A 17-year-old blog reader asked me recently if he is too young to start learn trading and how can he start. That got me thinking. Mmm, how would I teach my girls if they expressed interest in trading?
You need to have spare money
Well, how young one may start to learn trading depends on when he can save up the capital to start trading. Nowadays, this barrier is lowered greatly with forex brokers that allow trading of nano lot sizes. A broker I know of allow trading of any lot size and this allows starting capital of US$500 and still allow proper money management to be applied.
It is easy to lose everything
This is up to individual. I was thinking some parents may like to let their children understand the risk of trading. Let them start trading without any rules. Let them fiddle and familiarize with the trading platform. Let them experience margin call, let them experience account blow-out. US$500 is cheap to learn all that.
You've got to execute the trades without fail, even if you've lost the last 10 trades!
After that, I would give my girls a decent trading system (including money management rules) that they can trade without interfering their studies (and their studies also don’t interfere with their trading too!). I would monitor that that trade the system consistently even if they experience losing streaks. Children are unpolished gems. I would think children are more likely to follow trading systems.
Side dish
Also, importantly, treat it as a means of bonding with our children, a game that we can play together!
Is this how you will teach your children how to trade? Or would you even teach them at all?
Feb 23, 2012
Feb 21, 2012
Successful Traders and Professional Gamblers
Books such as "The Way of the Turtles", "The New Market Wizards" and "The Market Wizards" tell very nice trading battle stories. These books are really about the war stories of the many successful traders of our times.
The 3 books seem to resonate that professional gamblers (poker, black-jack etc) have a high chance of becoming successful traders. All 3 books describe trading as very similar to professional gambling.
In professional gambling, gamblers:
It is with this edge that turns the game into a positive expectancy game. In the long run, the professional gamblers will win, provided they stick to their rules strictly and patiently.
As you can observe, trading borrowed many terms from professional gambling: risk management, edge, expectancy etc.
Hence, it is so important to trade with a edge. By trading with an edge, we know that we will be profitable in the long run, and we will not suffer from trade execution paralysis - especially we have lost many trades consecutively. As we know that we will ultimately come back because we trade with an edge.
The next question is: How to trade with an edge?
The 3 books seem to resonate that professional gamblers (poker, black-jack etc) have a high chance of becoming successful traders. All 3 books describe trading as very similar to professional gambling.
In professional gambling, gamblers:
- Bet small when the odds are unknown. This is their risk management strategy.
- Will have many losses
- Bet bigger when the odds favour them. For instance, professional black jack gamblers have strategies to count the cards and know when the odds favour them. This is their edge.
It is with this edge that turns the game into a positive expectancy game. In the long run, the professional gamblers will win, provided they stick to their rules strictly and patiently.
As you can observe, trading borrowed many terms from professional gambling: risk management, edge, expectancy etc.
Hence, it is so important to trade with a edge. By trading with an edge, we know that we will be profitable in the long run, and we will not suffer from trade execution paralysis - especially we have lost many trades consecutively. As we know that we will ultimately come back because we trade with an edge.
The next question is: How to trade with an edge?
Feb 20, 2012
The Most Expensive Trading Book?!
Well, we know trading books are notoriously expensive. I believe this is inarguably THE MOST expensive book on trading. Well, at least the most expensive one I have come across so far. Let me know if you have come across one that is more expensive than this: Day Trading With Short Term Price Patterns and Opening Range Breakout by Tony Crabel.
A new copy is retailing on Amazon for a whopping $1,293.18! See below:
Tony Crabel's book is a classic that talks about breakout strategies - ORB, NR4, NR7 etc.
BUT!!! I manage to find the ebook version through Google! Save me $1,293.18!
A new copy is retailing on Amazon for a whopping $1,293.18! See below:
Tony Crabel's book is a classic that talks about breakout strategies - ORB, NR4, NR7 etc.
BUT!!! I manage to find the ebook version through Google! Save me $1,293.18!
Feb 19, 2012
Our Students Has Traded Successfully Since
Many trading educators like to claim this.
First up, how many students? Remember there is only 5% successful traders in the world? Does it mean all the successful traders come from your classes? :-D
I remember a popular forex trainer once admitted truthfully that after having conducted so many classes (and mind you, it is really MANY), there is only a handful of students whom he knew begin to trade well. He cited perseverance as the key to trading success for his students. He offered to check his students results but they just dwindle along the way.
First up, how many students? Remember there is only 5% successful traders in the world? Does it mean all the successful traders come from your classes? :-D
I remember a popular forex trainer once admitted truthfully that after having conducted so many classes (and mind you, it is really MANY), there is only a handful of students whom he knew begin to trade well. He cited perseverance as the key to trading success for his students. He offered to check his students results but they just dwindle along the way.
Feb 18, 2012
US Unemployment - Let's Visualize It
Double dip recession...market recovery...sometimes I just get so sick of what the analysts are saying everyday. I still remember back in end 2008 when many were saying that the subprime crisis was just a storm in a cup. The total value involved in the subprime crisis was only a fraction of the entire US economy? Sigh, I have learnt to just take "advice" with a pinch of salt.
Numbers don't ring a bell? Let's try graphics. See here for an animated visual representation of the US unemployment numbers throughout US (up to May 2010). Quite scary when things get glimmer, doesn't it?
So I guess the US government still has a lot of work to do.
Then again.
From Sam Stovall's theoretical model, the market cycle precedes the economic cycle. SO, the stock market has to pick up before we see improvements in the economic numbers, don't we?
Then why those analysts are basing on economic numbers to predict the stock market?
Numbers don't ring a bell? Let's try graphics. See here for an animated visual representation of the US unemployment numbers throughout US (up to May 2010). Quite scary when things get glimmer, doesn't it?
Then again.
From Sam Stovall's theoretical model, the market cycle precedes the economic cycle. SO, the stock market has to pick up before we see improvements in the economic numbers, don't we?
Then why those analysts are basing on economic numbers to predict the stock market?
Feb 17, 2012
Approaching the market with the right attitude
I have asked myself many times over.
Why Ed Ponsi's strategies in his book Forex Patterns and Probabilities are so simple but yet he is able to make money trading forex?
Why Linda Raschke mentioned in her book Street Smarts that we only need to be good in 1 strategy to be profitable?
Again, Curtis Faith brought up the same idea of simplicity in trading in his book Way of the Turtle:
Why not everyone makes money trading complex concepts like Gann or Elliot waves?
Why so many traders say K.I.S.S? Keep it simple and sweet?
There is a lot to learn from Jesse Livermore's attitude and approach to the market. I really take my hat off him for recording the prices with pen and paper. And the rules are not trivial at all. I believe many of us started with studying the strategies to approach the market but how many of us started with studying the market itself? I also realized that it is not wrong to begin with a strategy. However, the focus should always be on the market. Beginning with strategy helps us to zoom in and to filter out the noise such that we can concentrate on a part of the market and develop our research of the market from there. Can you imagine Jesse Livermore merely traded with the quotes from the ticker tape? No charts at all. He treated the stock prices like a giant puzzle, like how we play Sudoku or any other games. And that should be the right attitude - To crack the market puzzle, a piece at a time, using a strategy that we personally believe in.
Why Ed Ponsi's strategies in his book Forex Patterns and Probabilities are so simple but yet he is able to make money trading forex?
Why Linda Raschke mentioned in her book Street Smarts that we only need to be good in 1 strategy to be profitable?
Again, Curtis Faith brought up the same idea of simplicity in trading in his book Way of the Turtle:
...The funny thing is that most of the principles that Richard Dennis taught us were not new. Some were basic principles that had been espoused by other famous traders since before Richard was born. Yet the very simplicity of the principles we were taught in some respects was a hindrance for those of us who tried to follow them in those initial months. People have a tendency to believe that complicated ideas are better than simple ones. Many find it hard to comprehend that Richard Dennis could have made several hundred million dollars by using a handful of simple rules...Why Fibonacci levels work like miracle for Joe DeNapoli but not for everyone?
Why not everyone makes money trading complex concepts like Gann or Elliot waves?
Why so many traders say K.I.S.S? Keep it simple and sweet?
There is a lot to learn from Jesse Livermore's attitude and approach to the market. I really take my hat off him for recording the prices with pen and paper. And the rules are not trivial at all. I believe many of us started with studying the strategies to approach the market but how many of us started with studying the market itself? I also realized that it is not wrong to begin with a strategy. However, the focus should always be on the market. Beginning with strategy helps us to zoom in and to filter out the noise such that we can concentrate on a part of the market and develop our research of the market from there. Can you imagine Jesse Livermore merely traded with the quotes from the ticker tape? No charts at all. He treated the stock prices like a giant puzzle, like how we play Sudoku or any other games. And that should be the right attitude - To crack the market puzzle, a piece at a time, using a strategy that we personally believe in.
Feb 11, 2012
3 Steps To Achieving Consistent Profits With An Expert Advisor...
We have to take a step back and think about if this statement is possible at all.
Personally, I have forward tested more than 5 expert advisors in demo accounts. After some time, I decided on running the most promising one on a live account. Right after I set up everything, funded live account and leased the expert advisor and all, I saw reports from a very popular forum that people had suffered up to 80% losses in their accounts almost overnight...when the expert advisor was catching the correct tops and bottoms and making phenomenal profits for the last few months or so. This has really shaken my belief about expert advisors.
Kathy Lien mentioned at one of her seminars that she used to work in big banks and she revealed that banks are spending millions of dollars to find the "switch". A "switch" that will allow their sophistically developed trading software to switch between trend trading strategies and range trading strategies as the markets alternate between the two states.
William Boatright (2nd runner-up in Autmoated Trading Championships 2007), mentioned in an interview that when he tried to optimize his expert advisor for trading trends, it would not perform as well for trading ranges and vice versa.
Another clue would be...have you ever wondered why there are so many discussions and forums on the Internet actively engaging to find THE expert advisor? And those people have been evaluating experts advisors after expert advisors for so many years already...
Having said that, I still believe it is still possible to achieve consistent profits with expert advisors. Below are the 3 essential steps on how to do it:
For me, I took a break from expert advisors.
Personally, I have forward tested more than 5 expert advisors in demo accounts. After some time, I decided on running the most promising one on a live account. Right after I set up everything, funded live account and leased the expert advisor and all, I saw reports from a very popular forum that people had suffered up to 80% losses in their accounts almost overnight...when the expert advisor was catching the correct tops and bottoms and making phenomenal profits for the last few months or so. This has really shaken my belief about expert advisors.
Kathy Lien mentioned at one of her seminars that she used to work in big banks and she revealed that banks are spending millions of dollars to find the "switch". A "switch" that will allow their sophistically developed trading software to switch between trend trading strategies and range trading strategies as the markets alternate between the two states.
William Boatright (2nd runner-up in Autmoated Trading Championships 2007), mentioned in an interview that when he tried to optimize his expert advisor for trading trends, it would not perform as well for trading ranges and vice versa.
Another clue would be...have you ever wondered why there are so many discussions and forums on the Internet actively engaging to find THE expert advisor? And those people have been evaluating experts advisors after expert advisors for so many years already...
Having said that, I still believe it is still possible to achieve consistent profits with expert advisors. Below are the 3 essential steps on how to do it:
- Still be able to do market analysis manually - pull out your indicators, watch the supports and resistances and the candlestick patterns...you must be able to tell if the market is trending or ranging in the first place.
- Understand how the expert advisor works - for 2 reasons. Firstly, so that you know when you can deploy the expert advisor (remember, they don't work in all conditions). Secondly, so that you can intervene when necessary. That is, you would want to close all the positions earlier (be it in profit or losses) when the market is entering a stage which the expert advisor will not perform well. I termed this "cyborg trading" - half man, half machine :-P
- Optimize the expert advisor regularly - another reason for knowing your expert advisor well. Expert advisors usually come with a set of programmable parameters which is configurable, depending on market conditions, to let the expert advisor be able to perform at its best (but still, it is either best for trending or best for ranging, no one set of parameters for both).
For me, I took a break from expert advisors.
Feb 10, 2012
Quantitative Trade Journaling
Every one of us keeps a trade journal (or some call it trading diary), or it is highly recommended that we should keep a trade journal :-P Most trading books and websites that teach trading talks about keeping a trade journal. Trade journals serve the following purpose:
Most trade journals keep track of information such as entry time, entry price, exit time, exit price, lot size etc. Now, may I introduce 2 other useful parameters which I feel should be included in trade journals especially for aspiring traders!
Keeping track of our discipline
In a seminar, Ray Barros introduced his 3-1-0 method of journal keeping. In a nutshell, It is a means to quantitatively access at the end of each month if we have been following our trading plan religiously.
We can use any system for this. For instance, I can grade myself a 'A' if I followed my trading plan exactly for a particular trade. 'B' if I did not follow my trading plan completely. 'C' if I did not follow my trading plan at all. The idea is to get as many 'A's as possible every month!
Tracking our profit potential
Next, we also need a way to quantify how well did we perform for a particular trade. I got this idea from Dr Alexandra Elder's books. He used a A-B-C system to grade how well did he capture profits in a trading channel or Bollinger Band.
So what I did was, I will give myself a 'A' if I capture more profits that what I should get. "Capturing more profits" may mean I took an entry at a better price or I used trailing stops to capture more profits etc. Basically, I got more profits than what I could as per my trading plan.I will give myself a 'B' if I got the amount as stipulated in my trading plan. A 'C' if I got lesser than expected. 'A's and 'B's are fine but I will need to do some self-reflection if my percentage of 'C's is increasing as the months go by.
With a more quantitative method of trade journaling, we could, besides just tracking our performance, have a gauge to access our discipline and move nearer to a having a trader's psychology!
- If we keep the screen captures of your charts, we can review and refine your entries and exits (especially after a string of losses). If we record what we are thinking when we place those trades, we can even review our psychology or mentality when placing the trades.
- Allow us track and keep records of our weekly, monthly or yearly performance and results, especially by specific trading strategies or trading systems. A good way to access the profitability of a trading strategy or system is by its expectancy. You can read about this and also about various methods of position sizing from Dr Van Tharp's book"Trade Your Way to Financial Freedom". These useful data are not provided out-of-the-box from our brokerage account statements or history and hence, can only be derived from our journal.
Most trade journals keep track of information such as entry time, entry price, exit time, exit price, lot size etc. Now, may I introduce 2 other useful parameters which I feel should be included in trade journals especially for aspiring traders!
Keeping track of our discipline
In a seminar, Ray Barros introduced his 3-1-0 method of journal keeping. In a nutshell, It is a means to quantitatively access at the end of each month if we have been following our trading plan religiously.
We can use any system for this. For instance, I can grade myself a 'A' if I followed my trading plan exactly for a particular trade. 'B' if I did not follow my trading plan completely. 'C' if I did not follow my trading plan at all. The idea is to get as many 'A's as possible every month!
Tracking our profit potential
Next, we also need a way to quantify how well did we perform for a particular trade. I got this idea from Dr Alexandra Elder's books. He used a A-B-C system to grade how well did he capture profits in a trading channel or Bollinger Band.
So what I did was, I will give myself a 'A' if I capture more profits that what I should get. "Capturing more profits" may mean I took an entry at a better price or I used trailing stops to capture more profits etc. Basically, I got more profits than what I could as per my trading plan.I will give myself a 'B' if I got the amount as stipulated in my trading plan. A 'C' if I got lesser than expected. 'A's and 'B's are fine but I will need to do some self-reflection if my percentage of 'C's is increasing as the months go by.
With a more quantitative method of trade journaling, we could, besides just tracking our performance, have a gauge to access our discipline and move nearer to a having a trader's psychology!
Feb 9, 2012
I Know I Will Need a Longer Time to Learn Trading When...
I don't trade consistently
We have to. We need practice and we also need the results to show if a strategy is working for us. For instance, only if we are consistently profiting monthly, then we should move to live trading. Ray Barros only considers a trader successful, if and only if, he/she has 3 years of consecutive profits. A strategy isn't working if it were working for 1-2 weeks. It has to be working for months, for years and for life.
Can't find time to trade? Then you may want to consider trading a different timeframe...
I don't do back test
Then we have to wait longer before we are confident and comfortable with our strategies. I can complete back-testing for 1 year worth of data in a few days. If we don't backtest, we will need to wait for 1 year before achieving the same effect.
I am looking for the ultimate strategy
Then we will be kept very busy. Do you use indicators? Will you try to find the ultimate indicator? Some people use more than 4 indicators to "confirm with each other". Which combination is the best? Not to forgot, we've got to do backtesting and forward testing to see if our strategy is the best. All these takes time.
But...do you know many successful traders don't have strategies with high success rates? 40%, 50%, perhaps the best is 60%. You can find out more at traderinterviews.com.
I look at more than 1 instrument and more than 1 timeframe
Confusion, confusion, confusion. I am aware that some successful traders do look at more than 1 type of instrument. Eg, some play both futures and stocks. For aspiring traders, I recommend to just stick to 1 instrument and 1 timeframe at a time. There are many things to grapple with already.
I want to finish reading the trading books first
There are thousand and one trading books. After the books, there are tons and tons of knowledge on the internet. It will take donkey years before one can really "finish" reading everything. Furthermore, theory is very different from actual trading.
So...there are many ways we can waste time in trading. Beware. :-)
We have to. We need practice and we also need the results to show if a strategy is working for us. For instance, only if we are consistently profiting monthly, then we should move to live trading. Ray Barros only considers a trader successful, if and only if, he/she has 3 years of consecutive profits. A strategy isn't working if it were working for 1-2 weeks. It has to be working for months, for years and for life.
Can't find time to trade? Then you may want to consider trading a different timeframe...
I don't do back test
Then we have to wait longer before we are confident and comfortable with our strategies. I can complete back-testing for 1 year worth of data in a few days. If we don't backtest, we will need to wait for 1 year before achieving the same effect.
I am looking for the ultimate strategy
Then we will be kept very busy. Do you use indicators? Will you try to find the ultimate indicator? Some people use more than 4 indicators to "confirm with each other". Which combination is the best? Not to forgot, we've got to do backtesting and forward testing to see if our strategy is the best. All these takes time.
But...do you know many successful traders don't have strategies with high success rates? 40%, 50%, perhaps the best is 60%. You can find out more at traderinterviews.com.
I look at more than 1 instrument and more than 1 timeframe
Confusion, confusion, confusion. I am aware that some successful traders do look at more than 1 type of instrument. Eg, some play both futures and stocks. For aspiring traders, I recommend to just stick to 1 instrument and 1 timeframe at a time. There are many things to grapple with already.
I want to finish reading the trading books first
There are thousand and one trading books. After the books, there are tons and tons of knowledge on the internet. It will take donkey years before one can really "finish" reading everything. Furthermore, theory is very different from actual trading.
So...there are many ways we can waste time in trading. Beware. :-)
Feb 8, 2012
My Dream Trading Platform
Trade blotter
This is for me to save some time keeping a separate trade blotter which I would record the trades that were taken. Since the account statement would already capture all my trades, it would be nice if I could customize it to include the columns I wanted.
Right-click and "Save chart for trade journal"
It would be even better if the charts can be presented together with the corresponding trades and that would replace my trade journal!
Trade from charts
When I click on a price level which I wish to place an order, the order will be entered and a floating dialog box prompts me to enter my profit target and stop loss (or specify them on the charts directly). Best if I can keep my eyes off the charts when entering orders.
Provides both online and desktop platforms
...that are exactly the same!
Automated money management features
After an order is filled, I have the option of specifying where are my next profit target and stop loss levels and they will be adjusted automatically as the prices move...all out of the box.
Flexible orders
Must allow me to take partial profits...
Alerts
Alerts are useful so that I don't have to keep my eyes on the charts. I can set it to alert me when trade opportunity arises.
Adapting a line from Cadbury chocolate: Wouldn't it be nice? :-D
This is for me to save some time keeping a separate trade blotter which I would record the trades that were taken. Since the account statement would already capture all my trades, it would be nice if I could customize it to include the columns I wanted.
Right-click and "Save chart for trade journal"
It would be even better if the charts can be presented together with the corresponding trades and that would replace my trade journal!
Trade from charts
When I click on a price level which I wish to place an order, the order will be entered and a floating dialog box prompts me to enter my profit target and stop loss (or specify them on the charts directly). Best if I can keep my eyes off the charts when entering orders.
Provides both online and desktop platforms
...that are exactly the same!
Automated money management features
After an order is filled, I have the option of specifying where are my next profit target and stop loss levels and they will be adjusted automatically as the prices move...all out of the box.
Flexible orders
Must allow me to take partial profits...
Alerts
Alerts are useful so that I don't have to keep my eyes on the charts. I can set it to alert me when trade opportunity arises.
Adapting a line from Cadbury chocolate: Wouldn't it be nice? :-D
Feb 7, 2012
A Person Could Be New To Trading When He/She Says...
I just made 160 pips last night and decided to call it quits...
I just hope when he "decided to call it quits", it is because his trading plan requires him to do it and not because he feels like it...If not, he may lose the 160 pips or more soon.
I feel stressful when trading...
Ever heard the phrase "True traders are emotionless when they are trading"?
I am looking for a super strategy...
I am afraid he is going to be disappointed. Successful traders work with strategies that give 40%-60% success rate. It is like flipping a coin...
Which trading course is the best?
What does best mean? That it has a super strategy? Or that it will make us a successful trader overnight?
Sigh...I should have entered here...
This statement has some element of disappointment in it. Successful traders trade emotionlessly, don't they? I also came to understand that successful traders look beyond hindsight. They don't lament on what has taken place but anticipates what is going to come. Market has abundant opportunities.
It is very exciting...My heart follow the prices when I see the prices tick up and now...
Getting emotional here again...
My last 5 trades are all winning trades! This strategy is good!
He could lose his next 10 trades! Anything can happen! 5 trades isn't enough to tell anything!
Just some ramblings...
I just hope when he "decided to call it quits", it is because his trading plan requires him to do it and not because he feels like it...If not, he may lose the 160 pips or more soon.
I feel stressful when trading...
Ever heard the phrase "True traders are emotionless when they are trading"?
I am looking for a super strategy...
I am afraid he is going to be disappointed. Successful traders work with strategies that give 40%-60% success rate. It is like flipping a coin...
Which trading course is the best?
What does best mean? That it has a super strategy? Or that it will make us a successful trader overnight?
Sigh...I should have entered here...
This statement has some element of disappointment in it. Successful traders trade emotionlessly, don't they? I also came to understand that successful traders look beyond hindsight. They don't lament on what has taken place but anticipates what is going to come. Market has abundant opportunities.
It is very exciting...My heart follow the prices when I see the prices tick up and now...
Getting emotional here again...
My last 5 trades are all winning trades! This strategy is good!
He could lose his next 10 trades! Anything can happen! 5 trades isn't enough to tell anything!
Just some ramblings...
Feb 6, 2012
But then...
Mr A has a proven track record! He made $X million dollars in Y months, over Z% returns on capital!
But then... market condition changes. The US stock market has been experiencing bull run till recently. Hope that he continues to trade and make money and be transparent about his trading...
Mr B is a former bank/professional trader in a well-established financial institution for over 20 years!
But then... many professional traders who had good trading results do not get the same good results when they become retail traders. Professional traders worked with institutional-level rules and regulations. Retail traders only have ourselves and they would find themselves grappling with their own discipline. Professional traders have all the most expensive trading stations, equipment, analysis software and newsfeeds, because they are provided by the institutions. Retail traders don't have such a luxury. Professional traders trade in a group. They are supported by analysts for different markets and maybe by other professional traders. Retails traders are a lonely bunch. Furthermore, when Mr B says he is a professional trader who worked in a bank, he may not be really "trading" like what we think he does. There are positions in banks such as quantitative (quant) traders that derive complex algorithms with expensive software to trade the market. So not too sure if this experience is relevant to retail trading...
Mr C conducts course for professional traders
But then... there is the million dollar question: if one can make lots of money from trading, then why does he/she still want to waste time teaching? Clicking a button or two to execute the trades certainly beats conducting 3-5 day courses, 8-10 hours a day, and supporting and emailing students everyday? Passion? Sharing? Out of good will? At such an extravagant course fee? Then again, successful professional traders may not be successful retail traders
Mr D manages investment funds
But then... managing funds require different trading strategies than that use for retail trading. successful fund managers may not be successful retail trader too right? cos retail traders dont have the capital to adopt fund management strategies...
But then... market condition changes. The US stock market has been experiencing bull run till recently. Hope that he continues to trade and make money and be transparent about his trading...
Mr B is a former bank/professional trader in a well-established financial institution for over 20 years!
But then... many professional traders who had good trading results do not get the same good results when they become retail traders. Professional traders worked with institutional-level rules and regulations. Retail traders only have ourselves and they would find themselves grappling with their own discipline. Professional traders have all the most expensive trading stations, equipment, analysis software and newsfeeds, because they are provided by the institutions. Retail traders don't have such a luxury. Professional traders trade in a group. They are supported by analysts for different markets and maybe by other professional traders. Retails traders are a lonely bunch. Furthermore, when Mr B says he is a professional trader who worked in a bank, he may not be really "trading" like what we think he does. There are positions in banks such as quantitative (quant) traders that derive complex algorithms with expensive software to trade the market. So not too sure if this experience is relevant to retail trading...
Mr C conducts course for professional traders
But then... there is the million dollar question: if one can make lots of money from trading, then why does he/she still want to waste time teaching? Clicking a button or two to execute the trades certainly beats conducting 3-5 day courses, 8-10 hours a day, and supporting and emailing students everyday? Passion? Sharing? Out of good will? At such an extravagant course fee? Then again, successful professional traders may not be successful retail traders
Mr D manages investment funds
But then... managing funds require different trading strategies than that use for retail trading. successful fund managers may not be successful retail trader too right? cos retail traders dont have the capital to adopt fund management strategies...
Feb 5, 2012
Practical Questions to Ask When Choosing a Suitable Forex Broker Part 3
Brokerage Platform Functions
Because I am looking for an online trading platform, the functionalities I expect of the platform has to be lowered. You can be looking if a particular technical indicator is available or whether it allows trading from the charts directly. For me, I am only looking out if I am able to set pending orders for different profit targets levels for one single order with 2 lots or more. This will help me greatly when trading in the office!
Account Features
I suggest after deciding on the above, then let's look at account features that can help you to decide between two brokers if there were two brokers that fit the above criteria.
Freebies
Just when you thought you will not be tricked into opening an account with an online brokerage because of the freebies they give. Well, it is very competitive in their line of business and don't be surprised that they give away very irresistible freebies! Just recently, I opened an account with a broker simply because it offers very comprehensive education for its customers, the likes of a free 1-day seminar by Ray Barros! Of course I made sure that there is no or minimal minimum activity fee, account closure fee, fee from transferring money out etc.
Brokerage selection - an art or science?
Because I am looking for an online trading platform, the functionalities I expect of the platform has to be lowered. You can be looking if a particular technical indicator is available or whether it allows trading from the charts directly. For me, I am only looking out if I am able to set pending orders for different profit targets levels for one single order with 2 lots or more. This will help me greatly when trading in the office!
Account Features
I suggest after deciding on the above, then let's look at account features that can help you to decide between two brokers if there were two brokers that fit the above criteria.
- ECN vs market maker (dealing desk) - basically, ECN brokers are touted to have better fills and have lesser chance of taking out our stops, because they are fully electronic.
- Spread - some brokers offer 2-pip spread for major currency pairs (even without commission!) when others offer 3 pips. ECN brokers tend to have smaller spreads. Some even offer 1/2-pip spread! But they usually charge transaction fee.
- Leverage - 1:50 or 1:100 is recommended for beginner traders. So if the broker can provide such leverage, all the better.
- Account Type (micro/mini/standard) - Beginner traders are usually advised to start on a mini account, to hon our skills.
- Minimum capital - Some brokers allow us to open an account with as little as US$400. We would not want to start with that little amount to avoid hitting margin call. We got to stick to our money management rules. What I am talking about here is that some brokers (seldom) require US$10,000 to open a mini account. Well, that's a little too much for a mini account.
Freebies
Just when you thought you will not be tricked into opening an account with an online brokerage because of the freebies they give. Well, it is very competitive in their line of business and don't be surprised that they give away very irresistible freebies! Just recently, I opened an account with a broker simply because it offers very comprehensive education for its customers, the likes of a free 1-day seminar by Ray Barros! Of course I made sure that there is no or minimal minimum activity fee, account closure fee, fee from transferring money out etc.
Brokerage selection - an art or science?
Feb 4, 2012
Practical Questions to Ask When Choosing a Suitable Broker Part 2
After making sure that my trading funds is in safe hands, what do I look out for next?
A Brokerage Platform that Suits My Trading Style
Most of the aspiring traders, myself included, start off trading part-time. That is, we have full-time jobs that keep us bounded to our place of work from 9am to 6pm or thereabouts. For me, because I am working in a government agency, my office laptop is locked down. That is, I cannot install any private software on my office laptop. I can bring my personal laptop to the office but personal laptops are not allowed to connect to the office network to access the internet. Now you know how secure our country is! A very important consideration for me is to look for a forex broker that provides a pure online trading platform (with charting!).
Hey, I don't mean to skive while working :P For my current trading strategy only requires me to check the charts once every hour. So no harm done (yet)! Relax, boss! 8)
A Brokerage Platform that Suits My Trading Type
If I am only doing pure manual trading, a online trading platform is perfectly fine. Let's say I am interested in running a few expert advisors (EAs) or two. Then I will need to look for a broker that provides the MetaTrader platform (EAs are mostly developed for the MetaTrader platform).
So is there a broker that offers both the MetaTrader platform and an online trading platform? Well, there is one, but they are new so let's wait and see.
(to be continued...)
A Brokerage Platform that Suits My Trading Style
Most of the aspiring traders, myself included, start off trading part-time. That is, we have full-time jobs that keep us bounded to our place of work from 9am to 6pm or thereabouts. For me, because I am working in a government agency, my office laptop is locked down. That is, I cannot install any private software on my office laptop. I can bring my personal laptop to the office but personal laptops are not allowed to connect to the office network to access the internet. Now you know how secure our country is! A very important consideration for me is to look for a forex broker that provides a pure online trading platform (with charting!).
Hey, I don't mean to skive while working :P For my current trading strategy only requires me to check the charts once every hour. So no harm done (yet)! Relax, boss! 8)
A Brokerage Platform that Suits My Trading Type
If I am only doing pure manual trading, a online trading platform is perfectly fine. Let's say I am interested in running a few expert advisors (EAs) or two. Then I will need to look for a broker that provides the MetaTrader platform (EAs are mostly developed for the MetaTrader platform).
So is there a broker that offers both the MetaTrader platform and an online trading platform? Well, there is one, but they are new so let's wait and see.
(to be continued...)
Feb 3, 2012
Practical Questions to Ask When Choosing a Suitable Broker Part 1
I have come up with some criteria which I feel that everybody can reference to when choosing a broker for themselves.
Our money must be safe! - What is more important than this? Especially for some of us who sign up with overseas brokers. Our funds have to be wired overseas. I think we have to be quite concern about our money not by our side. What should we look out for?
(to be continued...)
Our money must be safe! - What is more important than this? Especially for some of us who sign up with overseas brokers. Our funds have to be wired overseas. I think we have to be quite concern about our money not by our side. What should we look out for?
- Net excess capital > Net capital requirement. In fact, in the excess of US$20-30 million is the best. Download the latest financial data of the brokers. Check the column headers for "Net excess capital" and "Net capital requirement".
- Currency depreciation. 3 years back, I deposited my trading funds with a US broker in US dollars at an exchange rate of 1.6. Now the exchange rate has dropped to 1.3. A S$10,000 (my local currency) trading fund became S$8,125. I lost S$1,875 without even trading! How scary is that!!? How to get around this?
- If this has already happened, continue to trade in US dollars and hope your winnings will cover your currency depreciation and at the same time, hope that US dollar will strengthen eventually.
- Find a broker that allows you to keep your money with them in your local currency. Currency conversion will only be done when the trade is made.
- Hedge against currency rate fluctuations. Easier said than done for me. Hedging is a whole big subject by itself.
(to be continued...)
Feb 2, 2012
Why is it difficult to be successful trading smaller timeframes?
Check out this article. Mainly, the article talks about slippage and stress that makes trading shorter timeframe (the likes of 1 min and 5 min) charts difficult.
Is anyone of you trading off the 1 min or 5 min charts and finding it a challenge to do so? Well, I for one, used to be trading on the 5 min charts. Allow me to share some of the reasons why I have stopped doing so:
Is anyone of you trading off the 1 min or 5 min charts and finding it a challenge to do so? Well, I for one, used to be trading on the 5 min charts. Allow me to share some of the reasons why I have stopped doing so:
- Slippage : when trading on such small timeframes, profit targets of 10-15 pips are the norm for respectable risk-reward ratios. But the spreads even for the majors can be from anything from 2 pips to 4 pips and are broker-dependent. Slippage takes a huge cut out of the profits! This was discussed in the article above.
- Stress : Another point that was also discussed in the article is the stress that accompanies trading on smaller timeframes. I've got to monitor the charts closely for any split-second opportunities. When I am in a trade, I also have to monitor it closely to adjust my profit target and stop loss. A trade on the 5 min chart can typically close anywhere from 10 mins to an hour. Imagine the stress level and how one's psychology can be affected, especially when he/she has to monitor the charts and follow the candles tick up and down!
- Whipsaws : are more common in lower timeframe charts, especially if you are using market-maker, dealing desk type of brokers. The super long tails take out our stop losses before the price moves in our favour. How many times have you experienced this? Furthermore, I heard from an experience trader that some banks employ a big team of full-time scalpers to trade using the smaller timeframes. They always have an edge over us, the retail traders, because they can afford to have the fastest internet connection, the fastest PCs etc which are all very costly.
- Passive Income? : I intended for trading to be a passive source of income for myself. Of course I am aware that nothing can be truely passive. Well, at least I hope for minimal time investment. And I find trading on the 5 min charts very time-consuming, personally. I've got to monitor the charts while the trade is on. Not my type of passive at all. Contrast this to playing daily charts. After I entered a position, my trade will be there making money for me for the next few days or even weeks.
- Time to analyze the market : This point ties in to stress. Playing longer timeframe charts allows us to have the luxury of time to do more detail analysis. When playing short timeframe charts, decisions have to be made swift. One has to make use of tools to speed up the process, even for calculating number of lots to enter based on the stop loss and whether or not to take a trade based on the risk-reward ratios. What it takes is super discipline!
- High Frequency Trading : Increasingly, more institutions are adopting high frequency trading. In a nutshell, high frequency trading involves the use of super fast computers to execute many trades in split seconds. Many day traders feel that it is getting harder to make money day trading and they attributed that to high frequency trading. So when day trading, we are pitting against the machines as well!
Feb 1, 2012
Myths About Forex Trading
I traded forex for a while. Like to share some misconceptions about forex:
A global 24 hour market
First of all, we have to know that the market is not opened 24-by-7. Some people misinterpreted the above statement. Forex markets are opened 5 and a half days a week.
Ok, it is true that the market is there 24-by-5.5. Do you think there will be trades any time in the day? My experience is...this is not exactly true. That's why most educators advocate to trade during hours when major stock markets opening and closing hours coincide. That is when there will be more trading volume in the forex market and when most likely we can find bigger price movement. Even the 2 most traded currency pairs - EUR/USD and USD/JPY can be pretty flat or trend-less at times.
World’s Most Liquid Market
Ya...ya...and we don't have to worry about not being able to find buyers when we want to sell and vice versa...Well, this is true. However, we have to understand that not all currency pairs are equally liquid. One way to tell which currency pairs are more liquid is to look at the bid-ask spread, like with any other instruments, be it stocks, options etc. The bigger the bid-ask spread, the more illiquid the currency pair is.
Trade with no commissions
Many online forex brokerage offer commission-free forex trading experience. They do not charge any commission for the trades that we make. Well, actually, they have built in their commission into the bid-ask spread. InterbankFX is one of such a brokerage. If you look at the bid-ask prices for USD/JPY, they are 3 pips apart! What is 3 pips? For the mini-account is ~$3 and for the standard account is ~$30! Those brokerages that charge commissions for every trade entered will usually have a tighter bid-ask spread, something like 1 pip for USD/JPY.
Leverage - earn more with less
Many educators only mention about the positive side. We need to understand that there is a downside to this. Leverage is often labeled as a double-edged sword, like with any other instrument, the very fact that one can make more with little capital means he/she also can lose the same amount easily!
Some educators just tell us that 1 pip is ~$10 and ask us to calculate how long it takes to make back our course fees. Ya, we just need 20 pips a day to be financially free...but 1 pip = ~$10 is for standard accounts. For some brokerages, they have minimal account size requirements to open standard accounts (like $10,000 or $100,000). Even if some brokerages allow you to open standard accounts with $2000, you won't want to do that. You will get margin call easily.
Margin Call
Some educators do not highlight this. Allow me to demonstrate with a simple story. Let's say John has $5000 in his forex account. He uses $1000 as "deposit" also known as the used margin to enter a forex trade. He is left with $4000 usable margin. Simply put, if the trade goes against him and he loses an amount that is more than $4000, he will receive a margin call. And NO, this is unlike a friendly morning call. Some brokerages would require you to top up your account or they will flatten (close) all your positions for you! No other choices at all. Let's say John don't have money to top up his account. He loses $4000 and that leaves $1000 in his account.
Trade Forex on your mobile phone while on the move!
I personally have not experienced this before, and I don't know how to. I cannot visualize myself drawing trendlines, support and resistance lines on that tiny screen. Furthermore, I am quite slow with entering my trades on a full computer keyboard with mouse already. Not sure how I can make my trades in time on a mobile phone.
A global 24 hour market
First of all, we have to know that the market is not opened 24-by-7. Some people misinterpreted the above statement. Forex markets are opened 5 and a half days a week.
Ok, it is true that the market is there 24-by-5.5. Do you think there will be trades any time in the day? My experience is...this is not exactly true. That's why most educators advocate to trade during hours when major stock markets opening and closing hours coincide. That is when there will be more trading volume in the forex market and when most likely we can find bigger price movement. Even the 2 most traded currency pairs - EUR/USD and USD/JPY can be pretty flat or trend-less at times.
World’s Most Liquid Market
Ya...ya...and we don't have to worry about not being able to find buyers when we want to sell and vice versa...Well, this is true. However, we have to understand that not all currency pairs are equally liquid. One way to tell which currency pairs are more liquid is to look at the bid-ask spread, like with any other instruments, be it stocks, options etc. The bigger the bid-ask spread, the more illiquid the currency pair is.
Trade with no commissions
Many online forex brokerage offer commission-free forex trading experience. They do not charge any commission for the trades that we make. Well, actually, they have built in their commission into the bid-ask spread. InterbankFX is one of such a brokerage. If you look at the bid-ask prices for USD/JPY, they are 3 pips apart! What is 3 pips? For the mini-account is ~$3 and for the standard account is ~$30! Those brokerages that charge commissions for every trade entered will usually have a tighter bid-ask spread, something like 1 pip for USD/JPY.
Leverage - earn more with less
Many educators only mention about the positive side. We need to understand that there is a downside to this. Leverage is often labeled as a double-edged sword, like with any other instrument, the very fact that one can make more with little capital means he/she also can lose the same amount easily!
Some educators just tell us that 1 pip is ~$10 and ask us to calculate how long it takes to make back our course fees. Ya, we just need 20 pips a day to be financially free...but 1 pip = ~$10 is for standard accounts. For some brokerages, they have minimal account size requirements to open standard accounts (like $10,000 or $100,000). Even if some brokerages allow you to open standard accounts with $2000, you won't want to do that. You will get margin call easily.
Margin Call
Some educators do not highlight this. Allow me to demonstrate with a simple story. Let's say John has $5000 in his forex account. He uses $1000 as "deposit" also known as the used margin to enter a forex trade. He is left with $4000 usable margin. Simply put, if the trade goes against him and he loses an amount that is more than $4000, he will receive a margin call. And NO, this is unlike a friendly morning call. Some brokerages would require you to top up your account or they will flatten (close) all your positions for you! No other choices at all. Let's say John don't have money to top up his account. He loses $4000 and that leaves $1000 in his account.
Trade Forex on your mobile phone while on the move!
I personally have not experienced this before, and I don't know how to. I cannot visualize myself drawing trendlines, support and resistance lines on that tiny screen. Furthermore, I am quite slow with entering my trades on a full computer keyboard with mouse already. Not sure how I can make my trades in time on a mobile phone.