hinting at raising interest rates, there will be plenty of investors looking to unwind longer term positions which involved borrowing Yen to buy something else.

Given that the trend of rising interest rates is already a global one, this won't be the only market to feel the effects IMO.

 

[Milk Man]

Actually it' the US$ that took the dive as it's quoted USD/JPY

If you look at the Futures, which is quoted JPY/USD, the yen is flying

Cheers

Hmmmmm, I might think before I talk next time . Thanks guys anyways.

 

[money tree]

With Japan strongly hinting at raising interest rates, there will be plenty of investors looking to unwind longer term positions which involved borrowing Yen to buy something else.

This is a cliche and a myth.

There is absolutely no evidence to prove anyone is unwinding carry trades yet. Why would they? The ONLY reason to close an arbitrage is if the arbitrage decrease or dissapears. In the USDJPY carry trade, USD rates have been and will continue to rise faster than JPY rates. Since "anal-ysts" started calling an end to the carry trade, USD rates have increased 50 bps, while JPY rates are unchanged. The arbitrage has INCREASED.

yesterday USDJPY gapped through daily trendline support. However, since todays candle does not confirm, and the reason for the fall was G7 and NOT unwinding of carry trades, I feel this will prove to be a false break, and USDJPY will go to 120 before 110.

 

[Milk Man]

I feel this will prove to be a false break, and USDJPY will go to 120 before 110.

Hope so i'm long. Erm, short yen that is.

 

[chemist]

This is a cliche and a myth.

There is absolutely no evidence to prove anyone is unwinding carry trades yet. Why would they? The ONLY reason to close an arbitrage is if the arbitrage decrease or dissapears. In the USDJPY carry trade, USD rates have been and will continue to rise faster than JPY rates. Since "anal-ysts" started calling an end to the carry trade, USD rates have increased 50 bps, while JPY rates are unchanged. The arbitrage has INCREASED.

It's not a true arbitrage because the USD/JPY is not fixed. The JPY can rise a lot faster than a 4-5% pa "arbitrage", and, when it does, carry traders lose.

yesterday USDJPY gapped through daily trendline support. However, since todays candle does not confirm, and the reason for the fall was G7 and NOT unwinding of carry trades, I feel this will prove to be a false break, and USDJPY will go to 120 before 110.

It may not have been unwinding but it's the sort of thing that encourages traders to think about unwinding.

cheers,
Chemist

 

[POPSTER555]

Hi All,

I am new to all this and i would like to learn more so if i ask a question that my seem stupid please forgive me. Can anyone tell my what is the safest way to trade Forex by experience? The more research i do on the web the more confused i get. Is there a web site or book that anyone has found when they first started?

 

[Smurf1976]

Keep the leverage sensible is my number 1 tip. Leverage too high and sooner or later you WILL blow up the account (lose all your money).

Also don't over trade. Develop and TEST a system to make sure that it works and then WAIT for the trading opportunities to present themselves in accordance with your system. Focus on trading successfully and don't worry about "I could have made a profit today doing X". If you know that you have a profitable system that works over a long period of time then the fact that you missed out today doesn't really matter. Trying to profit from every single opportunity just isn't going to work IMO.

 

[Milk Man]

Popster: ive had a bit of luck with swing trading. Also, as with any trading, good money management is the key IMO.

 

[bowser]

Hi All,

I am new to all this and i would like to learn more so if i ask a question that my seem stupid please forgive me. Can anyone tell my what is the safest way to trade Forex by experience? The more research i do on the web the more confused i get. Is there a web site or book that anyone has found when they first started?

I think the most important aspect to learn first is what type of investor you are. There's no point buying postion trading books if you cant sleep while you have $xx on the line. In that case maybe you're better day trading for a couple of pips here and there.

Have a look at www.babypips.com. It's a free website that runs through the basics of forex trading and technical analysis. Once you have an idea of a system that you would like to try open a paper trading account and see how you go. When you consistantly make a profit put some real money on the line.

Good luck!

 

[scsl]

I've just started on Forex and was wondering if any of you would be able to help me decipher the following. I have very little idea of what it is trying to say. I have done one trade on the AUD/USD spot (successful) and am eager to read/learn more before the next one.

0411 GMT [Dow Jones] Long AUD/USD vs USD/CAD 1-year vol spread ends with loss; anticipated move in relative implied vols failed to materialize, but could still be good value with fresh positions.

AUD/USD spot has generated just 0.52 actual volatility more than USD/CAD over past year (8.62% vs 8.10%), implying loss of about 0.70 vol at overnight expiry for longs - recommended by Dow Jones CommentaryPlus from implied-vol spread of 1.20 vols.

Position anticipated mean reversion, implied-vol bounce toward 3.5 vols over subsequent months. Series failed to bounce from projected support but trade was held as AUD/USD realized vols were expected to outperform. Instead, steep downtrend in AUD/USD realized vol sent 1-year as low as 8.36% in March.

Fortunes could still change. Relative realized, implied vols attempting to base above parity; spread should recover.

AUD/USD 1-year implied trades very cheap, under its 1-year low to 8.55% - 1.91 standard deviations below its 1-year mean of 9.31%. USD/CAD trades much more in line with fair value at 7.80%, modest 0.42 standard deviations below mean of 7.91%.

(Russell Floyd, russell.floyd@dowjones.com)

Dow Jones CommentaryPlus Web site: http://www.djcommentaryplus.com/acs

Thanks,
scsl

 

[jovan]

do we not have any forex traders here ?

I've been trading forex for about 3 years. I was a share trader but these days I hardly trade stocks at all. I own a few pharmaceutical companies which I've been interested in for a while but that is all.

For newbies starting out in forex, I suggest babypips.com as somebody already mentioned. I've also made a website based on my experiences starting out, and I've tried to review forex trading systems, courses and brokers. (I'm not spamming here but if anyone is interested, they can check my sig).

The excessive use of leverage in forex is a big problem. It is a big attraction to forex however it is also probably the biggest killer of trading accounts. CFD traders can probably relate.

 

[jovan]

To add to positivecashflow's post, I would say that some of the other advantages of trading Forex vs Stocks (apart from leverage and the other benefits of CFD's) are:

- No insider trading possibilities (because of the huge size and non-centralized nature of the market)

- Absolutely no relation to the stockmarket or correlation to company earnings and other factors which influence stockmarkets.

- 24h market - you choose when ever you feel like trading.

- Fewer decisions and headaches in Forex - there is 2000+ stocks on the ASX plus 3x that in the US. There are only 7 major currency pairs to choose from in FX.