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...

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...

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.

• 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?

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...)

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?

• 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...)

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:

• 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!

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.