Currency futures options • Erfahrungen echter Kunden
Currency futures options • Erfahrungen echter Kunden
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New to Trading? Here's some tips
So there seems to be a lot of new people on this sub. And makes sense if you have questions a lot of time you'll turn to reddit for the answers (I know I do). Well here are some tips that I think would benefit new traders.
Don't trade ANY Euro pairs. Look I know it's the most traded pair it goes up and down really fast and there's so much potential for you to make money. Turns out there's even more for you to lose money. It's way too volatile specially if you don't know what you're doing. EUUSD is the worst offender.
Trade the Daily. Might think you're cool looking at charts every x amount of times during the day. You get to tell your friends and family that you trade all day and they might be impressed at what you're doing but unless you have some years under you stick to the daily. There's less noise. You can see clearer trends and when you don't stare at the screen all day you're less emotional therefore a more effective trader. I only look at the chart 15 minutes a day to either enter close or manage my trades. Whatever happens when I'm gone is what happens.
There is no holy grail indicator Look for it all you want. It doesn't exist. There are good indicators. There are bad indicators. There are some indicators that are so broken if you do the opposite of what they're intended for you'll actually make a profit. But the fact remains that there's no perfect one. Stop looking. What you should be looking for is an indicator that fits with your strategy.
What currencies to pick. I actually never see this brought up. The notion in forex is that all pairs can be traded equally. To a certain extent that's not false. But until you get the hang of it stick to a strict trading diet. Look for pairs that trend a lot. Duh look for the trend I can hear you say. When I say trend I don't mean a couple of days or weeks. I mean a couple of months. Half a year. Pairs that do that have a higher tendency to stick with one direction for a while. That's where you make your money. An easy way to identify those pairs as well is putting together a volatile currency (USD) with a less volatile one(JPY).
USE YOUR SL Trust me even if not putting a SL has netted you all kinds of gains eventually the market will turn around and bite you. With no safety net you'll lose most if not all your profit. The best offense is a good defense.
How to pick your TP and SL level. Most new traders care so much about that. I put it near the bottom because in my opinion you should know everything listed first. This is my opinion and I use it for my strategy I use the ATR(average true range) indicator. It's a really helpful tool that helps you identify the range at which the candles will either rise or fall. Obviously you want to set your TP inside of that range and your SL slightly outside of it.
Lot sizes. Everyone has a different story about how they pick their lot size. The general consensus is don't risk over 2% of your account. But I'm a simple man and I can't be bothered to figure out what my risk is every single time. So what I do is I put $0.10 for every $100 I have on the account. I then assign $300(minimum) to each pair. That's $0.30 per pair. It's easy to remember. 10 cent for every $100. If you're able to blow $100 with $0.10 then you probably shouldn't trade.
How to avoid reversals. Tbh you can't. There's no way to predict the future so eventually you'll get hit by one. What you can do however is minimize the blow. How I do it is for every pair I take two trades. If you remember in the previous tip is said I do about$0.30 per pair well I divide it 2:1. I take one trade with a TP(2) and one without (1). If my TP is hit I pocket that amount and if the trend keeps going in my direction I make even more. If the trend decides to end or reverses my losses are minimal because at least I kept half.
There is NO right way to trade. Stop listening to people telling the best way to trade is fundamentals or naked charts of to use some specific indicator. There are no right way to do this. It's as flexible and unlimited as your imagination. I personally use indicators but if that's not your thing do YOU! Just remember to manage your trades properly and be level headed when trading. Hell if your trading strategy is flipping a coin with proper trade management you'd probably make some money (don't quote me on that).
Trade money you're willing to lose Don't trade your rent money.
That's all I have for now. If anyone sees this and wants to add more feel free. Hope this helps someone.
Some trading wisdom, tools and information I picked up along the way that helped me be a better trader. Maybe it can help you too.
Its a bit lengthy and I tried to condense it as much as I can. So take everything at a high level as each subject is has a lot more depth but fundamentally if you distill it down its just taking simple things and applying your experience using them to add nuance and better deploy them. There are exceptions to everything that you will learn with experience or have already learned. If you know something extra or something to add to it to implement it better or more accurately. Then great! However, my intention of this post is just a high level overview. Trading can be far too nuanced to go into in this post and would take forever to type up every exception (not to mention the traders individual personality). If you take the general information as a starting point, hopefully you will learn the edge cases long the way and learn how to use the more effectively if you end up using them. I apologize in advice for any errors or typos. Introduction After reflecting on my fun (cough) trading journey that was more akin to rolling around on broken glass and wondering if brown glass will help me predict market direction better than green glass. Buying a $100 indicator at 2 am when I was acting a fool, looking at it and going at and going "This is a piece of lagging crap, I miss out on a large part of the fundamental move and never using it for even one trade". All while struggling with massive over trading and bad habits because I would get bored watching a single well placed trade on fold for the day. Also, I wanted to get rich quick. On top all of that I had a terminal Stage 4 case of FOMO on every time the price would move up and then down then back up. Just think about all those extra pips I could have trading both directions as it moves across the chart! I can just sell right when it goes down, then buy right before it goes up again. Its so easy right? Well, turns out it was not as easy as I thought and I lost a fair chunk of change and hit my head against the wall a lot until it clicked. Which is how I came up with a mixed bag of things that I now call "Trade the Trade" which helped support how I wanted to trade so I can still trade intra day price action like a rabid money without throwing away all my bananas. Why Make This Post? - Core Topic of Discussion I wish to share a concept I came up with that helped me become a reliable trader. Support the weakness of how I like to trade. Also, explaining what I do helps reinforce my understanding of the information I share as I have to put words to it and not just use internalized processes. I came up with a method that helped me get my head straight when trading intra day. I call it "Trade the Trade" as I am making mini trades inside of a trade setup I make from analysis on a higher timeframe that would take multiple days to unfold or longer. I will share information, principles, techniques I used and learned from others I talked to on the internet (mixed bag of folks from armatures to professionals, and random internet people) that helped me form a trading style that worked for me. Even people who are not good at trading can say something that might make it click in your head so I would absorbed all the information I could get.I will share the details of how I approach the methodology and the tools in my trading belt that I picked up by filtering through many tools, indicators strategies and witchcraft. Hopefully you read something that ends up helping you be a better trader. I learned a lot from people who make community posts so I wanted to give back now that I got my ducks in a row. General Trading Advice If your struggling finding your own trading style, fixing weakness's in it, getting started, being reliably profitable or have no framework to build yourself higher with, hopefully you can use the below advice to help provide some direction or clarity to moving forward to be a better trader.
KEEP IT SIMPLE. Do not throw a million things on your chart from the get go or over analyzing what the market is doing while trying to learn the basics. Tons of stuff on your chart can actually slow your learning by distracting your focus on all your bells and whistles and not the price action.
PRICE ACTION. Learn how to read price action. Not just the common formations, but larger groups of bars that form the market structure. Those formations carry more weight the higher the time frame they form on. If struggle to understand what is going on or what your looking at, move to a higher time frame.
INDICATORS. If you do use them you should try to understand how every indicator you use calculates its values. Many indicators are lagging indicators, understanding how it calculates the values can help you learn how to identify the market structure before the indicator would trigger a signal . This will help you understand why the signal is a lagged signal. If you understand that you can easily learn to look at the price action right before the signal and learn to watch for that price action on top of it almost trigging a signal so you can get in at a better position and assume less downside risk. I recommend using no more than 1-2 indicators for simplicity, but your free to use as many as you think you think you need or works for your strategy/trading style.
PSYCOLOGY. First, FOMO is real, don't feed the beast. When you trade you should always have an entry and exit. If you miss your entry do not chase it, wait for a new entry. At its core trading is gambling and your looking for an edge against the house (the other market participants). With that in mind, treat as such. Do not risk more than you can afford to lose. If you are afraid to lose it will negatively effect your trade decisions. Finally, be honest with your self and bad trading happens. No one is going to play trade cop and keep you in line, that's your job.
TRADE DECISION MARKING: Before you enter any trade you should have an entry and exit area. As you learn price action you will get better entries and better exits. Use a larger zone and stop loss at the start while learning. Then you can tighten it up as you gain experience. If you do not have a area you wish to exit, or you are entering because "the markets looking like its gonna go up". Do not enter the trade. Have a reason for everything you do, if you cannot logically explain why then you probably should not be doing it.
ROBOTS/ALGOS: Loved by some, hated by many who lost it all to one, and surrounded by scams on the internet. If you make your own, find a legit one that works and paid for it or lost it all on a crappy one, more power to ya. I do not use robots because I do not like having a robot in control of my money. There is too many edge cases for me to be ok with it.However, the best piece of advice about algos was that the guy had a algo/robot for each market condition (trending/ranging) and would make personalized versions of each for currency pairs as each one has its own personality and can make the same type of movement along side another currency pair but the price action can look way different or the move can be lagged or leading. So whenever he does his own analysis and he sees a trend, he turns the trend trading robot on. If the trend stops, and it starts to range he turns the range trading robot on. He uses robots to trade the market types that he is bad at trading. For example, I suck at trend trading because I just suck at sitting on my hands and letting my trade do its thing.
Trade the Trade - The Methodology
Base Principles These are the base principles I use behind "Trade the Trade". Its called that because you are technically trading inside your larger high time frame trade as it hopefully goes as you have analyzed with the trade setup. It allows you to scratch that intraday trading itch, while not being blind to the bigger market at play. It can help make sense of why the price respects, rejects or flat out ignores support/resistance/pivots.
Trade Setup: Find a trade setup using high level time frames (daily, 4hr, or 1hr time frames). The trade setup will be used as a base for starting to figure out a bias for the markets direction for that day.
Indicator Data: Check any indicators you use (I use Stochastic RSI and Relative Vigor Index) for any useful information on higher timeframes.
Support Resistance: See if any support/resistance/pivot points are in currently being tested/resisted by the price. Also check for any that are within reach so they might become in play through out the day throughout the day (which can influence your bias at least until the price reaches it if it was already moving that direction from previous days/weeks price action).
Currency Strength/Weakness: I use the TradeVision currency strength/weakness dashboard to see if the strength/weakness supports the narrative of my trade and as an early indicator when to keep a closer eye for signs of the price reversing.Without the tool, the same concept can be someone accomplished with fundamentals and checking for higher level trends and checking cross currency pairs for trends as well to indicate strength/weakness, ranging (and where it is in that range) or try to get some general bias from a higher level chart that may help you out. However, it wont help you intra day unless your monitoring the currency's index or a bunch of charts related to the currency.
Watch For Trading Opportunities: Personally I make a mental short list and alerts on TradingView of currency pairs that are close to key levels and so I get a notification if it reaches there so I can check it out. I am not against trading both directions, I just try to trade my bias before the market tries to commit to a direction. Then if I get out of that trade I will scalp against the trend of the day and hold trades longer that are with it.Then when you see a opportunity assume the directional bias you made up earlier (unless the market solidly confirms with price action the direction while waiting for an entry) by trying to look for additional confirmation via indicators, price action on support/resistances etc on the low level time frame or higher level ones like hourly/4hr as the day goes on when the price reaches key areas or makes new market structures to get a good spot to enter a trade in the direction of your bias.Then enter your trade and use the market structures to determine how much of a stop you need. Once your in the trade just monitor it and watch the price action/indicators/tools you use to see if its at risk of going against you. If you really believe the market wont reach your TP and looks like its going to turn against you, then close the trade. Don't just hold on to it for principle and let it draw down on principle or the hope it does not hit your stop loss.
Trade Duration Hold your trades as long or little as you want that fits your personality and trading style/trade analysis. Personally I do not hold trades past the end of the day (I do in some cases when a strong trend folds) and I do not hold trades over the weekends. My TP targets are always places I think it can reach within the day. Typically I try to be flat before I sleep and trade intra day price movements only. Just depends on the higher level outlook, I have to get in at really good prices for me to want to hold a trade and it has to be going strong. Then I will set a slightly aggressive stop on it before I leave. I do know several people that swing trade and hold trades for a long period of time. That is just not a trading style that works for me.
Enhance Your Success Rate Below is information I picked up over the years that helped me enhance my success rate with not only guessing intra day market bias (even if it has not broken into the trend for the day yet (aka pre London open when the end of Asia likes to act funny sometimes), but also with trading price action intra day. People always say "When you enter a trade have an entry and exits. I am of the belief that most people do not have problem with the entry, its the exit. They either hold too long, or don't hold long enough. With the below tools, drawings, or instruments, hopefully you can increase your individual probability of a successful trade. **P.S.*\* Your mileage will vary depending on your ability to correctly draw, implement and interpret the below items. They take time and practice to implement with a high degree of proficiency. If you have any questions about how to do that with anything listed, comment below and I will reply as I can. I don't want to answer the same question a million times in a pm. Tools and Methods Used This is just a high level overview of what I use. Each one of the actions I could go way more in-depth on but I would be here for a week typing something up of I did that. So take the information as a base level understanding of how I use the method or tool. There is always nuance and edge cases that you learn from experience.
I keep a general high level Macro outlook for currencies. I dont get too deep into Fundamentals and just keep an eye out for news. If I am already in a trade I will hold it if its far enough away from my entry. However, I wont enter right before/during news as it can invalidate your setup.
I started with the basics of learning the standard price action formations/patterns and candles. You can find tons of free info on that online, google is your friend. Then I stared at charts and said "why did the price do that or do this etc" then after a while I started to understand what's happening without having to think about it and I can see the market structure without having to look as closely as I did in the past.
After many many hours of staring at 5 min charts for 15 hours a day 5 days a week I learned how to look at 5 min charts and be like "Oh that's a hammer on the 15 min etc. If you keep track of time you can do the same for hourly candles as well and you will start to see market structure naturally. However I typically trade in a two chart panel window so I have a 15 min and 5 min chart up when trading intra day so I dont have to think too hard about it.
Draw support resistance lines on Daily/4hr timeframes. I prefer to use body of the candle instead of the wick for support/resistance.
You can find support/resistance liquidity levels through out the day as well and trade those if the price retraces back through levels its already been through that same day.
It would be a bit length to explain exactly the best place to draw them. If your unsure there is plenty of free resources on the internet. Just try to use your head and look for price levels where the price was "Supported" or it "Resisted" that price level then slap a line on it. Draw as few or as many lines as you feel helps you and your style. I tend to lean on the side of fewer. I typically do about 6 lines main support/resistances (3 of each).
Draw two Fibonacci Extensions. One on the daily timeframe, and then one on the 4hr time frame. Then you can trade the Fibonacci levels and use them for TP targets or entry zones if price action respects the level. Also you can use it along with support/resistance and pivots if they happen to line up or are very close.
I cannot really figure out how to put it into words how to draw a Fib if you dont know how. I will have to make a picture to demonstrate it. If your interested post below and I will draw one up and post a link. Probably the easiest way to understand. Just keep in mind the Fib you draw on the 4hr time frame will be inside the daily timeframe one.
The TradeVision2020 dashboard that I use just helps me keep a tab on the current market post plus any swing strength/momentum a currency might have on higher time frames. Helps me look for shifts in the market or confirmation that the bias it already has in momentum is continuing. I have found that often currencies when they get really/weak or strong might continue for several days or even longer like a full week or more. We recently had what felt like 1 week or so of flat out Yen weakness which was making some things wonky. All it does is allow me to look at the dashboard instead of a million other charts.
I use two that work well for my intra day style. The Stochastic RSI is just like a RSI but its faster. The second is the Relative Vigor Index which I use to detect swings in momentum and divergences in bullish/bearish momentum. I have used many others in the past, but as I have grown and got better as a trader I have found making my analysis simpler has improved my trading.I dont like the whole idea of have 43 different indicators on 32 different time frames light up a dashboard to be green for me to enter a trade. With how I do it now, I have a clear understanding of what I expect to happen and why. That way when it does happen I understand the move and dont get freaked out if the market moves funny after I am in the trade.
Conclusion I use the above tools/indicators/resources/philosophy's to trade intra day price action that sometimes ends up as noise in the grand scheme of the markets movement.use that method until the price action for the day proves the bias assumption wrong. Also you can couple that with things like Stoch RSI + Relative Vigor Index to find divergences which can increase the probability of your targeted guesses. Trade Example from Yesterday This is an example of a trade I took today and why I took it. I used the following core areas to make my trade decision.
Fundamental Bias: I already had a bullish fundamental outlook on EUUSD with expecting the markets to price in future similes due a higher an higher chance of Biden winning on paper as the election closed in and a "Blue wave" coming which would lead to a weaker dollar. Also, the Euro Zone is getting hammered with COVID pretty hard plus Brexit drama so I had a strong Euro bias.NOTE: As frame of reference, all the other pairs I trade I traded as if they were ranging and trade a range. Markets are messed up right now.
Currency Strength/Weakness: I use a tool that gives me a currency strength/weakness dashboard called TradeVision2020. Helps me track individual currency strength/weakness intra day. Took me about a month to get used to it, but helps me keep track of intra day strength/weakness that can add a bias to trade direction as the day unfolds. Like "Will this run have a 2nd or 3rd push higher" or "I should look to TP at the first sign of weakness in the push" type bias data. You still got to use your brain and figure out the best decision. It wont make choices for you, its only a guide.NOTE: I am not trying to adverse the tool (if providing the code is against sub rules let me know), its just a tool I use every day that helps me with directional bias calls. I am sharing the coupon code that was given to me when I found out about the tool in the TradingView forex chatroom and the guy gave me the code to use when I signed up. I dont want someone to read the name and want to try it out then overpay for no reason. The coupon will give you 40% off. Coupon Code: 3F7A0T5T
Higher Timeframe Analysis: Detected some early signs of Bearish Divergence on the 1hr chart using a on a higher time frame using a Stochastic RSI. Then I saw more confirmation on 5 min charts using Relative Vigor Index to help time my entry mid session.
Pivot Points: I treat pivot points like support/resistance and trade them as such using price action to give me some idea how its being treated by the market. Pretty straight forward.
It may seem like a lot of stuff to process on the fly while trying to figure out live price action but, for the fundamental bias for a pair should already baked in your mindset for any currency pair you trade. For the currency strength/weakness I stare at the dashboard 12-15 hours a day so I am always trying to keep a pulse on what's going or shifts so that's not really a factor when I want to enter as I would not look to enter if I felt the market was shifting against me. Then the higher timeframe analysis had already happened when I woke up, so it was a game of "Stare at the 5 min chart until the price does something interesting" Trade Example: Today , I went long EUUSD long bias when I first looked at the chart after waking up around 9-10pm Eastern. Fortunately, the first large drop had already happened so I had a easy baseline price movement to work with. I then used tool for currency strength/weakness monitoring, Pivot Points, and bearish divergence detected using Stochastic RSI and Relative Vigor Index. I first noticed Bearish Divergence on the 1hr time frame using the Stochastic RSI and got confirmation intra day on the 5 min time frame with the Relative Vigor Index. I ended up buying the second mini dip around midnight Eastern because it was already dancing along the pivot point that the price had been dancing along since the big drop below the pivot point and dipped below it and then shortly closed back above it. I put a stop loss below the first large dip. With a TP goal of the middle point pivot line Then I waited for confirmation or invalidation of my trade. I ended up getting confirmation with Bearish Divergence from the second large dip so I tightened up my stop to below that smaller drip and waited for the London open. Not only was it not a lower low, I could see the divergence with the Relative Vigor Index. It then ran into London and kept going with tons of momentum. Blew past my TP target so I let it run to see where the momentum stopped. Ended up TP'ing at the Pivot Point support/resistance above the middle pivot line. Random Note: The Asian session has its own unique price action characteristics that happen regularly enough that you can easily trade them when they happen with high degrees of success. It takes time to learn them all and confidently trade them as its happening. If you trade Asia you should learn to recognize them as they can fake you out if you do not understand what's going on. TL;DR At the end of the day there is no magic solution that just works. You have to find out what works for you and then what people say works for them. Test it out and see if it works for you or if you can adapt it to work for you. If it does not work or your just not interested then ignore it. At the end of the day, you have to use your brain to make correct trading decisions. Blindly following indicators may work sometimes in certain market conditions, but trading with information you don't understand can burn you just as easily as help you. Its like playing with fire. So, get out there and grind it out. It will either click or it wont. Not everyone has the mindset or is capable of changing to be a successful trader. Trading is gambling, you do all this work to get a edge on the house. Trading without the edge or an edge you understand how to use will only leave your broker happy in the end.
Former investment bank FX trader: Risk management part 3/3
Welcome to the third and final part of this chapter. Thank you all for the 100s of comments and upvotes - maybe this post will take us above 1,000 for this topic! Keep any feedback or questions coming in the replies below. Before you read this note, please start with Part I and then Part II so it hangs together and makes sense. Part III
Squeezes and other risks
Crap trades, timeouts and monthly limits
Squeezes and other risks
We are going to cover three common risks that traders face: events; squeezes, asymmetric bets.
Economic releases can cause large short-term volatility. The most famous is Non Farm Payrolls, which is the most widely watched measure of US employment levels and affects the price of many instruments.On an NFP announcement currencies like EURUSD might jump (or drop) 100 pips no problem. This is fine and there are trading strategies that one may employ around this but the key thing is to be aware of these releases.You can find economic calendars all over the internet - including on this site - and you need only check if there are any major releases each day or week. For example, if you are trading off some intraday chart and scalping a few pips here and there it would be highly sensible to go into a known data release flat as it is pure coin-toss and not the reason for your trading. It only takes five minutes each day to plan for the day ahead so do not get caught out by this. Many retail traders get stopped out on such events when price volatility is at its peak.
Short squeezes bring a lot of danger and perhaps some opportunity. The story of VW and Porsche is the best short squeeze ever. Throughout these articles we've used FX examples wherever possible but in this one instance the concept (which is also highly relevant in FX) is best illustrated with an historical lesson from a different asset class. A short squeeze is when a participant ends up in a short position they are forced to cover. Especially when the rest of the market knows that this participant can be bullied into stopping out at terrible levels, provided the market can briefly drive the price into their pain zone. There's a reason for the car, don't worry Hedge funds had been shorting VW stock. However the amount of VW stock available to buy in the open market was actually quite limited. The local government owned a chunk and Porsche itself had bought and locked away around 30%. Neither of these would sell to the hedge-funds so a good amount of the stock was un-buyable at any price. If you sell or short a stock you must be prepared to buy it back to go flat at some point. To cut a long story short, Porsche bought a lot of call options on VW stock. These options gave them the right to purchase VW stock from banks at slightly above market price. Eventually the banks who had sold these options realised there was no VW stock to go out and buy since the German government wouldn’t sell its allocation and Porsche wouldn’t either. If Porsche called in the options the banks were in trouble. Porsche called in the options which forced the shorts to buy stock - at whatever price they could get it. The price squeezed higher as those that were short got massively squeezed and stopped out. For one brief moment in 2008, VW was the world’s most valuable company. Shorts were burned hard. Incredible event Porsche apparently made $11.5 billion on the trade. The BBC described Porsche as “a hedge fund with a carmaker attached.” If this all seems exotic then know that the same thing happens in FX all the time. If everyone in the market is talking about a key level in EURUSD being 1.2050 then you can bet the market will try to push through 1.2050 just to take out any short stops at that level. Whether it then rallies higher or fails and trades back lower is a different matter entirely. This brings us on to the matter of crowded trades. We will look at positioning in more detail in the next section. Crowded trades are dangerous for PNL. If everyone believes EURUSD is going down and has already sold EURUSD then you run the risk of a short squeeze. For additional selling to take place you need a very good reason for people to add to their position whereas a move in the other direction could force mass buying to cover their shorts. A trading mentor when I worked at the investment bank once advised me: Always think about which move would cause the maximum people the maximum pain. That move is precisely what you should be watching out for at all times.
Also known as picking up pennies in front of a steamroller. This risk has caught out many a retail trader. Sometimes it is referred to as a "negative skew" strategy. Ideally what you are looking for is asymmetric risk trade set-ups: that is where the downside is clearly defined and smaller than the upside. What you want to avoid is the opposite. A famous example of this going wrong was the Swiss National Bank de-peg in 2012. The Swiss National Bank had said they would defend the price of EURCHF so that it did not go below 1.2. Many people believed it could never go below 1.2 due to this. Many retail traders therefore opted for a strategy that some describe as ‘picking up pennies in front of a steam-roller’. They would would buy EURCHF above the peg level and hope for a tiny rally of several pips before selling them back and keep doing this repeatedly. Often they were highly leveraged at 100:1 so that they could amplify the profit of the tiny 5-10 pip rally. Then this happened. Something that changed FX markets forever The SNB suddenly did the unthinkable. They stopped defending the price. CHF jumped and so EURCHF (the number of CHF per 1 EUR) dropped to new lows very fast. Clearly, this trade had horrific risk : reward asymmetry: you risked 30% to make 0.05%. Other strategies like naively selling options have the same result. You win a small amount of money each day and then spectacularly blow up at some point down the line.
We have talked about short squeezes. But how do you know what the market position is? And should you care? Let’s start with the first. You should definitely care. Let’s imagine the entire market is exceptionally long EURUSD and positioning reaches extreme levels. This makes EURUSD very vulnerable. To keep the price going higher EURUSD needs to attract fresh buy orders. If everyone is already long and has no room to add, what can incentivise people to keep buying? The news flow might be good. They may believe EURUSD goes higher. But they have already bought and have their maximum position on. On the flip side, if there’s an unexpected event and EURUSD gaps lower you will have the entire market trying to exit the position at the same time. Like a herd of cows running through a single doorway. Messy. We are going to look at this in more detail in a later chapter, where we discuss ‘carry’ trades. For now this TRYJPY chart might provide some idea of what a rush to the exits of a crowded position looks like. A carry trade position clear-out in action Knowing if the market is currently at extreme levels of long or short can therefore be helpful. The CFTC makes available a weekly report, which details the overall positions of speculative traders “Non Commercial Traders” in some of the major futures products. This includes futures tied to deliverable FX pairs such as EURUSD as well as products such as gold. The report is called “CFTC Commitments of Traders” ("COT"). This is a great benchmark. It is far more representative of the overall market than the proprietary ones offered by retail brokers as it covers a far larger cross-section of the institutional market. Generally market participants will not pay a lot of attention to commercial hedgers, which are also detailed in the report. This data is worth tracking but these folks are simply hedging real-world transactions rather than speculating so their activity is far less revealing and far more noisy. You can find the data online for free and download it directly here. Raw format is kinda hard to work with However, many websites will chart this for you free of charge and you may find it more convenient to look at it that way. Just google “CFTC positioning charts”. But you can easily get visualisations You can visually spot extreme positioning. It is extremely powerful. Bear in mind the reports come out Friday afternoon US time and the report is a snapshot up to the prior Tuesday. That means it is a lagged report - by the time it is released it is a few days out of date. For longer term trades where you hold positions for weeks this is of course still pretty helpful information. As well as the absolute level (is the speculative market net long or short) you can also use this to pick up on changes in positioning. For example if bad news comes out how much does the net short increase? If good news comes out, the market may remain net short but how much did they buy back? A lot of traders ask themselves “Does the market have this trade on?” The positioning data is a good method for answering this. It provides a good finger on the pulse of the wider market sentiment and activity. For example you might say: “There was lots of noise about the good employment numbers in the US. However, there wasn’t actually a lot of position change on the back of it. Maybe everyone who wants to buy already has. What would happen now if bad news came out?” In general traders will be wary of entering a crowded position because it will be hard to attract additional buyers or sellers and there could be an aggressive exit. If you want to enter a trade that is showing extreme levels of positioning you must think carefully about this dynamic.
Retail traders often drastically underestimate how correlated their bets are. Through bitter experience, I have learned that a mistake in position correlation is the root of some of the most serious problems in trading. If you have eight highly correlated positions, then you are really trading one position that is eight times as large. Bruce Kovner of hedge fund, Caxton Associates For example, if you are trading a bunch of pairs against the USD you will end up with a simply huge USD exposure. A single USD-trigger can ruin all your bets. Your ideal scenario — and it isn’t always possible — would be to have a highly diversified portfolio of bets that do not move in tandem. Look at this chart. Inverted USD index (DXY) is green. AUDUSD is orange. EURUSD is blue. Chart from TradingView So the whole thing is just one big USD trade! If you are long AUDUSD, long EURUSD, and short DXY you have three anti USD bets that are all likely to work or fail together. The more diversified your portfolio of bets are, the more risk you can take on each. There’s a really good video, explaining the benefits of diversification from Ray Dalio. A systematic fund with access to an investable universe of 10,000 instruments has more opportunity to make a better risk-adjusted return than a trader who only focuses on three symbols. Diversification really is the closest thing to a free lunch in finance. But let’s be pragmatic and realistic. Human retail traders don’t have capacity to run even one hundred bets at a time. More realistic would be an average of 2-3 trades on simultaneously. So what can be done? For example:
You might diversify across time horizons by having a mix of short-term and long-term trades.
You might diversify across asset classes - trading some FX but also crypto and equities.
You might diversify your trade generation approach so you are not relying on the same indicators or drivers on each trade.
You might diversify your exposure to the market regime by having some trades that assume a trend will continue (momentum) and some that assume we will be range-bound (carry).
And so on. Basically you want to scan your portfolio of trades and make sure you are not putting all your eggs in one basket. If some trades underperform others will perform - assuming the bets are not correlated - and that way you can ensure your overall portfolio takes less risk per unit of return. The key thing is to start thinking about a portfolio of bets and what each new trade offers to your existing portfolio of risk. Will it diversify or amplify a current exposure?
Crap trades, timeouts and monthly limits
One common mistake is to get bored and restless and put on crap trades. This just means trades in which you have low conviction. It is perfectly fine not to trade. If you feel like you do not understand the market at a particular point, simply choose not to trade. Flat is a position. Do not waste your bullets on rubbish trades. Only enter a trade when you have carefully considered it from all angles and feel good about the risk. This will make it far easier to hold onto the trade if it moves against you at any point. You actually believe in it. Equally, you need to set monthly limits. A standard limit might be a 10% account balance stop per month. At that point you close all your positions immediately and stop trading till next month. Be strict with yourself and walk away Let’s assume you started the year with $100k and made 5% in January so enter Feb with $105k balance. Your stop is therefore 10% of $105k or $10.5k . If your account balance dips to $94.5k ($105k-$10.5k) then you stop yourself out and don’t resume trading till March the first. Having monthly calendar breaks is nice for another reason. Say you made a load of money in January. You don’t want to start February feeling you are up 5% or it is too tempting to avoid trading all month and protect the existing win. Each month and each year should feel like a clean slate and an independent period. Everyone has trading slumps. It is perfectly normal. It will definitely happen to you at some stage. The trick is to take a break and refocus. Conserve your capital by not trading a lot whilst you are on a losing streak. This period will be much harder for you emotionally and you’ll end up making suboptimal decisions. An enforced break will help you see the bigger picture. Put in place a process before you start trading and then it’ll be easy to follow and will feel much less emotional. Remember: the market doesn’t care if you win or lose, it is nothing personal. When your head has cooled and you feel calm you return the next month and begin the task of building back your account balance.
That's a wrap on risk management
Thanks for taking time to read this three-part chapter on risk management. I hope you enjoyed it. Do comment in the replies if you have any questions or feedback. Remember: the most important part of trading is not making money. It is not losing money. Always start with that principle. I hope these three notes have provided some food for thought on how you might approach risk management and are of practical use to you when trading. Avoiding mistakes is not a sexy tagline but it is an effective and reliable way to improve results. Next up I will be writing about an exciting topic I think many traders should look at rather differently: news trading. Please follow on here to receive notifications and the broad outline is below. News Trading Part I
Why use the economic calendar
Reading the economic calendar
Knowing what's priced in
First order thinking vs second order thinking
News Trading Part II
Preparing for quantitative and qualitative releases
Data surprise index
Using recent events to predict future reactions
Buy the rumour, sell the fact
The mysterious 'position trim' effect
Some key FX releases
*** Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
Former investment bank FX trader: news trading and second order thinking
Thanks to everyone who responded to the previous pieces on risk management. We ended up with nearly 2,000 upvotes and I'm delighted so many of you found it useful. This time we're going to focus on a new area: reacting to and trading around news and fundamental developments. A lot of people get this totally wrong and the main reason is that they trade the news at face value, without considering what the market had already priced in. If you've ever seen what you consider to be "good" or "better than forecast" news come out and yet been confused as the pair did nothing or moved in the opposite direction to expected, read on... We are going to do this in two parts. Part I
Why use an economic calendar
How to read the calendar
Knowing what's priced in
First order thinking vs second order thinking
Knowing how to use and benefit from the economic calendar is key for all traders - not just news traders. In this chapter we are going to take a practical look at how to use the economic calendar. We are also going to look at how to interpret news using second order thinking. The key concept is learning what has already been ‘priced in’ by the market so we can estimate how the market price might react to the new information.
Why use an economic calendar
The economic calendar contains all the scheduled economic releases for that day and week. Even if you purely trade based on technical analysis, you still must know what is in store. https://preview.redd.it/20xdiq6gq4k51.png?width=1200&format=png&auto=webp&s=6cd47186db1039be7df4d7ad6782de36da48f1db Why? Three main reasons. Firstly, releases can help provide direction. They create trends. For example if GBPUSD has been fluctuating aimlessly within a range and suddenly the Bank of England starts raising rates you better believe the British Pound will start to move. Big news events often start long-term trends which you can trade around. Secondly, a lot of the volatility occurs around these events. This is because these events give the market new information. Prior to a big scheduled release like the US Non Farm Payrolls you might find no one wants to take a big position. After it is released the market may move violently and potentially not just in a single direction - often prices may overshoot and come back down. Even without a trend this volatility provides lots of trading opportunities for the day trader. https://preview.redd.it/u17iwbhiq4k51.png?width=1200&format=png&auto=webp&s=98ea8ed154c9468cb62037668c38e7387f2435af Finally, these releases can change trends. Going into a huge release because of a technical indicator makes little sense. Everything could reverse and stop you out in a moment. You need to be aware of which events are likely to influence the positions you have on so you can decide whether to keep the positions or flatten exposure before the binary event for which you have no edge. Most traders will therefore ‘scan’ the calendar for the week ahead, noting what the big events are and when they will occur. Then you can focus on each day at a time.
Reading the economic calendar
Most calendars show events cut by trading day. Helpfully they adjust the time of each release to your own timezone. For example we can see that the Bank of Japan Interest Rate decision is happening at 4am local time for this particular London-based trader. https://preview.redd.it/lmx0q9qoq4k51.jpg?width=1200&format=pjpg&auto=webp&s=c6e9e1533b1ba236e51296de8db3be55dfa78ba1 Note that some events do not happen at a specific time. Think of a Central Banker’s speech for example - this can go on for an hour. It is not like an economic statistic that gets released at a precise time. Clicking the finger emoji will open up additional information on each event.
How do you define importance? Well, some events are always unimportant. With the greatest of respect to Italian farmers, nobody cares about mundane releases like Italian farm productivity figures. Other events always seem to be important. That means, markets consistently react to them and prices move. Interest rate decisions are an example of consistently high importance events. So the Medium and High can be thought of as guides to how much each event typically affects markets. They are not perfect guides, however, as different events are more or less important depending on the circumstances. For example, imagine the UK economy was undergoing a consumer-led recovery. The Central Bank has said it would raise interest rates (making GBPUSD move higher) if they feel the consumer is confident. Consumer confidence data would suddenly become an extremely important event. At other times, when the Central Bank has not said it is focused on the consumer, this release might be near irrelevant.
Knowing what's priced in
Next to each piece of economic data you can normally see three figures. Actual, Forecast, and Previous.
Actual refers to the number as it is released.
Forecast refers to the consensus estimate from analysts.
Previous is what it was last time.
We are going to look at this in a bit more detail later but what you care about is when numbers are better or worse than expected. Whether a number is ‘good’ or ‘bad’ really does not matter much. Yes, really. Once you understand that markets move based on the news vs expectations, you will be less confused by price action around events This is a common misunderstanding. Say everyone is expecting ‘great’ economic data and it comes out as ‘good’. Does the price go up? You might think it should. After all, the economic data was good. However, everyone expected it to be great and it was just … good. The great release was ‘priced in’ by the market already. Most likely the price will be disappointed and go down. By priced in we simply mean that the market expected it and already bought or sold. The information was already in the price before the announcement. Incidentally the official forecasts can be pretty stale and might not accurately capture what active traders in the market expect. See the following example.
An example of pricing in
For example, let’s say the market is focused on the number of Tesla deliveries. Analysts think it’ll be 100,000 this quarter. But Elon Musk tweets something that hints he’s really, really, really looking forward to the analyst call. Tesla’s price ticks higher after the tweet as traders put on positions, reflecting the sentiment that Tesla is likely to massively beat the 100,000. (This example is not a real one - it just serves to illustrate the concept.) Tesla deliveries are up hugely vs last quarter ... but they are disappointing vs market expectations ... what do you think will happen to the stock? On the day it turns out Tesla hit 101,000. A better than the officially forecasted result - sure - but only marginally. Way below what readers of Musk's twitter account might have thought. Disappointed traders may sell their longs and close out the positions. The stock might go down on ‘good’ results because the market had priced in something even better. (This example is not a real one - it just serves to illustrate the concept.)
We know that interest rates heavily affect currency prices. For major interest rate decisions there’s a great tool on the CME’s website that you can use. See the link for a demo This gives you a % probability of each interest rate level, implied by traded prices in the bond futures market. For example, in the case above the market thinks there’s a 20% chance the Fed will cut rates to 75-100bp. Obviously this is far more accurate than analyst estimates because it uses actual bond prices where market participants are directly taking risk and placing bets. It basically looks at what interest rate traders are willing to lend at just before/after the date of the central bank meeting to imply the odds that the market ascribes to a change on that date. Always try to estimate what the market has priced in. That way you have some context for whether the release really was better or worse than expected.
Second order thinking
You have to know what the market expects to try and guess how it’ll react. This is referred to by Howard Marks of Oaktree as second-level thinking. His explanation is so clear I am going to quote extensively. It really is hard to improve on this clarity of thought: First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future, as in “The outlook for the company is favorable, meaning the stock will go up.” Second-level thinking is deep, complex and convoluted. Howard Marks He explains first-level thinking: The first-level thinker simply looks for the highest quality company, the best product, the fastest earnings growth or the lowest p/e ratio. He’s ignorant of the very existence of a second level at which to think, and of the need to pursue it. Howard Marks The above describes the guy who sees a 101,000 result and buys Tesla stock because - hey, this beat expectations. Marks goes on to describe second-level thinking: The second-level thinker goes through a much more complex process when thinking about buying an asset. Is it good? Do others think it’s as good as I think it is? Is it really as good as I think it is? Is it as good as others think it is? Is it as good as others think others think it is? How will it change? How do others think it will change? How is it priced given: its current condition; how do I think its conditions will change; how others think it will change; and how others think others think it will change? And that’s just the beginning. No, this isn’t easy. Howard Marks In this version of events you are always thinking about the market’s response to Tesla results. What do you think they’ll announce? What has the market priced in? Is Musk reliable? Are the people who bought because of his tweet likely to hold on if he disappoints or exit immediately? If it goes up at which price will they take profit? How big a number is now considered ‘wow’ by the market? As Marks says: not easy. However, you need to start getting into the habit of thinking like this if you want to beat the market. You can make gameplans in advance for various scenarios. Here are some examples from Marks to illustrate the difference between first order and second order thinking. Some further examples Trying to react fast to headlines is impossible in today’s market of ultra fast computers. You will never win on speed. Therefore you have to out-think the average participant.
Coming up in part II
Now that we have a basic understanding of concepts such as expectations and what the market has priced in, we can look at some interesting trading techniques and tools. Part II
Preparing for quantitative and qualitative releases
Data surprise index
Using recent events to predict future reactions
Buy the rumour, sell the fact
The trimming position effect
Some key FX releases
Hope you enjoyed this note. As always, please reply with any questions/feedback - it is fun to hear from you. *** Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
From the first half of the news trading note we learned some ways to estimate what is priced in by the market. We learned that we are trading any gap in market expectations rather than the result itself. A good result when the market expected a fantastic result is disappointing! We also looked at second order thinking. After all that, I hope the reaction of prices to events is starting to make more sense to you. Before you understand the core concepts of pricing in and second order thinking, price reactions to events can seem mystifying at times We'll add one thought-provoking quote. Keynes (that rare economist who also managed institutional money) offered this analogy. He compared selecting investments to a beauty contest in which newspaper readers would write in with their votes and win a prize if their votes most closely matched the six most popularly selected women across all readers: It is not a case of choosing those (faces) which, to the best of one’s judgment, are really the prettiest, nor even those which average opinions genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. Trading is no different. You are trying to anticipate how other traders will react to news and how that will move prices. Perhaps you disagree with their reaction. Still, if you can anticipate what it will be you would be sensible to act upon it. Don't forget: meanwhile they are also trying to anticipate what you and everyone else will do. Part II
Preparing for quantitative and qualitative releases
Data surprise index
Using recent events to predict future reactions
Buy the rumour, sell the fact
The trimming position effect
Some key FX releases
Preparing for quantitative and qualitative releases
The majority of releases are quantitative. All that means is there’s some number. Like unemployment figures or GDP. Historic results provide interesting context. We are looking below the Australian unemployment rate which is released monthly. If you plot it out a few years back you can spot a clear trend, which got massively reversed. Knowing this trend gives you additional information when the figure is released. In the same way prices can trend so do economic data. A great resource that's totally free to use This makes sense: if for example things are getting steadily better in the economy you’d expect to see unemployment steadily going down. Knowing the trend and how much noise there is in the data gives you an informational edge over lazy traders. For example, when we see the spike above 6% on the above you’d instantly know it was crazy and a huge trading opportunity since a) the fluctuations month on month are normally tiny and b) it is a huge reversal of the long-term trend. Would all the other AUDUSD traders know and react proportionately? If not and yet they still trade, their laziness may be an opportunity for more informed traders to make some money. Tradingeconomics.com offers really high quality analysis. You can see all the major indicators for each country. Clicking them brings up their history as well as an explanation of what they show. For example, here’s German Consumer Confidence. Helpful context There are also qualitative events. Normally these are speeches by Central Bankers. There are whole blogs dedicated to closely reading such texts and looking for subtle changes in direction or opinion on the economy. Stuff like how often does the phrase "in a good place" come up when the Chair of the Fed speaks. It is pretty dry stuff. Yet these are leading indicators of how each member may vote to set interest rates. Ed Yardeni is the go-to guy on central banks.
Data surprise index
The other thing you might look at is something investment banks produce for their customers. A data surprise index. I am not sure if these are available in retail land - there's no reason they shouldn't be but the economic calendars online are very basic. You’ll remember we talked about data not being good or bad of itself but good or bad relative to what was expected. These indices measure this difference. If results are consistently better than analysts expect then you’ll see a positive number. If they are consistently worse than analysts expect a negative number. You can see they tend to swing from positive to negative. Mean reversion at its best! Data surprise indices measure how much better or worse data came in vs forecast There are many theories for this but in general people consider that analysts herd around the consensus. They are scared to be outliers and look ‘wrong’ or ‘stupid’ so they instead place estimates close to the pack of their peers. When economic conditions change they may therefore be slow to update. When they are wrong consistently - say too bearish - they eventually flip the other way and become too bullish. These charts can be interesting to give you an idea of how the recent data releases have been versus market expectations. You may try to spot the turning points in macroeconomic data that drive long term currency prices and trends.
Using recent events to predict future reactions
The market reaction function is the most important thing on an economic calendar in many ways. It means: what will happen to the price if the data is better or worse than the market expects? That seems easy to answer but it is not. Consider the example of consumer confidence we had earlier.
Many times the market will shrug and ignore it.
But when the economic recovery is predicated on a strong consumer it may move markets a lot.
Or consider the S&P index of US stocks (Wall Street).
If you get good economic data that beats analyst estimates surely it should go up? Well, sometimes that is certainly the case.
But good economic data might result in the US Central Bank raising interest rates. Raising interest rates will generally make the stock market go down!
So better than expected data could make the S&P go up (“the economy is great”) or down (“the Fed is more likely to raise rates”). It depends. The market can interpret the same data totally differently at different times. One clue is to look at what happened to the price of risk assets at the last event. For example, let’s say we looked at unemployment and it came in a lot worse than forecast last month. What happened to the S&P back then? 2% drop last time on a 'worse than expected' number ... so it it is 'better than expected' best guess is we rally 2% higher So this tells us that - at least for our most recent event - the S&P moved 2% lower on a far worse than expected number. This gives us some guidance as to what it might do next time and the direction. Bad number = lower S&P. For a huge surprise 2% is the size of move we’d expect. Again - this is a real limitation of online calendars. They should show next to the historic results (expected/actual) the reaction of various instruments.
Buy the rumour, sell the fact
A final example of an unpredictable reaction relates to the old rule of ‘Buy the rumour, sell the fact.’ This captures the tendency for markets to anticipate events and then reverse when they occur. Buy the rumour, sell the fact In short: people take profit and close their positions when what they expected to happen is confirmed. So we have to decide which driver is most important to the market at any point in time. You obviously cannot ask every participant. The best way to do it is to look at what happened recently. Look at the price action during recent releases and you will get a feel for how much the market moves and in which direction.
Trimming or taking off positions
One thing to note is that events sometimes give smart participants information about positioning. This is because many traders take off or reduce positions ahead of big news events for risk management purposes. Imagine we see GBPUSD rises in the hour before GDP release. That probably indicates the market is short and has taken off / flattened its positions. The price action before an event can tell you about speculative positioning If GDP is merely in line with expectations those same people are likely to add back their positions. They avoided a potential banana skin. This is why sometimes the market moves on an event that seemingly was bang on consensus. But you have learned something. The speculative market is short and may prove vulnerable to a squeeze.
Two kinds of reversals
Fairly often you’ll see the market move in one direction on a release then turn around and go the other way. These are known as reversals. Traders will often ‘fade’ a move, meaning bet against it and expect it to reverse.
Sometimes this happens when the data looks good at first glance but the details don’t support it. For example, say the headline is very bullish on German manufacturing numbers but then a minute later it becomes clear the company who releases the data has changed methodology or believes the number is driven by a one-off event. Or maybe the headline number is positive but buried in the detail there is a very negative revision to previous numbers. Fading the initial spike is one way to trade news. Try looking at what the price action is one minute after the event and thirty minutes afterwards on historic releases.
Some reversals don't make sense Sometimes a reversal happens for seemingly no fundamental reason. Say you get clearly positive news that is better than anyone expects. There are no caveats to the positive number. Yet the price briefly spikes up and then falls hard. What on earth? This is a pure supply and demand thing. Even on bullish news the market cannot sustain a rally. The market is telling you it wants to sell this asset. Try not to get in its way.
Some key releases
As we have already discussed, different releases are important at different times. However, we’ll look at some consistently important ones in this final section.
Interest rates decisions
These can sometimes be unscheduled. However, normally the decisions are announced monthly. The exact process varies for each central bank. Typically there’s a headline decision e.g. maintain 0.75% rate. You may also see “minutes” of the meeting in which the decision was reached and a vote tally e.g. 7 for maintain, 2 for lower rates. These are always top-tier data releases and have capacity to move the currency a lot. A hawkish central bank (higher rates) will tend to move a currency higher whilst a dovish central bank (lower rates) will tend to move a currency lower. A central banker speaking is always a big event
Non farm payrolls
These are released once per month. This is another top-tier release that will move all USD pairs as well as equities. There are three numbers:
The headline number of jobs created (bigger is better)
The unemployment rate (smaller is better)
Average hourly earnings (depends)
Bear in mind these headline numbers are often off by around 75,000. If a report comes in +/- 25,000 of the forecast, that is probably a non event. In general a positive response should move the USD higher but check recent price action. Other countries each have their own unemployment data releases but this is the single most important release.
There are various types of surveys: consumer confidence; house price expectations; purchasing managers index etc. Each one basically asks a group of people if they expect to make more purchases or activity in their area of expertise to rise. There are so many we won’t go into each one here. A really useful tool is the tradingeconomics.com economic indicators for each country. You can see all the major indicators and an explanation of each plus the historic results.
Gross Domestic Product is another big release. It is a measure of how much a country’s economy is growing. In general the market focuses more on ‘advance’ GDP forecasts more than ‘final’ numbers, which are often released at the same time. This is because the final figures are accurate but by the time they come around the market has already seen all the inputs. The advance figure tends to be less accurate but incorporates new information that the market may not have known before the release. In general a strong GDP number is good for the domestic currency.
Countries tend to release measures of inflation (increase in prices) each month. These releases are important mainly because they may influence the future decisions of the central bank, when setting the interest rate. See the FX fundamentals section for more details.
Things like factory orders or or inventory levels. These can provide a leading indicator of the strength of the economy. These numbers can be extremely volatile. This is because a one-off large order can drive the numbers well outside usual levels. Pay careful attention to previous releases so you have a sense of how noisy each release is and what kind of moves might be expected.
Often there is really good stuff in the comments/replies. Check out 'squitstoomuch' for some excellent observations on why some news sources are noisy but early (think: Twitter, ZeroHedge). The Softbank story is a good recent example: was in ZeroHedge a day before the FT but the market moved on the FT. Also an interesting comment on mistakes, which definitely happen on breaking news, and can cause massive reversals.
Futures Hours are so confusing. Coming from Forex.
So Globex hours open 6PM on Sunday then Close on Friday 4:15PM. There is a Halt? Is this a daily halt? Everyday Monday to Friday the market Halts for 15 mins, 4:15 to 4:30? So Regular Trading Hours are when to when? This would then tell Overnight trading hours ? And what is Open Cry? I believe then Initial Balance will be derived from the Regular Trading hours? And all this is supposed to be in New York times or Chicago times? Forex hours are so simple, I trade the London FX market. Are the currency futures open then? Is there some visual time thing like the one in Forex factory? Am so confused.
Factset: How You can Invest in Hedge Funds’ Biggest Investment Tl;dr FactSet is the most undervalued widespread SaaS/IT solution stock that exists If any of you have relevant experience or are friends with people in Investment Banking/other high finance, you know that Factset is the lifeblood of their financial analysis toolkit if and when it’s not Bloomberg, which isn’t even publicly traded. Factset has been around since 1978 and it’s considered a staple like Bloomberg in many wealth management firms, and it offers some of the easiest to access and understandable financial data so many newer firms focused less on trading are switching to Factset because it has a lot of the same data Bloomberg offers for half the cost. When it comes to modern financial data, Factset outcompetes Reuters and arguably Bloomberg as well due to their API services which makes Factset much more preferable for quantitative divisions of banks/hedge funds as API integration with Python/R is the most important factor for vast data lakes of financial data, this suggests Factset will be much more prepared for programming making its way into traditional finance fields. According to Factset, their mission for data delivery is to: “Integrate the data you need with your applications, web portals, and statistical packages. Whether you need market, company, or alternative data, FactSet flexible data delivery services give you normalized data through APIs and a direct delivery of local copies of standard data feeds. Our unique symbology links and aggregates a variety of content sources to ensure consistency, transparency, and data integrity across your business. Build financial models and power customized applications with FactSet APIs in our developer portal”. Their technical focus for their data delivery system alone should make it stand out compared to Bloomberg, whose UI is far more outdated and complex on top of not being as technically developed as Factset’s. Factset is the key provider of buy-side portfolio analysis for IBs, Hedge funds, and Private Equity firms, and it’s making its way into non-quantitative hedge funds as well because quantitative portfolio management makes automation of risk management and the application of portfolio theory so much easier, and to top it off, Factset’s scenario analysis and simulation is unique in its class. Factset also is able to automate trades based on individual manager risk tolerance and ML optimization for Forex trading as well. Not only does Factset provide solutions for financial companies, they are branching out to all corporations now and providing quantitative analytics for them in the areas of “corporate development, M&A, strategy, treasury, financial planning and analysis, and investor relations workflows”. Factset will eventually in my opinion reach out to Insurance Risk Management a lot more in the future as that’s a huge industry which has yet to see much automation of risk management yet, and with the field wide open, Factset will be the first to take advantage without a shadow of a doubt. So let’s dig into the company’s financials now: Their latest 8k filing reported the following: Revenue increased 2.6%, or $9.6 million, to $374.1 million compared with $364.5 million for the same period in fiscal 2019. The increase is primarily due to higher sales of analytics, content and technology solutions (CTS) and wealth management solutions. Annual Subscription Value (ASV) plus professional services was $1.52 billion at May 31, 2020, compared with $1.45 billion at May 31, 2019. The organic growth rate, which excludes the effects of acquisitions, dispositions, and foreign currency movements, was 5.0%. The primary contributors to this growth rate were higher sales in FactSet's wealth and research workflow solutions and a price increase in the Company's international region Adjusted operating margin improved to 35.5% compared with 34.0% in the prior year period primarily as a result of reduced employee-related operating expenses due to the coronavirus pandemic. Diluted earnings per share (EPS) increased 11.0% to $2.63 compared with $2.37 for the same period in fiscal 2019. Adjusted diluted EPS rose 9.2% to $2.86 compared with $2.62 in the prior year period primarily driven by an improvement in operating results. The Company’s effective tax rate for the third quarter decreased to 15.0% compared with 18.6% a year ago, primarily due to an income tax expense in the prior year related to finalizing the Company's tax returns with no similar event for the three months ended May 31, 2020. FactSet increased its quarterly dividend by $0.05 per share or 7% to $0.77 marking the fifteenth consecutive year the Company has increased dividends, highlighting its continued commitment to returning value to shareholders. As you can see, there’s not much of a negative sign in sight here. It makes sense considering how FactSet’s FCF has never slowed down: https://preview.redd.it/frmtdk8e9hk51.png?width=276&format=png&auto=webp&s=1c0ff12539e0b2f9dbfda13d0565c5ce2b6f8f1a https://preview.redd.it/6axdb6lh9hk51.png?width=593&format=png&auto=webp&s=9af1673272a5a2d8df28f60f4707e948a00e5ff1 FactSet’s annual subscriptions and professional services have made its way to foreign and developing markets, and many of them are opting for FactSet’s cheaper services to reduce costs and still get copious amounts of data and models to work with. Here’s what FactSet had to say regarding its competitive position within the market of providing financial data in its last 10k: “Despite competing products and services, we enjoy high barriers to entry and believe it would be difficult for another vendor to quickly replicate the extensive databases we currently offer. Through our in-depth analytics and client service, we believe we can offer clients a more comprehensive solution with one of the broadest sets of functionalities, through a desktop or mobile user interface or through a standardized or bespoke data feed.” And FactSet is confident that their ML services cannot be replaced by anybody else in the industry either: “In addition, our applications, including our client support and service offerings, are entrenched in the workflow of many financial professionals given the downloading functions and portfolio analysis/screening capabilities offered. We are entrusted with significant amounts of our clients' own proprietary data, including portfolio holdings. As a result, our products have become central to our clients’ investment analysis and decision-making.” (https://last10k.com/sec-filings/fds#link_fullReport), if you read the full report and compare it to the most recent 8K, you’ll find that the real expenses this quarter were far lower than expected by the last 10k as there was a lower than expected tax rate and a 3% increase in expected operating margin from the expected figure as well. The company also reports a 90% customer retention rate over 15 years, so you know that they’re not lying when they say the clients need them for all sorts of financial data whether it’s for M&A or wealth management and Equity analysis: https://www.investopedia.com/terms/f/factset.asp https://preview.redd.it/yo71y6qj9hk51.png?width=355&format=png&auto=webp&s=a9414bdaa03c06114ca052304a26fae2773c3e45 FactSet also has remarkably good cash conversion considering it’s a subscription based company, a company structure which usually takes on too much leverage. Speaking of leverage, FDS had taken on a lot of leverage in 2015: https://preview.redd.it/oxaa1wel9hk51.png?width=443&format=png&auto=webp&s=13d60d2518980360c403364f7150392ab83d07d7 So what’s that about? Why were FactSet’s long term debts at 0 and all of a sudden why’d the spike up? Well usually for a company that’s non-cyclical and has a well-established product (like FactSet) leverage can actually be good at amplifying returns, so FDS used this to their advantage and this was able to help the share’s price during 2015. Also, as you can see debt/ebitda is beginning a rapid decline anyway. This only adds to my theory that FactSet is trying to expand into new playing fields. FactSet obviously didn’t need the leverage to cover their normal costs, because they have always had consistently growing margins and revenue so the debt financing was only for the sake of financing growth. And this debt can be considered covered and paid off, considering the net income growth of 32% between 2018 and 2019 alone and the EPS growth of 33% https://preview.redd.it/e4trju3p9hk51.png?width=387&format=png&auto=webp&s=6f6bee15f836c47e73121054ec60459f147d353e EBITDA has virtually been exponential for FactSet for a while because of the bang-for-buck for their well-known product, but now as FactSet ventures into algorithmic trading and corporate development the scope for growth is broadly expanded. https://preview.redd.it/yl7f58tr9hk51.png?width=489&format=png&auto=webp&s=68906b9ecbcf6d886393c4ff40f81bdecab9e9fd P/E has declined in the past 2 years, making it a great time to buy. https://preview.redd.it/4mqw3t4t9hk51.png?width=445&format=png&auto=webp&s=e8d719f4913883b044c4150f11b8732e14797b6d Increasing ROE despite lowering of leverage post 2016 https://preview.redd.it/lt34avzu9hk51.png?width=441&format=png&auto=webp&s=f3742ed87cd1c2ccb7a3d3ee71ae8c7007313b2b Mountains of cash have been piling up in the coffers increasing chances of increased dividends for shareholders (imo dividend is too low right now, but increasing it will tempt more investors into it), and on top of that in the last 10k a large buyback expansion program was implemented for $210m worth of shares, which shows how confident they are in the company itself. https://preview.redd.it/fliirmpx9hk51.png?width=370&format=png&auto=webp&s=1216eddeadb4f84c8f4f48692a2f962ba2f1e848 SGA expense/Gross profit has been declining despite expansion of offices I’m a bit concerned about the skin in the game leadership has in this company, since very few executives/board members have significant holdings in the company, but the CEO himself is a FactSet veteran, and knows his way around the company. On top of that, Bloomberg remains king for trading and the fixed income security market, and Reuters beats out FactSet here as well. If FactSet really wants to increase cash flow sources, the expansion into insurance and corp dev has to be successful. Summary: FactSet has a lot of growth still left in its industry which is already fast-growing in and of itself, and it only has more potential at its current valuation. Earnings September 24th should be a massive beat due to investment banking demand and growth plus Hedge fund requirements for data and portfolio management hasn’t gone anywhere and has likely increased due to more market opportunities to buy-in. Calls have shitty greeks, but if you're ballsy October 450s LOL, I'm holding shares I’d say it’s a great long term investment, and it should at least be on your watchlist.
Forex Signals Reddit: top providers review (part 1)
Forex Signals - TOP Best Services. Checked!
To invest in the financial markets, we must acquire good tools that help us carry out our operations in the best possible way. In this sense, we always talk about the importance of brokers, however, signal systems must also be taken into account. The platforms that offer signals to invest in forex provide us with alerts that will help us in a significant way to be able to carry out successful operations. For this reason, we are going to tell you about the importance of these alerts in relation to the trading we carry out, because, without a doubt, this type of system will provide us with very good information to invest at the right time and in the best assets in the different markets. financial Within this context, we will focus on Forex signals, since it is the most important market in the world, since in it, multiple transactions are carried out on a daily basis, hence the importance of having an alert system that offers us all the necessary data to invest in currencies. Also, as we all already know, cryptocurrencies have become a very popular alternative to investing in traditional currencies. Therefore, some trading services/tools have emerged that help us to carry out successful operations in this particular market. In the following points, we will detail everything you need to know to start operating in the financial markets using trading signals: what are signals, how do they work, because they are a very powerful help, etc. Let's go there!
What are Forex Trading Signals?
https://preview.redd.it/vjdnt1qrpny51.jpg?width=640&format=pjpg&auto=webp&s=bc541fc996701e5b4dd940abed610b59456a5625 Before explaining the importance of Forex signals, let's start by making a small note so that we know what exactly these alerts are. Thus, we will know that the signals on the currency market are received by traders to know all the information that concerns Forex, both for assets and for the market itself. These alerts allow us to know the movements that occur in the Forex market and the changes that occur in the different currency pairs. But the great advantage that this type of system gives us is that they provide us with the necessary information, to know when is the right time to carry out our investments.
In other words, through these signals, we will know the opportunities that are presented in the market and we will be able to carry out operations that can become quite profitable.
Profitability is precisely another of the fundamental aspects that must be taken into account when we talk about Forex signals since the vast majority of these alerts offer fairly reliable data on assets. Similarly, these signals can also provide us with recommendations or advice to make our operations more successful.
»Purpose: predict movements to carry out Profitable Operations
In short, Forex signal systems aim to predict the behavior that the different assets that are in the market will present and this is achieved thanks to new technologies, the creation of specialized software, and of course, the work of financial experts. In addition, it must also be borne in mind that the reliability of these alerts largely lies in the fact that they are prepared by financial professionals. So they turn out to be a perfect tool so that our investments can bring us a greater number of benefits.
The best signal services today
We are going to tell you about the 3 main alert system services that we currently have on the market. There are many more, but I can assure these are not scams and are reliable. Of course, not 100% of trades will be a winner, so please make sure you apply proper money management and risk management system.
1. 1000pipbuilder (top choice)
Fast track your success and follow the high-performance Forex signals from 1000pip Builder. These Forex signals are rated 5 stars on Investing.com, so you can follow every signal with confidence. All signals are sent by a professional trader with over 10 years investment experience. This is a unique opportunity to see with your own eyes how a professional Forex trader trades the markets. The 1000pip Builder Membership is ordinarily a signal service for Forex trading. You will get all the facts you need to successfully comply with the trading signals, set your stop loss and take earnings as well as additional techniques and techniques! You will get easy to use trading indicators for Forex Trades, including your entry, stop loss and take profit. Overall, the earnings target per months is 350 Pips, depending on your funding this can be a high profit per month! (In fact, there is by no means a guarantee, but the past months had been all between 600 – 1000 Pips). >>>Know more about 1000pipbuilder Your 1000pip builder membership gives you all in hand you want to start trading Forex with success. Read the directions and wait for the first signals. You can trade them inside your demo account first, so you can take a look at the performance before you make investments real money! Features:
Forex signals sent by email and SMS
Entry price, take profit and stop loss provided
Suitable for all time zones (signals sent over 24 hours)
Digital Derivatives Markets (DDMarkets) have been providing trade alert offerings since May 2014 - fully documenting their change ideas in an open and transparent manner. September 2020 performance report for DD Markets. Their manner is simple: carry out extensive research, share their evaluation and then deliver a trading sign when triggered. Once issued, daily updates on the trade are despatched to members via email. It's essential to note that DDMarkets do not tolerate floating in an open drawdown in an effort to earnings at any cost - a common method used by less professional providers to 'fudge' performance statistics. Verified Statistics: Not independently verified. Price: plans from $74.40 per month. Year Founded: 2014 Suitable for Beginners: Yes, (includes handy to follow trade analysis) VISIT -------
If you are looking or a forex signal service with a reliable (and profitable) music record you can't go previous Joel Kruger and the team at JKonFX. Trading performance file for JKonFX. Joel has delivered a reputable +59.18% journal performance for 2016, imparting real-time technical and fundamental insights, in an extremely obvious manner, to their 30,000+ subscriber base. Considered a low-frequency trader, alerts are only a small phase of the overall JKonFX subscription. If you're searching for hundreds of signals, you may want to consider other options. Verified Statistics: Not independently verified. Price: plans from $30 per month. Year Founded: 2014 Suitable for Beginners: Yes, (includes convenient to follow videos updates). VISIT
The importance of signals to invest in Forex
Once we have known what Forex signals are, we must comment on the importance of these alerts in relation to our operations. As we have already told you in the previous paragraph, having a system of signals to be able to invest is quite advantageous, since, through these alerts, we will obtain quality information so that our operations end up being a true success.
»Use of signals for beginners and experts
In this sense, we have to say that one of the main advantages of Forex signals is that they can be used by both beginners and trading professionals. As many as others can benefit from using a trading signal system because the more information and resources we have in our hands. The greater probability of success we will have. Let's see how beginners and experts can take advantage of alerts:
Beginners: for inexperienced these alerts become even more important since they will thus have an additional tool that will guide them to carry out all operations in the Forex market.
Professionals: In the same way, professionals are also recommended to make use of these alerts, so they have adequate information to continue bringing their investments to fruition.
Now that we know that both beginners and experts can use forex signals to invest, let's see what other advantages they have.
When we dedicate ourselves to working in the financial world, none of us can spend 24 hours in front of the computer waiting to perform the perfect operation, it is impossible. That is why Forex signals are important, because, in order to carry out our investments, all we will have to do is wait for those signals to arrive, be attentive to all the alerts we receive, and thus, operate at the right time according to the opportunities that have arisen. It is fantastic to have a tool like this one that makes our work easier in this regard.
»Carry out profitable Forex operations
These signals are also important, because the vast majority of them are usually quite profitable, for this reason, we must get an alert system that provides us with accurate information so that our operations can bring us great benefits. But in addition, these Forex signals have an added value and that is that they are very easy to understand, therefore, we will have a very useful tool at hand that will not be complicated and will end up being a very beneficial weapon for us.
»Decision support analysis
A system of currency market signals is also very important because it will help us to make our subsequent decisions. We cannot forget that, to carry out any type of operation in this market, previously, we must meditate well and know the exact moment when we will know that our investments are going to bring us profits . Therefore, all the information provided by these alerts will be a fantastic basis for future operations that we are going to carry out.
»Trading Signals made by professionals
Finally, we have to recall the idea that these signals are made by the best professionals. Financial experts who know perfectly how to analyze the movements that occur in the market and changes in prices. Hence the importance of alerts, since they are very reliable and are presented as a necessary tool to operate in Forex and that our operations are as profitable as possible.
What should a signal provider be like?
https://preview.redd.it/j0ne51jypny51.png?width=640&format=png&auto=webp&s=5578ff4c42bd63d5b6950fc6401a5be94b97aa7f As you have seen, Forex signal systems are really important for our operations to bring us many benefits. For this reason, at present, there are multiple platforms that offer us these financial services so that investing in currencies is very simple and fast. Before telling you about the main services that we currently have available in the market, it is recommended that you know what are the main characteristics that a good signal provider should have, so that, at the time of your choice, you are clear that you have selected one of the best systems.
»Must send us information on the main currency pairs
In this sense, one of the first things we have to comment on is that a good signal provider, at a minimum, must send us alerts that offer us information about the 6 main currencies, in this case, we refer to the euro, dollar, The pound, the yen, the Swiss franc, and the Canadian dollar. Of course, the data you provide us will be related to the pairs that make up all these currencies. Although we can also find systems that offer us information about other minorities, but as we have said, at a minimum, we must know these 6.
»Trading tools to operate better
Likewise, signal providers must also provide us with a large number of tools so that we can learn more about the Forex market.
We refer, for example, to technical analysis above all, which will help us to develop our own strategies to be able to operate in this market.
These analyzes are always prepared by professionals and study, mainly, the assets that we have available to invest.
»Different Forex signals reception channels
They must also make available to us different ways through which they will send us the Forex signals, the usual thing is that we can acquire them through the platform's website, or by a text message and even through our email. In addition, it is recommended that the signal system we choose sends us a large number of alerts throughout the day, in order to have a wide range of possibilities.
»Free account and customer service
Other aspects that we must take into account to choose a good signal provider is whether we have the option of receiving, for a limited time, alerts for free or the profitability of the signals they emit to us. Similarly, a final aspect that we must emphasize is that a good signal system must also have excellent customer service, which is available to us 24 hours a day and that we can contact them at through an email, a phone number, or a live chat, for greater immediacy. Well, having said all this, in our last section we are going to tell you which are the best services currently on the market. That is, the most suitable Forex signal platforms to be able to work with them and carry out good operations. In this case, we will talk about ForexPro Signals, 365 Signals and Binary Signals.
Forex Signals Reddit: conclusion
To be able to invest properly in the Forex market, it is convenient that we get a signal system that provides us with all the necessary information about this market. It must be remembered that Forex is a very volatile market and therefore, many movements tend to occur quickly. Asset prices can change in a matter of seconds, hence the importance of having a system that helps us analyze the market and thus know, what is the right time for us to start operating. Therefore, although there are currently many signal systems that can offer us good services, the three that we have mentioned above are the ones that are best valued by users, which is why they are the best signal providers that we can choose to carry out. our investments. Most of these alerts are quite profitable and in addition, these systems usually emit a large number of signals per day with full guarantees. For all this, SignalsForexPro, Signals365, or SignalsBinary are presented as fundamental tools so that we can obtain a greater number of benefits when we carry out our operations in the currency market.
Real quick before I get into my next steps of my FX Journey, id like to say thank you to all the people who commented on my last post! All of the tips I got were really eye-opening and introduced me to different parts of FX trading that I didn't even know existed. So thank you so much, and I hope to get more interesting feedback from you guys in the future! Also Im going to probably change my writing frequency from daily to biweekly. I think writing about every little trade is not going to be as beneficial to me as writing about my overall progress at certain points throughout the week. I started this trading day out by learning up on order flow. A whole bunch of you guys suggested really interesting youtubers to watch, and I started with Mr. pip's series on order flow. After I finished up watching a few of his videos, I started to tweak my trading plan so that I could get in some chart time. I changed currency pair from EUUSD to the AUD/USD, the time frame from the 4 hour to the 1 hour, and my indicators from RSI, Stochastic, 2 SMAs and ADX to ATR, RSI, and Ichimoku Kinko Hyo. I also added a little fundamental analysis in my trading plan because I think that I am being far too reliant on my indicators. I planned to check the economic calendar and determine the general trend of the currency pairs that are strongly correlated to the AUD/USD before I began my chart analysis. In addition to all of my analysis, I tried to practice using the techniques I learned in Mr. Pip's videos and analyze the order flow of the chart. Even if my analysis of order flow is wrong, as long as I am getting practice I am learning. Eventhough I planned to use today to back-test indicators and find a solid new plan, I did not have enough time. I ended up getting on my demo account really late in the day, and started to force myself to enter a trade. Destructive habits like this could lead into some massive issues when I eventually get into live trading. To combat this harmful attitude specifically, I will restrict myself to trading on certain parts of the day (for example session overlaps, news releases, and earlier in the day). Despite this mistake I still continued with my trading strategy. I calculated all the currency correlations for AUS/USD using the past weeks economic data, and set my indicators in place. After checking the overall trend of the most strongly correlated pairs (Positive: EUUSD, GPB/USD, Negative: USD/CAD, USD/JPY) I started to analyze the order flow. All the correlated currencies, except for EUUSD, indicated that the AUD/USD would fall, while my order flow analysis indicated the opposite. Seeing as though I am extremely new to order flow, I dismissed this analysis, and ended up forcing a trade on the AUD/USD going short when my indicators seemed to line up correctly. I learned from last time that I should not alter or close my trade purely based on emotion, and to just wait till the market hits my stop loss or take profit. I included a trailing stop loss of 60 pips this time, but I have no evidence to base that number range on. The trade is currently open and I am down about 30 pips. Although I am not labeling this trade as a loser yet, I can definitely see a lot of holes in my trading strategy. The most obvious mistake in my eyes right now is my use of indicators. Currently all my trades are purely based on what my indicators say, and since I do not have any back-tested data to support the credibility of my indicators, it feels a lot like strategic gambling. Another issue is that I feel far too reliant on indicators alone. I think that if I can find ways to include various types of analysis efficiently and evenly in my trading plan I will become a much more skillful and well-rounded trader. In order to combat these two issues I will begin forming various types of trading strategies this weekend and back-test them all extensively. I also plan on researching more on price action, order flow, and Naked Forex. Once again any and all feedback is welcome. I am just beginning Forex, but it had been a huge passion of mine and I don't plan on stopping anytime soon.
Someone posted on here a few days ago asking about forex and forex trading in Kenya, I have gone through the responses and clearly, most people don’t have an idea. It is 3am in the morning and am in a good mood so let me make this post. This will be a comprehensive and lengthy post so grab a pen and paper and sit down. We’ll be here a while. FIRST OF ALL, who am I..? I am a forex trader, in Nairobi, Kenya..i have been actively involved in forex since I found out about it in Feb 2016 when I somehow ended up in a wealth creation seminar (lol) in pride inn Westlands, the one close to Mpaka Rd. Luckily for me, it was not one of those AIM global meetings or I’d be on Facebook selling God knows what those guys sell. I did not take it seriously till August of the same year and I have been active ever since. I don’t teach, mentor or sell a course or signals, I trade my own money. I am also posting from a throwaway account because I don’t want KRA on my ass. What the fuck is forex and forex trading. In simple plain English, forex is like the stock market but for currencies. Stock Market = Shares, forex = currencies. If you want more in-depth explanation, google is your friend. These currencies are pegged on specific countries, united states- dollar, UK- pound, euro zone- euro, Switzerland- Swiss franc, Kenya- Kenya shilling.. you get the point. Now, there are specific events and happenings between these economies that affect the movement and values of the currencies, driving their value (purchasing power up and down). Forex trading exploits these movements to make money. When the value is going up, we buy and vice versa (down –sell) Is forex trading illegal in Kenya? Is it a scam? Illegal, no. scam, no. All the banks in the world do it (KCB made about 4 billion from trading forex in 2019) Have there been scams involving forex in Kenya? Yes. Here is one that happened recently. This one is the most infamous one yet. Best believe that this is not the end of these type of scams because the stupidity, greed and gullibility of human beings is unfathomable. However, by the end of this post, I hope you won’t fall for such silliness. What next how do I make it work..? Am glad you asked. Generally, there are two ways to go about it. One, you teach yourself. This is the equivalent of stealing our dad’s car and hoping that the pedal you hit is the brake and not the accelerator. It is the route I took, it is the most rewarding and a huge ego boost when you finally make it on your own. Typically, this involves scouring the internet for hours upon hours going down rabbit holes, thinking you have made it telling all your friends how you will be a millionaire then losing all your money. Some people do not have the stomach for that. The second route is more practical, structured and smarter. First Learn the basics. There is a free online forex course at www.babypips.com/learn/forex this is merely an introductory course. Basically it is learning the parts of a car before they let you inside the car. Second, start building your strategy. By the time you are done with the babypips, you will have a feel of what the forex market is, what interests you, etc. Tip..Babypips has a lot of garbage. It is good for introductory purposes but not good for much else, pick whatever stick to you or jumps at you the first time. Nonsense like indicators should be ignored. The next step is now the most important. Developing the skill and building your strategy. As a beginner, you want to exhaust your naivety before jumping into the more advanced stuff. Eg can you identify a trend, what is a pair, what is position sizing, what is metatrader 4 and how to operate it, what news is good for a currency, when can I trade, what are the different trading sessions, what is technical analysis, what is market sentiment, what are bullish conditions what is emotion management, how does my psychology affect my trading (more on this later) an I a swing, scalper or day trader etc Mentors and forex courses.. you have probably seen people advertising how they can teach and mentor you on how to trade forex and charging so much money for it. Somehow it seems that these people are focused on the teaching than the trading. Weird, right..? Truth is trading is hard, teaching not quite. A common saying in the industry is “Those who can’t trade, teach” you want to avoid all these gurus on Facebook and Instagram, some are legit but most are not. Sifting the wheat from the chaff is hard but I did that for you. The info is available online on YouTube, telegram channels etc. am not saying not to spend money on a course, if you find a mentor whose style resonates with you and the course is reasonably priced, please, go ahead and buy..it will cut your learning curve in half. People are different. What worked for me might not work for you. Here are some nice YouTube channels to watch. These guys are legit..
After a short period of time, you will be able to sniff out bs teachers with relative ease. You will also discover some of your own and expand the list. Two tips, start with the oldest videos first and whichever of these resonates with you, stick with till the wheels fall off. How long will it take until things start making sense Give yourself time to grow and learn. This is all new to you and you are allowed to make mistakes, to fail and discover yourself. Realistically, depending on the effort you put in, you will not start seeing results until after 6 months. Could take longeshorter so there is no guarantee. Social media, Mentality, Psychology and Books Online, forex trading might not have the best reputation online because it takes hard work and scammers and gurus give it a bad name. However, try to not get sucked into the Instagram trader lifestyle as it is nowhere close to what the reality is. You will not make millions tomorrow or the day after, you might never even make it in this market. But that is the reality of life. Nothing is promised, nothing is guaranteed. Your mentality, beliefs and ego will be challenged in this market. You will learn things that will make you blood boil, you will ask yourself daily, how is this possible, why don’t they teach this in school..bla bla bla..it will be hard but growth is painful, if it wasn’t we’d all be billionaires. Take a break, take a walk, drink a glass of whatever you like or roll one..detox. Chill with your girl (or man) Gradually you will develop mental toughness that will set you up for life. Personally, I sorta ditched religion and picked up stoicism. Whatever works for you. Psychology, this is unfortunately one of the most neglected aspects of your personal development in this journey. Do you believe in yourself? Can you stand by your convictions when everyone is against you? Can you get up every day uncertain of the future? There will be moments where you will question yourself, am I even doing the right thing? the right way? It is normal and essential for your growth. People who played competitive sports have a natural advantage here. Remember the game is first won in your head then on the pitch. Books: ironically, books that helped me the most were the mindset books, Think and grow rich, trading for a living, 4 hour work week, the monk who sold his Ferrari..just google mindset and psychology books, most trading books are garbage. Watch and listen to people who have made it in the investing business. Ray Dalio, warren, Bill Ackman and Carl Icahn. This is turning out to be lengthier than I anticipated so I’ll try to be brief for the remaining parts. Brokers You will need to open up an account with a broker. Get a broker who is regulated. Australian ones (IC Market and Pepperstone) are both legit, reliable and regulated. Do your research. I’d avoid local ones because I’ve heard stories of wide spreads and liquidity problems. International brokers have never failed me. There are plenty brokers, there is no one size fits all recommendation. If it ain’t broke..don’t fix it. Money transfer. All brokers accept wire transfers, you might need to call your bank to authorize that, avoid Equity bank. Stanchart and Stanbic are alright. Large withdrawals $10k+ you will have to call them prior. Get Skrill and Neteller if you don’t like banks like me, set up a Bitcoin wallet for faster withdrawals, (Payoneer and Paypal are accepted by some brokers, just check with them.) How much money can I make..? I hate this question because people have perceived ceilings of income in their minds, eg 1 million ksh is too much to make per month or 10,000ksh is too little. Instead, work backwards. What % return did I make this month/ on this trade. Safaricom made 19.5% last year, if you make 20% you have outperformed them. If you reach of consistency where you can make x% per month on whatever money you have, then there are no limits to how much you can make. How much money do I need to start with..? Zero. You have all the resources above, go forth. There are brokers who provide free bonuses and withdraw-able profits. However, to make a fulltime income you will need some serious cash. Generally, 50,000 kes. You can start lower or higher but if you need say 20k to live comfortably and that is a 10% return per month, then you can do the math on how big your account should be. Of course things like compound interest come into play but that is dependent on your skill level. I have seen people do spectacular things with very little funds. Taxes..? Talk to a lawyer or an accountant. I am neither. Family? Friends? Unfortunately, people will not understand why you spend hundreds of hours watching strangers on the internet so it is best to keep it from them. Eventually you will make it work and they will come to your corner talking about how they always knew you’d make it. The journey will be lonely, make some trading buddies along the way. You’d be surprised at how easy it is when people are united by their circumstances (and stupidity) I have guys who are my bros from South Africa and Lebanon who I have never met but we came up together and are now homies. Join forums, ask questions and grow. That is the only way to learn. Ideally, a group of 5-10 friends committed to learning and growth is the best model. Pushing each other to grow and discovering together. Forex is real and you can do amazing things with it. It is not a get rich quick scheme. If you want a quick guaranteed income, get a job. And now it is 5am, fuck. This is oversimplified and leaves out many many aspects. Happy to answer any questions.
Record News Articles. Then you read through the news articles and save the key phrases,
paragraphs, quotes, etc, that give you insight into the markets expectations, sentiment, global macro, etc, and then input these input your currency specific master file.
Record Propriety News Impact Releases Method and input into your currency specific file.
Record impact of any other intraday events which were not on calendar which moved the
market and input into the currency specific file using the news impact release method if possible.
Record any key phrases and information released on IFR, forexlive, etc that gives you insights
into market expectations, sentiment, global macro, etc, and input into currency specific file. The daily recap of the news articles will give you a very nice overview of what happened. However, I usually like to quickly view the IFR and scroll through the news to see if there was anything important that was said by an important official, etc. Or if the daily news articles do not give me sufficient meaning as to why price did what it did for the day, then I can go to IFR to read some of their explanations to see if I agree with their story and scenarios for the market. Again, any important information I record it into my currency master files.
Label the stops and option barrier levels on your chart and set price alerts to the two closest
ones – one to the topside and one for the downside. Then once one of those gets triggered, you just reset the price alert to the next closest stop/barrier level. Check the stop hunting section to learn how to locate the stops.
Use your currency master file to perform deep scenario analysis.
Create an order flow generator list and trigger sheet. Bullish and Bearish triggers and
generators for each currency / financial instrument. What is the market pricing in. What will shatter those expectations. I have provided you Order Flow Generators for each currency in a separate lesson. There can be similarities between the different currencies.
Prepare for next days news. Use your currency master file which should contain the history of
news impacts that you have recorded in order to determine which reports are important and which ones are meaningless and you should not spend your time on. See the news trading section for explanations on how to know which news releases are important.
Prepare a Correlation Analysis / Sensitivity Sheet.
Learn about one new order flow generator and/or scenario per day either from forex, or
bonds, futures, stocks, commodities, etc. Can be super simple or complicated mix of participants.
Disclaimer: None of this is financial advice. I have no idea what I'm doing. Please do your own research or you will certainly lose money. I'm not a statistician, data scientist, well-seasoned trader, or anything else that would qualify me to make statements such as the below with any weight behind them. Take them for the incoherent ramblings that they are. TL;DR at the bottom for those not interested in the details. This is a bit of a novel, sorry about that. It was mostly for getting my own thoughts organized, but if even one person reads the whole thing I will feel incredibly accomplished.
For those of you not familiar, please see the various threads on this trading system here. I can't take credit for this system, all glory goes to ParallaxFX! I wanted to see how effective this system was at H1 for a couple of reasons: 1) My current broker is TD Ameritrade - their Forex minimum is a mini lot, and I don't feel comfortable enough yet with the risk to trade mini lots on the higher timeframes(i.e. wider pip swings) that ParallaxFX's system uses, so I wanted to see if I could scale it down. 2) I'm fairly impatient, so I don't like to wait days and days with my capital tied up just to see if a trade is going to win or lose. This does mean it requires more active attention since you are checking for setups once an hour instead of once a day or every 4-6 hours, but the upside is that you trade more often this way so you end up winning or losing faster and moving onto the next trade. Spread does eat more of the trade this way, but I'll cover this in my data below - it ends up not being a problem. I looked at data from 6/11 to 7/3 on all pairs with a reasonable spread(pairs listed at bottom above the TL;DR). So this represents about 3-4 weeks' worth of trading. I used mark(mid) price charts. Spreadsheet link is below for anyone that's interested.
I'm pretty much using ParallaxFX's system textbook, but since there are a few options in his writeups, I'll include all the discretionary points here:
I'm using the stop entry version - so I wait for the price to trade beyond the confirmation candle(in the direction of my trade) before entering. I don't have any data to support this decision, but I've always preferred this method over retracement-limit entries. Maybe I just like the feeling of a higher winrate even though there can be greater R:R using a limit entry. Variety is the spice of life.
I put my stop loss right at the opposite edge of the confirmation candle. NOT at the edge of the 2-candle pattern that makes up the system. I'll get into this more below - not enough trades are saved to justify the wider stops. (Wider stop means less $ per pip won, assuming you still only risk 1%).
All my profit/loss statistics are based on a 1% risk per trade. Because 1 is real easy to multiply.
There are definitely some questionable trades in here, but I tried to make it as mechanical as possible for evaluation purposes. They do fit the definitions of the system, which is why I included them. You could probably improve the winrate by being more discretionary about your trades by looking at support/resistance or other techniques.
I didn't use MBB much for either entering trades, or as support/resistance indicators. Again, trying to be pretty mechanical here just for data collection purposes. Plus, we all make bad trading decisions now and then, so let's call it even.
As stated in the title, this is for H1 only. These results may very well not play out for other time frames - who knows, it may not even work on H1 starting this Monday. Forex is an unpredictable place.
I collected data to show efficacy of taking profit at three different levels: -61.8%, -100% and -161.8% fib levels described in the system using the passive trade management method(set it and forget it). I'll have more below about moving up stops and taking off portions of a position.
And now for the fun. Results!
Total Trades: 241
TP at -61.8%: 177 out of 241: 73.44%
TP at -100%: 156 out of 241: 64.73%
TP at -161.8%: 121 out of 241: 50.20%
Adjusted Proft % (takes spread into account):
TP at -61.8%: 5.22%
TP at -100%: 23.55%
TP at -161.8%: 29.14%
As you can see, a higher target ended up with higher profit despite a much lower winrate. This is partially just how things work out with profit targets in general, but there's an additional point to consider in our case: the spread. Since we are trading on a lower timeframe, there is less overall price movement and thus the spread takes up a much larger percentage of the trade than it would if you were trading H4, Daily or Weekly charts. You can see exactly how much it accounts for each trade in my spreadsheet if you're interested. TDA does not have the best spreads, so you could probably improve these results with another broker. EDIT: I grabbed typical spreads from other brokers, and turns out while TDA is pretty competitive on majors, their minors/crosses are awful! IG beats them by 20-40% and Oanda beats them 30-60%! Using IG spreads for calculations increased profits considerably (another 5% on top) and Oanda spreads increased profits massively (another 15%!). Definitely going to be considering another broker than TDA for this strategy. Plus that'll allow me to trade micro-lots, so I can be more granular(and thus accurate) with my position sizing and compounding.
A Note on Spread
As you can see in the data, there were scenarios where the spread was 80% of the overall size of the trade(the size of the confirmation candle that you draw your fibonacci retracements over), which would obviously cut heavily into your profits. Removing any trades where the spread is more than 50% of the trade width improved profits slightly without removing many trades, but this is almost certainly just coincidence on a small sample size. Going below 40% and even down to 30% starts to cut out a lot of trades for the less-common pairs, but doesn't actually change overall profits at all(~1% either way). However, digging all the way down to 25% starts to really make some movement. Profit at the -161.8% TP level jumps up to 37.94% if you filter out anything with a spread that is more than 25% of the trade width! And this even keeps the sample size fairly large at 187 total trades. You can get your profits all the way up to 48.43% at the -161.8% TP level if you filter all the way down to only trades where spread is less than 15% of the trade width, however your sample size gets much smaller at that point(108 trades) so I'm not sure I would trust that as being accurate in the long term. Overall based on this data, I'm going to only take trades where the spread is less than 25% of the trade width. This may bias my trades more towards the majors, which would mean a lot more correlated trades as well(more on correlation below), but I think it is a reasonable precaution regardless.
Time of Day
Time of day had an interesting effect on trades. In a totally predictable fashion, a vast majority of setups occurred during the London and New York sessions: 5am-12pm Eastern. However, there was one outlier where there were many setups on the 11PM bar - and the winrate was about the same as the big hours in the London session. No idea why this hour in particular - anyone have any insight? That's smack in the middle of the Tokyo/Sydney overlap, not at the open or close of either. On many of the hour slices I have a feeling I'm just dealing with small number statistics here since I didn't have a lot of data when breaking it down by individual hours. But here it is anyway - for all TP levels, these three things showed up(all in Eastern time):
7pm-4am: Fewer setups, but winrate high.
5am-6am: Lots of setups, but but winrate low.
12pm-3pm Medium number of setups, but winrate low.
I don't have any reason to think these timeframes would maintain this behavior over the long term. They're almost certainly meaningless. EDIT: When you de-dup highly correlated trades, the number of trades in these timeframes really drops, so from this data there is no reason to think these timeframes would be any different than any others in terms of winrate. That being said, these time frames work out for me pretty well because I typically sleep 12am-7am Eastern time. So I automatically avoid the 5am-6am timeframe, and I'm awake for the majority of this system's setups.
Moving stops up to breakeven
This section goes against everything I know and have ever heard about trade management. Please someone find something wrong with my data. I'd love for someone to check my formulas, but I realize that's a pretty insane time commitment to ask of a bunch of strangers. Anyways. What I found was that for these trades moving stops up...basically at all...actually reduced the overall profitability. One of the data points I collected while charting was where the price retraced back to after hitting a certain milestone. i.e. once the price hit the -61.8% profit level, how far back did it retrace before hitting the -100% profit level(if at all)? And same goes for the -100% profit level - how far back did it retrace before hitting the -161.8% profit level(if at all)? Well, some complex excel formulas later and here's what the results appear to be. Emphasis on appears because I honestly don't believe it. I must have done something wrong here, but I've gone over it a hundred times and I can't find anything out of place.
Moving SL up to 0% when the price hits -61.8%, TP at -100%
Adjusted Proft % (takes spread into account): 5.36%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%
Adjusted Proft % (takes spread into account): -1.01% (yes, a net loss)
Now, you might think exactly what I did when looking at these numbers: oof, the spread killed us there right? Because even when you move your SL to 0%, you still end up paying the spread, so it's not truly "breakeven". And because we are trading on a lower timeframe, the spread can be pretty hefty right? Well even when I manually modified the data so that the spread wasn't subtracted(i.e. "Breakeven" was truly +/- 0), things don't look a whole lot better, and still way worse than the passive trade management method of leaving your stops in place and letting it run. And that isn't even a realistic scenario because to adjust out the spread you'd have to move your stoploss inside the candle edge by at least the spread amount, meaning it would almost certainly be triggered more often than in the data I collected(which was purely based on the fib levels and mark price). Regardless, here are the numbers for that scenario:
Moving SL up to 0% when the price hits -61.8%, TP at -100%
Winrate(breakeven doesn't count as a win): 46.4%
Adjusted Proft % (takes spread into account): 17.97%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%
Winrate(breakeven doesn't count as a win): 65.97%
Adjusted Proft % (takes spread into account): 11.60%
From a literal standpoint, what I see behind this behavior is that 44 of the 69 breakeven trades(65%!) ended up being profitable to -100% after retracing deeply(but not to the original SL level), which greatly helped offset the purely losing trades better than the partial profit taken at -61.8%. And 36 went all the way back to -161.8% after a deep retracement without hitting the original SL. Anyone have any insight into this? Is this a problem with just not enough data? It seems like enough trades that a pattern should emerge, but again I'm no expert. I also briefly looked at moving stops to other lower levels (78.6%, 61.8%, 50%, 38.2%, 23.6%), but that didn't improve things any. No hard data to share as I only took a quick look - and I still might have done something wrong overall. The data is there to infer other strategies if anyone would like to dig in deep(more explanation on the spreadsheet below). I didn't do other combinations because the formulas got pretty complicated and I had already answered all the questions I was looking to answer.
2-Candle vs Confirmation Candle Stops
Another interesting point is that the original system has the SL level(for stop entries) just at the outer edge of the 2-candle pattern that makes up the system. Out of pure laziness, I set up my stops just based on the confirmation candle. And as it turns out, that is much a much better way to go about it. Of the 60 purely losing trades, only 9 of them(15%) would go on to be winners with stops on the 2-candle formation. Certainly not enough to justify the extra loss and/or reduced profits you are exposing yourself to in every single other trade by setting a wider SL. Oddly, in every single scenario where the wider stop did save the trade, it ended up going all the way to the -161.8% profit level. Still, not nearly worth it.
As I've said many times now, I'm really not qualified to be doing an analysis like this. This section in particular. Looking at shared currency among the pairs traded, 74 of the trades are correlated. Quite a large group, but it makes sense considering the sort of moves we're looking for with this system. This means you are opening yourself up to more risk if you were to trade on every signal since you are technically trading with the same underlying sentiment on each different pair. For example, GBP/USD and AUD/USD moving together almost certainly means it's due to USD moving both pairs, rather than GBP and AUD both moving the same size and direction coincidentally at the same time. So if you were to trade both signals, you would very likely win or lose both trades - meaning you are actually risking double what you'd normally risk(unless you halve both positions which can be a good option, and is discussed in ParallaxFX's posts and in various other places that go over pair correlation. I won't go into detail about those strategies here). Interestingly though, 17 of those apparently correlated trades ended up with different wins/losses. Also, looking only at trades that were correlated, winrate is 83%/70%/55% (for the three TP levels). Does this give some indication that the same signal on multiple pairs means the signal is stronger? That there's some strong underlying sentiment driving it? Or is it just a matter of too small a sample size? The winrate isn't really much higher than the overall winrates, so that makes me doubt it is statistically significant. One more funny tidbit: EUCAD netted the lowest overall winrate: 30% to even the -61.8% TP level on 10 trades. Seems like that is just a coincidence and not enough data, but dang that's a sucky losing streak. EDIT: WOW I spent some time removing correlated trades manually and it changed the results quite a bit. Some thoughts on this below the results. These numbers also include the other "What I will trade" filters. I added a new worksheet to my data to show what I ended up picking.
Total Trades: 75
TP at -61.8%: 84.00%
TP at -100%: 73.33%
TP at -161.8%: 60.00%
Moving SL up to 0% when the price hits -61.8%, TP at -100%: 53.33%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%: 53.33% (yes, oddly the exact same winrate. but different trades/profits)
Adjusted Proft % (takes spread into account):
TP at -61.8%: 18.13%
TP at -100%: 26.20%
TP at -161.8%: 34.01%
Moving SL up to 0% when the price hits -61.8%, TP at -100%: 19.20%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%: 17.29%
To do this, I removed correlated trades - typically by choosing those whose spread had a lower % of the trade width since that's objective and something I can see ahead of time. Obviously I'd like to only keep the winning trades, but I won't know that during the trade. This did reduce the overall sample size down to a level that I wouldn't otherwise consider to be big enough, but since the results are generally consistent with the overall dataset, I'm not going to worry about it too much. I may also use more discretionary methods(support/resistance, quality of indecision/confirmation candles, news/sentiment for the pairs involved, etc) to filter out correlated trades in the future. But as I've said before I'm going for a pretty mechanical system. This brought the 3 TP levels and even the breakeven strategies much closer together in overall profit. It muted the profit from the high R:R strategies and boosted the profit from the low R:R strategies. This tells me pair correlation was skewing my data quite a bit, so I'm glad I dug in a little deeper. Fortunately my original conclusion to use the -161.8 TP level with static stops is still the winner by a good bit, so it doesn't end up changing my actions. There were a few times where MANY (6-8) correlated pairs all came up at the same time, so it'd be a crapshoot to an extent. And the data showed this - often then won/lost together, but sometimes they did not. As an arbitrary rule, the more correlations, the more trades I did end up taking(and thus risking). For example if there were 3-5 correlations, I might take the 2 "best" trades given my criteria above. 5+ setups and I might take the best 3 trades, even if the pairs are somewhat correlated. I have no true data to back this up, but to illustrate using one example: if AUD/JPY, AUD/USD, CAD/JPY, USD/CAD all set up at the same time (as they did, along with a few other pairs on 6/19/20 9:00 AM), can you really say that those are all the same underlying movement? There are correlations between the different correlations, and trying to filter for that seems rough. Although maybe this is a known thing, I'm still pretty green to Forex - someone please enlighten me if so! I might have to look into this more statistically, but it would be pretty complex to analyze quantitatively, so for now I'm going with my gut and just taking a few of the "best" trades out of the handful. Overall, I'm really glad I went further on this. The boosting of the B/E strategies makes me trust my calculations on those more since they aren't so far from the passive management like they were with the raw data, and that really had me wondering what I did wrong.
What I will trade
Putting all this together, I am going to attempt to trade the following(demo for a bit to make sure I have the hang of it, then for keeps):
"System Details" I described above.
TP at -161.8%
Static SL at opposite side of confirmation candle - I won't move stops up to breakeven.
Trade only 7am-11am and 4pm-11pm signals.
Nothing where spread is more than 25% of trade width.
Looking at the data for these rules, test results are:
Adjusted Proft % (takes spread into account): 47.43%
I'll be sure to let everyone know how it goes!
Other Technical Details
ATR is only slightly elevated in this date range from historical levels, so this should fairly closely represent reality even after the COVID volatility leaves the scalpers sad and alone.
The sample size is much too small for anything really meaningful when you slice by hour or pair. I wasn't particularly looking to test a specific pair here - just the system overall as if you were going to trade it on all pairs with a reasonable spread.
Here's the spreadsheet for anyone that'd like it. (EDIT: Updated some of the setups from the last few days that have fully played out now. I also noticed a few typos, but nothing major that would change the overall outcomes. Regardless, I am currently reviewing every trade to ensure they are accurate.UPDATE: Finally all done. Very few corrections, no change to results.) I have some explanatory notes below to help everyone else understand the spiraled labyrinth of a mind that put the spreadsheet together.
I'm on the East Coast in the US, so the timestamps are Eastern time.
Time stamp is from the confirmation candle, not the indecision candle. So 7am would mean the indecision candle was 6:00-6:59 and the confirmation candle is 7:00-7:59 and you'd put in your order at 8:00.
I found a couple AM/PM typos as I was reviewing the data, so let me know if a trade doesn't make sense and I'll correct it.
Insanely detailed spreadsheet notes
For you real nerds out there. Here's an explanation of what each column means:
Pair - duh
Date/Time - Eastern time, confirmation candle as stated above
Win to -61.8%? - whether the trade made it to the -61.8% TP level before it hit the original SL.
Win to -100%? - whether the trade made it to the -100% TP level before it hit the original SL.
Win to -161.8%? - whether the trade made it to the -161.8% TP level before it hit the original SL.
Retracement level between -61.8% and -100% - how deep the price retraced after hitting -61.8%, but before hitting -100%. Be careful to look for the negative signs, it's easy to mix them up. Using the fib% levels defined in ParallaxFX's original thread. A plain hyphen "-" means it did not retrace, but rather went straight through -61.8% to -100%. Positive 100 means it hit the original SL.
Retracement level between -100% and -161.8% - how deep the price retraced after hitting -100%, but before hitting -161.8%. Be careful to look for the negative signs, it's easy to mix them up. Using the fib% levels defined in ParallaxFX's original thread. A plain hyphen "-" means it did not retrace, but rather went straight through -100% to -161.8%. Positive 100 means it hit the original SL.
Trade Width(Pips) - the size of the confirmation candle, and thus the "width" of your trade on which to determine position size, draw fib levels, etc.
Loser saved by 2 candle stop? - for all losing trades, whether or not the 2-candle stop loss would have saved the trade and how far it ended up getting if so. "No" means it didn't save it, N/A means it wasn't a losing trade so it's not relevant.
Spread(ThinkorSwim) - these are typical spreads for these pairs on ToS.
Spread % of Width - How big is the spread compared to the trade width? Not used in any calculations, but interesting nonetheless.
True Risk(Trade Width + Spread) - I set my SL at the opposite side of the confirmation candle knowing that I'm actually exposing myself to slightly more risk because of the spread(stop order = market order when submitted, so you pay the spread). So this tells you how many pips you are actually risking despite the Trade Width. I prefer this over setting the stop inside from the edge of the candle because some pairs have a wide spread that would mess with the system overall. But also many, many of these trades retraced very nearly to the edge of the confirmation candle, before ending up nicely profitable. If you keep your risk per trade at 1%, you're talking a true risk of, at most, 1.25% (in worst-case scenarios with the spread being 25% of the trade width as I am going with above).
Win or Loss in %(1% risk) including spread TP -61.8% - not going to go into huge detail, see the spreadsheet for calculations if you want. But, in a nutshell, if the trade was a win to 61.8%, it returns a positive # based on 61.8% of the trade width, minus the spread. Otherwise, it returns the True Risk as a negative. Both normalized to the 1% risk you started with.
Win or Loss in %(1% risk) including spread TP -100% - same as the last, but 100% of Trade Width.
Win or Loss in %(1% risk) including spread TP -161.8% - same as the last, but 161.8% of Trade Width.
Win or Loss in %(1% risk) including spread TP -100%, and move SL to breakeven at 61.8% - uses the retracement level columns to calculate profit/loss the same as the last few columns, but assuming you moved SL to 0% fib level after price hit -61.8%. Then full TP at 100%.
Win or Loss in %(1% risk) including spread take off half of position at -61.8%, move SL to breakeven, TP 100% - uses the retracement level columns to calculate profit/loss the same as the last few columns, but assuming you took of half the position and moved SL to 0% fib level after price hit -61.8%. Then TP the remaining half at 100%.
Overall Growth(-161.8% TP, 1% Risk) - pretty straightforward. Assuming you risked 1% on each trade, what the overall growth level would be chronologically(spreadsheet is sorted by date).
Based on the reasonable rules I discovered in this backtest:
Date range: 6/11-7/3
Adjusted Proft % (takes spread into account): 47.43%
Demo Trading Results
Since this post, I started demo trading this system assuming a 5k capital base and risking ~1% per trade. I've added the details to my spreadsheet for anyone interested. The results are pretty similar to the backtest when you consider real-life conditions/timing are a bit different. I missed some trades due to life(work, out of the house, etc), so that brought my total # of trades and thus overall profit down, but the winrate is nearly identical. I also closed a few trades early due to various reasons(not liking the price action, seeing support/resistance emerge, etc). A quick note is that TD's paper trade system fills at the mid price for both stop and limit orders, so I had to subtract the spread from the raw trade values to get the true profit/loss amount for each trade. I'm heading out of town next week, then after that it'll be time to take this sucker live!
Date range: 7/9-7/30
Adjusted Proft % (takes spread into account): 20.73%
Starting Balance: $5,000
Ending Balance: $6,036.51
Live Trading Results
I started live-trading this system on 8/10, and almost immediately had a string of losses much longer than either my backtest or demo period. Murphy's law huh? Anyways, that has me spooked so I'm doing a longer backtest before I start risking more real money. It's going to take me a little while due to the volume of trades, but I'll likely make a new post once I feel comfortable with that and start live trading again.
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