Getting started in Forex

[Temjin]

Hi Temjin,

I can only venture a guess that you are talking about full automation of the strategy,order entry included, as you have previously alluded to in other posts.

If I'm right, may I ask how you've managed to deal with things like broker isssues, lengthy blackouts, internet problems etc? What happens if your broker's platform goes down just before a major announcement comes out and you're asleep with a position on?? Have you had these kinds of problems before, and if you have, how do you deal with them?

Great questions there frink.

If you referred to my other posts, I am still in the development stages.

You are right that those are very legitimate risks and I have developed, or rather, have thought of strategies to mitigate them.

broker isssues - This remain one of my biggest risk. I am essentially relying on their uptime and connectivity reliability to execute my system properly. This is mitigated by regularly monitoring of the system, set maximum portfolio risk (no more than 10 positions at once, or no more than 5 long/short, etc) and reduce reliance on trading system's rule to liquidate trade. (i.e. have trailing stop / profit targets already set on broker's server)

Another major concern is how the broker manage their client's fund. What do they do with the funds? How risky is it? Do they have plans to shield themselve from the current or future credit crisis? etc, etc.

lengthy blackouts, internet problems - This is less of a problem as I will be using a virtual dedicated (or shared as minimum) server hosted by a professional company with connections located near my broker's own routing servers. I will rather pay for the cost for the service of having advanced hardware security, reliable backup power source, minimum internet access downtime and regular data backup than using my own home desktop computer with unreliable power supply and internet. I would be able to access my hired server through remote access from my home computer/laptop.

just before a major announcement comes out - As I will be desiging intraday trading system with no overnight positions, and that the markets I am trading in is highly liquid, major annoucement that produce major price shock should not present a major problem to me. (in theory anyway, who knows what will happen in the future) I would further mitigate it by the same max portfolio heat strategy and having a balance of long/short.

I am fully aware of the fact that alot of quantitative hedge funds recently had experienced major drawdown when both of their LONG and SHORT positions went against them all at the same time. I don't know if, or how this would happen to me, but the best defense against it would be to limit my positions opened and total % of equity risked.

That's how I would deal with them. I'm sure most of the more "professional" quantitative hedge funds have better strategies to deal with these.

Well I beg to differ from Curtis Faith. I've learnt a hell of a lot through internet forums. Alot of the posters (in every forum) are newbies or amateurs or bullmarket champions. But the are a few people who really know their stuff and are willing to share their knowledge and for me that makes the time Iv spent through these forums very much worth it.

Maybe it's my biases toward these forums, there would be alot more newbies and losing traders than winning traders. If I was a winning trader who have been making profit consistently over the past several years, I would NOT even consider making posts in those forum because I already have my own trusted system.

But it's still a good idea to learn what strategies other are using. I stilll believe that some people could potentially develop a great entry strategy but doesn't have other elements in place to make a profitable system. (i.e. exit strategy, position sizing, discipline etc) So yeah, steal their ideas (as long as you are confident in using it) and make them yours.

 

[nizar]

Maybe it's my biases toward these forums, there would be alot more newbies and losing traders than winning traders. If I was a winning trader who have been making profit consistently over the past several years, I would NOT even consider making posts in those forum because I already have my own trusted system.

I don't know why you wouldn't post on forums just because you have a trusted system

Well Im glad most people don't think of you because Iv learnt immensely from guys like tech/a and Stevo (those that have great systems yet they still care to post on forums and help others). Why do they waste their time? Because they too may learn something

I believe in continuous improvement in quality of performance (and NO, i don't mean to destroy a decent system by trying to make it perfect), and the ultimate pinnacle in trading is to have several systems with low correlation so you can have confidence in being profitable xx% of performance evaluation periods.

I think one way of continually learning is by talking to others with different experiences and working together with them, and you find such people through posting on forums.

But it's still a good idea to learn what strategies other are using. I stilll believe that some people could potentially develop a great entry strategy but doesn't have other elements in place to make a profitable system. (i.e. exit strategy, position sizing, discipline etc) So yeah, steal their ideas (as long as you are confident in using it) and make them yours.

I know about how a system works, at least the basics of it.
You need an exit(s), and entry and money management to begin with.

I see entry is dismissed by many people and as traders develop it goes from being severely overvalued to severly undervalued, when actually it should be somewhere in the middle and treated as an important part of the system.

Actually the importance of the entry depends on the sort of edge the system is trying to exploit and the timeframe in which it works.

For those that trade intraday mean reversion systems off 5-minute bars with average trade length of 2 hours, then the entry is paramount especially for those relying on a high win percentage.

For those that trade long term trend following systems, entry is not so important, especially in the stockmarket with an upwards bias, and because of the long average holding time of several months.

I really don't think you should dismiss forums. There are some really smart people around. Even Curtis Faith says this in his YouTube interview.

Have you read this stuff by Acrary?

Maybe even you can learn something

All the best.

 

[>Apocalypto<]

Don't know how the system would have faired tonight and over the last few day's

Nizar I really advise you spend a lot of screen time getting to know the pair and what it can do, one trick I use when i place a fx trade is work out both road maps in acouchs words. what i see could happen long and short, regardless of the direction I think it's going to move.

Nizar what time frame u plan to run your system on?

Good luck mate

over 150 pips in 4hours on 3 pairs what a way to end the week. yeh all markets are the same!! whatever! tonight is one of the main reasons I only trade fx now...

Attached find, a one min chart of the EUR/JPY check out those 5 pip ranges....

 

[>Apocalypto<]

Great questions there frink.

If you referred to my other posts, I am still in the development stages.

You are right that those are very legitimate risks and I have developed, or rather, have thought of strategies to mitigate them.

broker isssues - This remain one of my biggest risk. I am essentially relying on their uptime and connectivity reliability to execute my system properly. This is mitigated by regularly monitoring of the system, set maximum portfolio risk (no more than 10 positions at once, or no more than 5 long/short, etc) and reduce reliance on trading system's rule to liquidate trade. (i.e. have trailing stop / profit targets already set on broker's server)

Another major concern is how the broker manage their client's fund. What do they do with the funds? How risky is it? Do they have plans to shield themselve from the current or future credit crisis? etc, etc.

lengthy blackouts, internet problems - This is less of a problem as I will be using a virtual dedicated (or shared as minimum) server hosted by a professional company with connections located near my broker's own routing servers. I will rather pay for the cost for the service of having advanced hardware security, reliable backup power source, minimum internet access downtime and regular data backup than using my own home desktop computer with unreliable power supply and internet. I would be able to access my hired server through remote access from my home computer/laptop.

just before a major announcement comes out - As I will be desiging intraday trading system with no overnight positions, and that the markets I am trading in is highly liquid, major annoucement that produce major price shock should not present a major problem to me. (in theory anyway, who knows what will happen in the future) I would further mitigate it by the same max portfolio heat strategy and having a balance of long/short.

I am fully aware of the fact that alot of quantitative hedge funds recently had experienced major drawdown when both of their LONG and SHORT positions went against them all at the same time. I don't know if, or how this would happen to me, but the best defense against it would be to limit my positions opened and total % of equity risked.

That's how I would deal with them. I'm sure most of the more "professional" quantitative hedge funds have better strategies to deal with these.



Maybe it's my biases toward these forums, there would be alot more newbies and losing traders than winning traders. If I was a winning trader who have been making profit consistently over the past several years, I would NOT even consider making posts in those forum because I already have my own trusted system.

But it's still a good idea to learn what strategies other are using. I stilll believe that some people could potentially develop a great entry strategy but doesn't have other elements in place to make a profitable system. (i.e. exit strategy, position sizing, discipline etc) So yeah, steal their ideas (as long as you are confident in using it) and make them yours.

Temjin,

maybe if u spent as much time trading as u do posting about it, u may have a perfect system by now..........

 

[nizar]

Don't know how the system would have faired tonight and over the last few day's

Nizar I really advise you spend a lot of screen time getting to know the pair and what it can do, one trick I use when i place a fx trade is work out both road maps in acouchs words. what i see could happen long and short, regardless of the direction I think it's going to move.

Nizar what time frame u plan to run your system on?

Good luck mate

over 150 pip's in 4hours on 3 pairs what a way to end the week. yeh all markets are the same!! whatever! tonight is one of the main reasons I only trade fx now...

Attached find, a one min chart of the EUR/JPY check out those 5 pip ranges....

Thanks for the chart.
150pips in 4hours, thats nice!
Keep up the good work.

How long have you traded forex for and which pairs do you trade?

Im not sure about timeframe, like you said, I just need to spend alot of screen time and try to educate myself about this market. Im in no rush so ill spend as long as it takes until i feel comfortable. But im thinking maybe 1minute, or 5minute??

What timeframe do you trade?

Do you trade discretionary or following a (backtested) mechanical system?

 

[>Apocalypto<]

Thanks for the chart.
150pips in 4hours, thats nice!
Keep up the good work.

Hi nizar,
tonight was a real treat, it was news related.

How long have you traded forex for and which pairs do you trade?

Started trading the aud/usd spot last year in September, while trading indexes and shares on cfd's. from November i have been mostly trading fx. 98% I trade: EUR/USD AUD/USD USD/CHF and EUR/JPY on one min but mostly demo trades to pass the time while I wait or am holding a trade.


Im not sure about timeframe, like you said, I just need to spend alot of screen time and try to educate myself about this market. Im in no rush so ill spend as long as it takes until i feel comfortable. But im thinking maybe 1minute, or 5minute??

the lower the time frame the faster it moves.Yen crosses are all nuts but they all can move when they want to. get to know one pair and what makes it move. the hard part about news is the market expectation part, last CPI really shows that. you need to plan for the best and worst at the same time. be objective as possible! just cuz we got a rate cut does not mean the usd will drop and the euro will rise against it. example last friday I was long on the eur/usd NFP was coming out. everything was fine i was up all of a sudden the US$ buyers came out big time it slipped then i was 30 pips down very close to stop. this is just after the release. I thought i was toast, then it came back to a 38 pip profit. my point fx can do some wild ****! u have to be aware of that. USD/CHF is another mind bender at times!

What timeframe do you trade?

I trade on a 4 hour chart also look at 1 hour to fine tune entry's, I gave scalping a shot on demo on a 5 sec chart. it did my head in so fast it really boggles the mind.

Do you trade discretionary or following a (backtested) mechanical system?

I trade a discretionary system i picked up in ForexFactory, Philip Nells 4 hour MACD system with Mclarean teachings. that's all i use for fx.

I use Metatrader4 with Apari data, but I do all my trades with IG, I am still looking at all the fx brokers. It's a toss up between Efx and IB not sure who yet.

I have read no Fx books yet, if u can trade off a RIO chart u can trade off a aud/usd chart. u just need to learn and understand how the FORex moves and how it moves around certain times of the day/night. that is critical!

One book that has done wonders for me is Emotion free trading by Larry Levin. Best part it was free! if u want a copy let me know it's a ebook I can email it to u.

All the best in FX Nizar, I love it, do your work and u will succeed, just get to know your pair and what makes it tick, what time it's active.

I will leave it there as it's to late now!

 

[wayneL]

over 150 pips in 4hours on 3 pairs what a way to end the week. yeh all markets are the same!! whatever! tonight is one of the main reasons I only trade fx now...

Attached find, a one min chart of the EUR/JPY check out those 5 pip ranges....

LOL. That's not bad! But Oil gave away up to 500 ticks on Wednesday.

XXXX/Currency Futs are good, but so are other commods, Nasdaq stocks etc.

 

[caribean]

I don't know anything about system trading, but i think you might find some inspiration reading about a trader called Malcolm Morley from Victoria.
He has made some posts on the Oanda forums under the name: chaffcombe
Good luck with what you are trying to do.

 

[Temjin]

I don't know why you wouldn't post on forums just because you have a trusted system

Well, I guess I don't post on those forums because I really don't have much to add and I don't want to talk about my system just yet. Though I do read them a lot.

Well Im glad most people don't think of you because Iv learnt immensely from guys like tech/a and Stevo (those that have great systems yet they still care to post on forums and help others). Why do they waste their time? Because they too may learn something

That's true too, we all did learn a lot from them.

I believe in continuous improvement in quality of performance (and NO, i don't mean to destroy a decent system by trying to make it perfect), and the ultimate pinnacle in trading is to have several systems with low correlation so you can have confidence in being profitable xx% of performance evaluation periods.

I think one way of continually learning is by talking to others with different experiences and working together with them, and you find such people through posting on forums.

I believe in continous improvement over everything as well, so you are right. That's why I'm talking with others here about different experiences. But not necessary the really "technical" parts. (yet)

I really don't think you should dismiss forums. There are some really smart people around. Even Curtis Faith says this in his YouTube interview.

Have you read this stuff by Acrary?

Maybe even you can learn something

All the best.

Not really dismissing them, I do read them occassionally but am always fully aware of the trap of trying out different systems to get the perfect "setup".

Woo, that's a really long thread, will definitely take some time to read them. Thanks!

Temjin,

maybe if u spent as much time trading as u do posting about it, u may have a perfect system by now..........

Hahah Too true there! It's not easy when I have a full time job and a busy social life that I'm not willing to sacrifice. (yeah yeah excuse!) I would also avoid full on trading until I have the system ready.

 

[>Apocalypto<]

LOL. That's not bad! But Oil gave away up to 500 ticks on Wednesday.

XXXX/Currency Futs are good, but so are other commods, Nasdaq stocks etc.

500 ticks! ok WayneL I think u win this round!

I agree with u on futures Waynel, I have seen some amazing movement in the grains, that will match FX. Grains is another area that really interests me. but keeping it with Fx for now.

hope u caught a good part of that mate!

 

[nizar]

From what I gather from their website, TradeStation seems to now be a subscription service (not outright like other software) and they seem to offer a strategy design and backtesting platform, historical data, and also execution (acting as a broker) all in one?

Software and intraday data I would have thought are significant costs but these guys just give it away??

Does anybody use Tradestation here and what are your thoughts?

 

[>Apocalypto<]

From what I gather from their website, TradeStation seems to now be a subscription service (not outright like other software) and they seem to offer a strategy design and backtesting platform, historical data, and also execution (acting as a broker) all in one?

Software and intraday data I would have thought are significant costs but these guys just give it away??

Does anybody use Tradestation here and what are your thoughts?

not sure about tradestation NIza,

I use Metatrader4 that has a program function in it, i am sure u can write and create trading programs as well

www.metatrader4.com

 

[Timmy]

From what I gather from their website, TradeStation seems to now be a subscription service (not outright like other software) and they seem to offer a strategy design and backtesting platform, historical data, and also execution (acting as a broker) all in one?

Software and intraday data I would have thought are significant costs but these guys just give it away??

Does anybody use Tradestation here and what are your thoughts?

Hi Nizar - I don't use it but it is one of the most widely used and popular softwares globally. I gather from your postings you are heavily into system design and testing and systematic trading. My understanding is TS is ideal for this style of trading. A lot of futures guys in the states use it, it is a subscription service and if you do a certain number of round-turn trades per month with their brokerage service the software/data costs are waived (I think the number of round-turn trades required is 10 per month - I don't know anything about the quality of their brokerage service).

 

[nizar]

Wow, what do you guys think of this?

Brokers can deceive you about there being no commissions. $30 minimum/round turn (called the spread) is in reality a commission that eats up your capital at an astonishing rate. Even winning traders lose money and end up with negative results because of this outlandish overhead. Trading futures, you should never have to pay a broker more than $10/round turn, and usually quite a bit less than that.

Guaranteed fills. True but… The only way a broker can guarantee fills is for the broker to become the buyer or seller of last resort. That means the broker is running a bucket shop. All forex brokers are the buyer and seller of last resort.

Brokers do not all tell the truth about volume. They show the volume for all forex trading, which doesn't even come close to the volume they truly have at their own brokerage, which is where you are trading. Volume in currency futures is considerably higher than the volume traded at any single forex broker, often greater by a factor of ten.

Leaning. Brokers say they are charging you a 3 pip spread to trade the popular currency pairs. But in reality a broker may be making as much or more than 10 pips on your trades. He does this by skewing prices. Since you are not trading at an exchange, the broker can feed you any price he wants to feed you. He can buy at the bank for perhaps 7 pips less than he sells to you. He then charges you 3 pips for the privilege of being ripped off for a total of 10 pips.

Unregulated. Forex may sound like an exchange but it isn't. It exists entirely in cyberspace with every broker and every bank having different prices for any particular currency. There is little or no regulation, even for brokers who register with the CFTC and the NFA. Forex brokers do not have to mark to market each day as do futures brokers. If your forex broker files for bankruptcy or absconds with your money you have zero recourse.

No guarantee. If a forex broker does go out of business, you could lose all your money. There are no guarantees and no one standing behind it. Futures brokers are required to mark to market at the end of every session every day. They have to put up cash to cover every open trade on their books. Futures brokers have gone broke, but no futures customer has ever lost one cent of the money in his trading account because of a failed broker. Nor have they had to wait for their money. It is immediately available.

You can get exactly the same action in the euro fx futures as you get in the "Euro" forex. Commissions are as low as one tenth per round turn depending on volume, through a regulated broker, trading electronically at an exchange where you know the true price of the currency.

What is the true price? A forex broker can only give you the price of a currency as quoted to him by the bank through which he trades. Banks have differing prices for a currency. You never know what the real price is because there is no central exchange through which all prices flow. Besides not knowing the true price from the bank, you can also be deceived by "leaning" or "skewing" of the real price at the bank. Forex brokers commonly lean the prices.

Forex brokers are not necessarily truthful. They lure people in with hype and false advertising: "No commissions!" "Guaranteed fills." "24 hour trading:" Who in their right mind is going to trade in the middle of the night unless they have a special need. While it is true that total forex volume is greater than in the futures, futures, volume at the exchange is greater than the volume at your broker for the most popularly traded currencies. The only place where the liquidity differential matters is in currencies like the Mexican peso, the Brazilian real, and somebody's drachma. Those thinly traded currencies may be more liquid in forex. But if you trade anything but the few most liquid and popular currencies, you are going to be paying at least 5 pips, and often more. Unless you have a particular commercial need to deal in Polish zlotys, Indian rupees, or some other thinly traded currency, you don't need forex.

You are told by forex brokers that there is little or no stop running. This is one of their biggest and boldest fabrications. The truth is there is far more stop running in forex than in futures, and possibly as much stop running as in the stock market. I have friends who work in forex as well as many traders who of necessity have to trade forex. One of my students is a market maker in forex. These are people who should know, but in case you don't want to believe me or them, simple observation of forex trading will reveal the vast amount of stop running that takes place there. Who is it that runs the stops? Why it is your friendly forex broker. The broker has a vested interest in seeing to it that your orders are filled. Stop running is nothing more than order filling. The broker sees to it that everybody's order gets filled.

Probably you have heard that if you are winning regularly in forex, you may be barred from trading. Is this true? Yes it is. The fact that it is true is just another proof that when you trade forex you are trading at a bucket shop. In the book, "Reminiscences of a Stock Operator," we are told that Jesse Livermore was banned from trading at certain stock brokers because they couldn't stand him beating the house. The same thing is true with many forex brokers. Since they are the ones guaranteeing you a fill, they are in effect the buyer and seller of last resort. The truth is that most forex brokers have precious little liquidity at their firms. In order to give you the impression that there is liquidity, it is the broker who gives you your fill. It is the broker who does the stop running that supposedly doesn't exist in forex. But if you are regularly beating the socks off the broker, he will ban you from trading at his firm.

Now you know the truth about forex. I challenge any and all forex brokers to prove that I am wrong. I will change or remove anything proven to be untrue in what I stated above.

Taken from here

 

[Timmy]

Wow, what do you guys think of this?

I'm sure someone will come along to quibble with a minor point or two but essentially it is all true.

The key to understanding retail FX is that it is basically unregulated. There is no exchange. FX brokers in Australia are subject to Australian law; so you may have the law to fall back on in a dispute with an Australian broker, so hire yourself a good QC/SC and away you go. But dealing with an offshore broker (I hear there are many wonderful FX brokers in Eastern Europe and Russia...). well good luck.

So, the most important point is retail FX is unregulated. It is the Wild West out there.

 

[Timmy]

By the way, doesn't mean you should not trade in it, but have your wits about you and understand the potential pitfalls. If you do want to deal in speculative FX find a reputable broker with access to good liquidity.

 

[nizar]

Yeh good point about finding an Aussie broker.

Does anybody know an Aussie forex broker that will allow you to autotrade using metatrader 4 platform?

Also, does anybody know any websites where I can look at some Forex charts in any timeframe that i want. Sort of like a bigcharts equivalent?

 

[ithatheekret]

Tried your local Aussie bank ?

 

[tayser]

I'll save you the trouble.

Australia blows for Foreign Exchange. Full stop. Unless you're uber cashed up and are able to open an insto level account with Maq bank or some such.

If you're happy with going with a local CFD provider look at Pacific Trader (they white label Saxo bank's platform - it's very nice and fully integrated with CFDs/Equities, get their demo: http://www.pacifictrader.com.au/), IG or CMC.

If you look at international brokers, stick with North American especially if execution is going to be an issue. Specifically a broker who has a data centre somewhere on the west coast (California etc). There may be more European brokers (remember FX HQ is London, not New York!) but they're further away from us (as our net is routed via North America to get to Europe) so Swiss brokers (MIG are siwss and are one of the biggest MT4 providers) are likely to have poorer execution performance (MIG I can say from demoing their MT4 platform are very poor, and when you get requoted as you do with market-makers it blows it out even more - keep that in mind) compared with US-based brokers.

Moving money to the US is pretty simple, most brokers will offer AUD account denomination, and the timezones work pretty well... depending on your bank here, usually the close off time for international payments is 6pm (well it is with ANZ who I bank with), so they do their processing and load the batches up and send off around 9pm which in many cases is going to hit the US banks around midnight (9am their time on the day we've just closed), transferring money to Europe can take longer because by 9pm our time it's midday there so you're likely to miss their business open of the same day.

I don't think there are any Australian-based MT4 brokers, and yes MT4 is a nice little package, but just remember that if you decide to use a faster / scalping-like strategy, you're likely to get the ars3 from any MT4 broker as they're all market makers.

And explore different trading styles / strategies and don't make an assessment on them til you've tried them. I harp on about scalping and how it requires little work - don't take my word for it, explore it all.

I started on the same path as you 6+ months ago and am yet to go fully* live, so you've got a fair bit of work ahead of you

*I have a real account with oanda (and regret opening it), but it's not going anywhere nor do I intend to take it anywhere!.

cheers.

 

[Kauri]

If you go the Norht Am. route make sure it will see the distance..

The NFA is raising the minimum requirements to $5m and has suggested that in 2008 it will raise the minimum to $20M
The president of the NFA in testimony to congress advocated the need to raise MINIMUM capital requirements further to $20m. the transcript can be found on the NFA website. With all the problems with small FX firms going out of business in the past year the NFA has been actively campaigning in congress to clamp down on this issue.