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Thursday, September 29, 2011

Weekly Trading Update (September 30, 2011)

“Trading is a great equalizer. You don’t have to hold a PhD or an MBA to trade for a living. There are traders who are consistently successful, year after year. Nobody can stop you if you put your mind to it.” – Ed Ponsi

Hello:

Unfortunately, normal business rules don’t apply to successful trading. A top banker once told me that one of the aims of the banking industry is to maximize profits. Well, this is wrong in trading: one of the aims of successful trading is to minimize risk by safe position sizing. Trying to maximize risk in trading, using big position sizing, is like trying to maximize one’s chances of financial disaster. Irrespective of how great you’re in other professions, the financial markets have their own peculiar principles – and each trader would learn the principles, whether through their own experience or through others’ experience. Those who implement sagacious business methods in other professions successfully may discover that errors would be committed and negativity would be sustained in trading. This is sure. It helps to be constantly aware of one’s limitations and never overreact should negativity be sustained. Make your aims modest whenever you’re trading. You must be realistic, targeting small and consistent profits. You’d survive on a long-term basis only if you risk as low as possible. If you keep your risk low, you’ll be a victor.

Below is the summary of some of my trading activities this week.

AUDUSD

Primary Trend: Bearish

This week, the AUDUSD pair experienced a temporary bullish rally in the context of a downtrend. This kind of price movement provided swing traders with an opportunity to sell higher.

NZDUSD

Primary trend: Bearish

What’s happened on the AUDUSD is also true of the NZDUSD. You should’ve sold short to a novice trader who bought after a bullish correction in price and in the context of a downtrend. Yes, both the AUDUSD and the NZDUSD are positively correlated. But sometimes, correlation fails when you’re counting on it the most.

AUDNZD

Primary trend: Bearish

Since the Kiwi and the Aussie are similarly correlated right now, the AUDNZD is in a ranging mode. On this cross, the forces of supply and demand must go out of balance for the price to stop ranging. It’s good to stay out of this market and wait for the next major move.

EURCAD

Primary trend: Bearish

The primary bearish outlook on this instrument has been seriously violated. If there’s a continuation of the present scenario for a few more days, the primary trend would turn bullish. There’s been a northward breakout from the consolidation that started last week – something that may result in a big move. At the present, I’ve 200 pips from this breakout, plus the risk on the trade was removed by a breakeven. Big moves in one market amplify correlation between other markets, and vice versa.

EURNZD

Primary trend: Bearish

In this market, the long-term bearish trend seems to have been rendered invalid. But the domination of the bulls must continue for a few more days before the primary trend turns bullish. The price is above the SMA 200, while the SMA 50 is attempting to cross the SMA 200 to the upside. The ADX 20 fell below the level 30 as a result of a previous correction, but now points towards the level 30. +DI remains above –DI, pointing upwards as well. This signifies a rising bullish pressure.

GBPCHF

Primary trend: Bullish

The price of the GBPCHF is trying to pull back, though the underlying trend is bullish. With this view, the price movement is still range bound. One way of handling this situation is to buy a pullback, more preferably at a strong support level. Yet, market conditions remain uncertain.

Conclusion: Millions of people the world over have chosen the business of trading as a new career. It just happened that they ultimately ended up in this exciting industry. Ken Long is one of such people. He added trading to his other careers. He’s now a market wizard and a blessing to those who’re willing to learn from him. Please let me conclude this article with some quotes from him. They have to do with trading facts.

1. “A short-term trader who has plenty of opportunities is better off taking five positions at 1% risk per position than a single position at 5% risk no matter how he decides to rank order the signals by quality.”

2. “The greater the number of trials in the sample size, the greater your chance of achieving the average expected return of a positive expectancy system. There is a natural tendency among traders to try to concentrate their capital on what they consider to be the best trade available. However, if your system is generating multiple signals, you are better off taking all of the signals at reduced risk, provided that you have done your back-testing work and admin costs of trading are low.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

Yahoo! Messenger ID: saazalmu

If you want my coming trading articles delivered directly into your inbox (I don’t support spamming in any way), you can send me an email titled “Request for Trading Articles.”

NB: There is risk of loss in trading, but it is possible to be a successful trader.

Saturday, September 24, 2011

Increase Your Odds Of Success Through A Sensible RRR

AN INTERVIEW WITH A TRADING ENTHUSIAST

Hello:

It’s common for interviewers to look only for popular traders to feature. Trading success isn’t the birthright of famous, institutional or billionaire traders alone. There are many unknown traders who’re also successful in their own world – whether they’re trading in their bedroom or they’re using a micro account. A humble trader who doesn’t seek popularity may have intriguing tips or lessons to pass across (something that can benefit trading enthusiasts out there). This article features an interview with a humble but successful private trader who makes consistent profits from the currency markets. His name is Iheuwaneme Davies.

Azeez: Please tell us your background.

I. Davies: I’m a civil engineer. I’ve taken part – and of course I still take part – in construction of individual houses, estates, public infrastructure, institutions, churches and universities. Civil engineering has lots of challenges, but over decades I’ve learned how to deal with those challenges. This is a wealth of experience that has helped me greatly in trading. I’m also a husband and a father.

Azeez: How did you become a Forex trader?

I. Davies: Just a couple of years ago, there was too much hype about Forex trading. There were posters, seminars, radio jingles and lots of noise about Forex and the benefits it can bring. In those days people thought that Forex was a get-rich-quick scheme. I wanted to be part of this apparent new income generation opportunity. I like new ideas and challenges. I saw Forex as a vehicle needed to keep me productive and keep giving me some income after I’m retired. In the end, my employers will ask me to go and that’s why I chose Forex as a good alternative or addition to my present job. Unfortunately, I started on a wrong road.

Azeez: What was the wrong road?

I. Davies: I first attended a one-day seminar at a media house, having been told that the seminar was all I needed to become successful. A margin call which I got on a demo account was enough to notify me that I was completely hopeless at trading. Then I arranged for further training. My trainer turned out to be someone who relied on robots alone since he couldn’t trade successfully on his own. I heard many tales of woes from those whose funds were wiped out by robots. My saving grace was that I stuck to demos only at this time because I didn’t depend on trading for my livelihood. Certain novices didn’t have this kind of luck. I later discovered that a vast majority of those who were making noise about Forex – doing seminars, coaching people or selling trading systems and robots were novices who were later proven wrong by the markets. Most of them didn’t have deep knowledge about trading. Some who seemed to have deep knowledge about trading had no long-term profits to prove their expertise. Myriads of people know about Forex, but consistently successful traders are a scarce commodity. Nobody mentioned risk management. I didn’t know that something like that exists in trading until 3 years later. Everybody was talking about profits and great wealth; no-one talked about risk management. Many people didn’t know what they were doing. Now, most of those people have stopped talking about Forex. Some don’t even want to hear of it again.

Azeez: Then how did you arrive at success in trading?

I. Davies: A hidden treasure won’t jump out of its hiding place and deposit itself into idle hands. One has to put forth effort to find it. I decided I’d never give up. I saw that trading is real. If it’s real, then there must be principles that work in it. My employers will soon ask me to stop coming to work because I’m close to the age of retirement. I don’t want to be redundant after retirement. I want to keep busy with something that can stimulate me. I began to search for the secret of success in trading. I wanted to know the truth and make it work for me. As a result of some frantic effort, I discovered the secret. I’ve been liberated by the secret and my life was transformed.

Azeez: Please brief us the secret?

I. Davies: What works in trading is an open secret which is, however, difficult for most traders to accept. The secret is repeated here:

1. Find a strategy that works and practice with it until it becomes second nature.

2. Use a risk-to reward ratio of at least 1:2.

3. Use very small lot sizes.

4. Cut your loss and run your profit.

5. You must be disciplined enough to follow your trading rules no matter what.

With very small lot sizes, you can experience many losses in a row without disheartening drawdowns on your account. When I place trades, those who’d not go in my favor would hit my stops instantly or later. Those who’d go in my favor would continue to develop in my direction, whether quickly or slowly. In the long-run, the profitable trades would add up, recover my losses and eventually add more profits to my account balance. One of your favorite principles should be to increase your odds of success through a sensible RRR. I also believe that you must be an amateur psychologist if you want to be successful in trading. Emotions of confidence, fear, greed and hope must be put in proper perspective. If you’re looking for a magic formula apart from the principles that are listed here, God help you!

Azeez: Could you tell us how you came across this secret?

I. Davies: I told you that I was first trained at a media house and later by an individual, who, I regret to say (as I discovered later), didn’t know what he himself was doing. I just knew that I was not yet a competent trader. My trading results were very much terrible. I was later introduced to a certain coach who has gotten some international fame. He explained to me what trading was really all about; in a totally different way. He introduced me to the principles I mentioned above. Since then, I’ve experienced breakthrough in my trading career. It’s unfortunate that majority of traders started their careers with the so-called trainers who themselves really need help. Those who started with the right education are extremely lucky.

Azeez: What now do you still find challenging in trading, and what do you find rewarding in it?

I. Davies: Before I discovered that without loss there can’t be profit, I used to get discouraged by loss. Now I’m no longer bothered by loss, even if all my open trades go against me. Sometimes, all or most of my open trades will go in my favor. Such is trading! During my novice years, I used to abandon a strategy that was in a losing streak, though the strategy worked well in the past. If I gained, say 35% or 50% returns with a strategy, I’d abandon it after I lost more than half of the returns. After I was convinced there’s no magic system, I stopped searching for what doesn’t exist and focused on risk control. Now, I think the key is to minimize losses in a losing streak. I won’t abandon my good strategy because of a losing streak. If I gain 25% profit with a strategy, I won’t abandon it because the profit is reduced to 15%. I’ll just make sure that I don’t lose too much during a losing streak. I know a winning streak is around the corner. The remaining 15% profit might be raised back to 35% when a winning streak comes around. The modest gains I get in trading are the satisfaction I feel whenever I remember I’m the master of my fate in the currency markets. I’ve found a real purpose in trading. I’m also rewarded by the long-term profit I make. I can now be retired with less anxiety. My knowing that trading can bring great rewards gives me a sound hope for the future.

Azeez: How do you apply risk management?

I. Davies: Before opening a trade, I make sure my lot size is very small. Then I use stop loss, take profit, breakeven and trailing stop to control risk. There are optimum parameters for these features, based on your strategy, trading style and timeframe. But I’d say that your risk control parameters shouldn’t be so tight so as to cause premature exits, and they shouldn’t be too wide so as to cause too much exposure.

Azeez: If risk management is that simple, how come some traders find it difficult to apply?

I. Davies: Gamblers think trading is as easy as hitting the ‘buy’ and the ‘sell’ button. They can’t imagine being in protracted training or using a small lot size, for that’s against their inordinate ambitions. They feel the trade they’re about to open must go in their favor because it has met their entry conditions. They don’t use stop loss because they think it unnecessarily stops them out of a trade that could potentially turn around and become a winner. Why would a gambler settle for 40% per annum when a marketer is promising them 50% - 100% per month? Disciplined traders have managed to get rid of this gambler’s fallacy.

Azeez: What kind of a trader are you?

I. Davies: I use a mechanical trading system, yet there must be some traces of discretion in what every winning trader does. I’m presently trading on a part-time basis, and therefore use daily charts for my analyses. Beginner traders tend to use smaller timeframes: its only lots of trading experience that can turn one into a long-term trader – using longer time horizons.

Azeez: What’s your trading approach?

I. Davies: I’m a trend follower. You can be surprised that I use common indicators like Moving Averages, Stochastic, and Relative Strength Index. The RSI is used to help in trend-following. I’m very good at candlesticks analysis, so I use it also in making decisions in the markets. I’m not good at trading news: I trade only what I see on the charts and I’m successful with that. I just need to trade what I see. For example, the Stochastic Oscillator may be in overbought region while an uptrend is intact. Ultimately, my trading system isn’t the secret of my success, as it’s true of all other systems. Trading systems aren’t the key, money/risk management is.

Azeez: What are your favorite pairs and crosses?

I. Davies: Some of them are GBPJPY, EURJPY, AUDUSD, EURCHF, GBPCHF and EURGBP. I like them because they’re prone to trend very well.

Azeez: On average, how many trades do you place per week? What’s your average performance per week?

I. Davies: I may place up to 8 trades per week providing that the markets are trending well that week. I also use pending orders to catch a new trend whichever way it goes. My monthly performance is around 2% - 5%.

Azeez: What was your biggest loss?

I. Davies: As I mentioned earlier, my biggest loss happened when I was still a novice. In those days, I used to feel bad after a loss. But now, due to a lot of experience in trading, losses don’t make any difference to me. A losing streak is temporary, and there’s nothing in this world that isn’t temporary. Just make sure you don’t suffer big drawdowns in a losing streak.

Azeez: What do you have to say to encourage those who’re still facing challenges in trading?

I. Davies: Be aware of your past mistakes, but try not to dwell on them. In trading, even a widely held idea can be false. One can remain a novice for many years. Still, you might hesitate to change your wrong beliefs, especially if you’ve held them for a long time. While correct trading principles can help every trader, I know that many traders won’t follow them. Maybe you learned about trading before without feeling that you’ve benefited from what you learned. If so, don’t give up. Trying to trade successfully when you’ve been taught wrong principles is like trying to assemble a puzzle using a wrong picture as a reference. You might put a few pieces together correctly but then give up in frustration when these don’t match the overall picture you were given. Start with the right picture, though, and the pieces will fall into place. Learning the truth about trading is more than intellectual exercise – it can change your life for the better. Similarly, taking risk management serious can help you gain serenity and peace of mind in an uncertain market.

Azeez: Engineer Davies, thank you very much for sharing your trading thoughts with us. We wish you the best of luck and success for the future.

NB: Please watch out for my coming articles with these titles: ‘Another EURUSD-USDCHF Correlation Strategy,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple RRR – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Excellent Money Management Flexibility – Make the Best Choice!’ ‘Resist the Lure of High Risk – Part 3’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Developing the Right Attitude towards Losses - Part 4 (Losses Aren’t Abnormal) ,’ ‘The True Holy Grail – The Long Sought for,’ ‘Suicide Trading Techniques,’ ‘ Clarifying Some Issues – Part 5,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘Overview of My Signals Strategies,’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Is It Realistic to Give Guarantees in Trading?’ ‘Monthly Trading Report (Augsut 2011),’ etc.

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

AN INTERVIEW WITH A TRADING ENTHUSIAST

Hello:

It’s common for interviewers to look only for popular traders to feature. Trading success isn’t the birthright of famous, institutional or billionaire traders alone. There are many unknown traders who’re also successful in their own world – whether they’re trading in their bedroom or they’re using a micro account. A humble trader who doesn’t seek popularity may have intriguing tips or lessons to pass across (something that can benefit trading enthusiasts out there). This article features an interview with a humble but successful private trader who makes consistent profits from the currency markets. His name is Iheuwaneme Davies.

Azeez: Please tell us your background.

I. Davies: I’m a civil engineer. I’ve taken part – and of course I still take part – in construction of individual houses, estates, public infrastructure, institutions, churches and universities. Civil engineering has lots of challenges, but over decades I’ve learned how to deal with those challenges. This is a wealth of experience that has helped me greatly in trading. I’m also a husband and a father.

Azeez: How did you become a Forex trader?

I. Davies: Just a couple of years ago, there was too much hype about Forex trading. There were posters, seminars, radio jingles and lots of noise about Forex and the benefits it can bring. In those days people thought that Forex was a get-rich-quick scheme. I wanted to be part of this apparent new income generation opportunity. I like new ideas and challenges. I saw Forex as a vehicle needed to keep me productive and keep giving me some income after I’m retired. In the end, my employers will ask me to go and that’s why I chose Forex as a good alternative or addition to my present job. Unfortunately, I started on a wrong road.

Azeez: What was the wrong road?

I. Davies: I first attended a one-day seminar at a media house, having been told that the seminar was all I needed to become successful. A margin call which I got on a demo account was enough to notify me that I was completely hopeless at trading. Then I arranged for further training. My trainer turned out to be someone who relied on robots alone since he couldn’t trade successfully on his own. I heard many tales of woes from those whose funds were wiped out by robots. My saving grace was that I stuck to demos only at this time because I didn’t depend on trading for my livelihood. Certain novices didn’t have this kind of luck. I later discovered that a vast majority of those who were making noise about Forex – doing seminars, coaching people or selling trading systems and robots were novices who were later proven wrong by the markets. Most of them didn’t have deep knowledge about trading. Some who seemed to have deep knowledge about trading had no long-term profits to prove their expertise. Myriads of people know about Forex, but consistently successful traders are a scarce commodity. Nobody mentioned risk management. I didn’t know that something like that exists in trading until 3 years later. Everybody was talking about profits and great wealth; no-one talked about risk management. Many people didn’t know what they were doing. Now, most of those people have stopped talking about Forex. Some don’t even want to hear of it again.

Azeez: Then how did you arrive at success in trading?

I. Davies: A hidden treasure won’t jump out of its hiding place and deposit itself into idle hands. One has to put forth effort to find it. I decided I’d never give up. I saw that trading is real. If it’s real, then there must be principles that work in it. My employers will soon ask me to stop coming to work because I’m close to the age of retirement. I don’t want to be redundant after retirement. I want to keep busy with something that can stimulate me. I began to search for the secret of success in trading. I wanted to know the truth and make it work for me. As a result of some frantic effort, I discovered the secret. I’ve been liberated by the secret and my life was transformed.

Azeez: Please brief us the secret?

I. Davies: What works in trading is an open secret which is, however, difficult for most traders to accept. The secret is repeated here:

1. Find a strategy that works and practice with it until it becomes second nature.

2. Use a risk-to reward ratio of at least 1:2.

3. Use very small lot sizes.

4. Cut your loss and run your profit.

5. You must be disciplined enough to follow your trading rules no matter what.

With very small lot sizes, you can experience many losses in a row without disheartening drawdowns on your account. When I place trades, those who’d not go in my favor would hit my stops instantly or later. Those who’d go in my favor would continue to develop in my direction, whether quickly or slowly. In the long-run, the profitable trades would add up, recover my losses and eventually add more profits to my account balance. One of your favorite principles should be to increase your odds of success through a sensible RRR. I also believe that you must be an amateur psychologist if you want to be successful in trading. Emotions of confidence, fear, greed and hope must be put in proper perspective. If you’re looking for a magic formula apart from the principles that are listed here, God help you!

Azeez: Could you tell us how you came across this secret?

I. Davies: I told you that I was first trained at a media house and later by an individual, who, I regret to say (as I discovered later), didn’t know what he himself was doing. I just knew that I was not yet a competent trader. My trading results were very much terrible. I was later introduced to a certain coach who has gotten some international fame. He explained to me what trading was really all about; in a totally different way. He introduced me to the principles I mentioned above. Since then, I’ve experienced breakthrough in my trading career. It’s unfortunate that majority of traders started their careers with the so-called trainers who themselves really need help. Those who started with the right education are extremely lucky.

Azeez: What now do you still find challenging in trading, and what do you find rewarding in it?

I. Davies: Before I discovered that without loss there can’t be profit, I used to get discouraged by loss. Now I’m no longer bothered by loss, even if all my open trades go against me. Sometimes, all or most of my open trades will go in my favor. Such is trading! During my novice years, I used to abandon a strategy that was in a losing streak, though the strategy worked well in the past. If I gained, say 35% or 50% returns with a strategy, I’d abandon it after I lost more than half of the returns. After I was convinced there’s no magic system, I stopped searching for what doesn’t exist and focused on risk control. Now, I think the key is to minimize losses in a losing streak. I won’t abandon my good strategy because of a losing streak. If I gain 25% profit with a strategy, I won’t abandon it because the profit is reduced to 15%. I’ll just make sure that I don’t lose too much during a losing streak. I know a winning streak is around the corner. The remaining 15% profit might be raised back to 35% when a winning streak comes around. The modest gains I get in trading are the satisfaction I feel whenever I remember I’m the master of my fate in the currency markets. I’ve found a real purpose in trading. I’m also rewarded by the long-term profit I make. I can now be retired with less anxiety. My knowing that trading can bring great rewards gives me a sound hope for the future.

Azeez: How do you apply risk management?

I. Davies: Before opening a trade, I make sure my lot size is very small. Then I use stop loss, take profit, breakeven and trailing stop to control risk. There are optimum parameters for these features, based on your strategy, trading style and timeframe. But I’d say that your risk control parameters shouldn’t be so tight so as to cause premature exits, and they shouldn’t be too wide so as to cause too much exposure.

Azeez: If risk management is that simple, how come some traders find it difficult to apply?

I. Davies: Gamblers think trading is as easy as hitting the ‘buy’ and the ‘sell’ button. They can’t imagine being in protracted training or using a small lot size, for that’s against their inordinate ambitions. They feel the trade they’re about to open must go in their favor because it has met their entry conditions. They don’t use stop loss because they think it unnecessarily stops them out of a trade that could potentially turn around and become a winner. Why would a gambler settle for 40% per annum when a marketer is promising them 50% - 100% per month? Disciplined traders have managed to get rid of this gambler’s fallacy.

Azeez: What kind of a trader are you?

I. Davies: I use a mechanical trading system, yet there must be some traces of discretion in what every winning trader does. I’m presently trading on a part-time basis, and therefore use daily charts for my analyses. Beginner traders tend to use smaller timeframes: its only lots of trading experience that can turn one into a long-term trader – using longer time horizons.

Azeez: What’s your trading approach?

I. Davies: I’m a trend follower. You can be surprised that I use common indicators like Moving Averages, Stochastic, and Relative Strength Index. The RSI is used to help in trend-following. I’m very good at candlesticks analysis, so I use it also in making decisions in the markets. I’m not good at trading news: I trade only what I see on the charts and I’m successful with that. I just need to trade what I see. For example, the Stochastic Oscillator may be in overbought region while an uptrend is intact. Ultimately, my trading system isn’t the secret of my success, as it’s true of all other systems. Trading systems aren’t the key, money/risk management is.

Azeez: What are your favorite pairs and crosses?

I. Davies: Some of them are GBPJPY, EURJPY, AUDUSD, EURCHF, GBPCHF and EURGBP. I like them because they’re prone to trend very well.

Azeez: On average, how many trades do you place per week? What’s your average performance per week?

I. Davies: I may place up to 8 trades per week providing that the markets are trending well that week. I also use pending orders to catch a new trend whichever way it goes. My monthly performance is around 2% - 5%.

Azeez: What was your biggest loss?

I. Davies: As I mentioned earlier, my biggest loss happened when I was still a novice. In those days, I used to feel bad after a loss. But now, due to a lot of experience in trading, losses don’t make any difference to me. A losing streak is temporary, and there’s nothing in this world that isn’t temporary. Just make sure you don’t suffer big drawdowns in a losing streak.

Azeez: What do you have to say to encourage those who’re still facing challenges in trading?

I. Davies: Be aware of your past mistakes, but try not to dwell on them. In trading, even a widely held idea can be false. One can remain a novice for many years. Still, you might hesitate to change your wrong beliefs, especially if you’ve held them for a long time. While correct trading principles can help every trader, I know that many traders won’t follow them. Maybe you learned about trading before without feeling that you’ve benefited from what you learned. If so, don’t give up. Trying to trade successfully when you’ve been taught wrong principles is like trying to assemble a puzzle using a wrong picture as a reference. You might put a few pieces together correctly but then give up in frustration when these don’t match the overall picture you were given. Start with the right picture, though, and the pieces will fall into place. Learning the truth about trading is more than intellectual exercise – it can change your life for the better. Similarly, taking risk management serious can help you gain serenity and peace of mind in an uncertain market.

Azeez: Engineer Davies, thank you very much for sharing your trading thoughts with us. We wish you the best of luck and success for the future.

NB: Please watch out for my coming articles with these titles: ‘Another EURUSD-USDCHF Correlation Strategy,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple RRR – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Excellent Money Management Flexibility – Make the Best Choice!’ ‘Resist the Lure of High Risk – Part 3’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Developing the Right Attitude towards Losses - Part 4 (Losses Aren’t Abnormal) ,’ ‘The True Holy Grail – The Long Sought for,’ ‘Suicide Trading Techniques,’ ‘ Clarifying Some Issues – Part 5,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘Overview of My Signals Strategies,’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Is It Realistic to Give Guarantees in Trading?’ ‘Monthly Trading Report (Augsut 2011),’ etc.

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

Thursday, September 22, 2011

Weekly Trading Update (September 23, 2011)

“I don't mind having a bad week, or even a few bad weeks. What's important to me is if I can look at substantial profits at the end of the year! And right now it looks like I will be able to do so again at the end of this year, even though 2011 didn't start out that gloriously.” - Marco Mayer

Hello:

Successful trading rules are a paradox. A risk control rule says: Risk less to make more or risk more to make less. The fact that less is more will always be true in trading. For example, less intricate and easier speculation methods tend to produce more agreeable and far more decent returns (not account doubling, which is repugnant to disciplined and experienced risk managers). Your goal is to metamorphose into a proficient and adept speculator. A proficient and adept speculator acknowledges that trading oughtn’t to take all your time. Trading should be a factor that facilitates your ability to have the time and opportunity to live a fulfilling life and engage in other activities you enjoy doing.

Below is the summary of some of my trading activities this week.

AUDUSD

Primary Trend: Bearish

Having opened with a vivid gap this week, this pair has fallen by about 500 pips. I was able to gain 200 pips from this bearish move. The next line of action would be to sell on rally.

NZDUSD

Primary trend: Bearish

Traders need to bear it in mind that we’re just seeing the beginning of another bear markets in Forex. Price is the leading indicator and it should act in helping traders know the next thing to do, which is the assumption of short trades in this context. In the world of trading, price is king.

AUDNZD

Primary trend: Bearish

This cross is a kind of ranging right now. But a closer look reveals that the Aussie is still stronger than the Kiwi, though with limited domination. The price must break the level at 1.2600 - which is a very strong resistance – before any dependable bullish movement can be seen

EURCAD

Primary trend: Bearish

Also starting with a gap this week, this cross has gone up by approximately 500 pips. There’s a threat to the longer-term bearish outlook. The next plan is buy to a pullback, using our predefined rules. The trading rules mentioned here provide ready-made answers to what we should do in terms of trading orders we should place.

EURNZD

Primary trend: Bearish

Here too, there’s an extremely grave threat to the bearish trend. If there’s a continuation of the present bullish breakout, then the weak market would be rendered invalid. The price on this cross is above the SMA 200, while the SMA 50 is still below the SMA 200. The ADX 20 is moving above the level 23, just going to the level 30. +DI has just moved above –DI, indicating the beginning of a protracted northward move. The Kiwi can’t stand this!

GBPCHF

Primary trend: Bullish

The bullish movement on this instrument is still intact, though it’s getting tricky to find a suitable entry price. One way of handling this is to use both Buy Stop and Sell Stop orders in an equilibrium zone, so that I can catch the next price breakout. With this, I try to keep it simple and just wait for setups to unfold.

Conclusion: How do you define success in trading? Ed Ponsi has an interesting answer to give. His answer and other quotes conclude the articles below. They point out the big difference between the disciplined trader’s goals and mindset and the gambler’s goals and mindset.

1. “Well, if you are making money, you are ahead of the majority of traders, but anyone can make money in the short run. I would define success in trading as consistency. A trader who can make just 2% to 3% per month, every month, without taking inordinate risk or suffering a severe drawdown is a successful trader. He or she is outperforming most traders, hedge funds, mutual funds and indexes. A trader who can make more than this on a consistent basis, year after year, is a rock star.”

2. “When you are new to trading, a losing streak becomes really bothersome because we begin to doubt ourselves. We begin to question whether or not we have a future in this business. Over time, I began to realize that losing is just a part of winning, a necessary part. To use a military analogy, you cannot win the war unless you are willing to lose some battles along the way. It is necessary to suffer short-term losses in order to achieve long-term success. Once I realized this, losing did not bother me as much.”

3. “Usually, the longer I am in a trading position, the more profitable it has become because I am trying to capture a trending move, and I want to hold it until the trend fails.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

Yahoo! Messenger ID: saazalmu

If you want my coming trading articles delivered directly into your inbox (I don’t support spamming in any way), you can send me an email titled “Request for Trading Articles.”

NB: There is risk of loss in trading, but it is possible to be a successful trader.

Saturday, September 17, 2011

IN PRAISE OF THE DISCIPLINED TRADER

IN PRAISE OF THE DISCIPLINED TRADER

“You must win the battle within yourself first, before you can win with the markets… Remember the key is to always exercise mental discipline when applying these structural tips. A successful trader is in control of his/her emotions at all times and is not controlled by fear. Know that the market is a math game. It's an exercise in probability and statistics and you must keep the odds on your side, even if, from time to time, it hurts.” - Norman Hallett

Hello:

For the disciplined trader, there are no flops, only experiences. There are beneficial lessons you can learn when trading becomes tough. The loss is one of the factors that help awaken the trading genius in the trader. In trading, there’s a solution to each challenge. Innovation is what follows when faced with a new challenge, plus the trader can often experiment with different trading ideas and stick to what works. What is known is useless unless it’s applied. Knowledge is power only when it’s applied. The disciplined trader knows that the right mindset and risk control are essentials for a trading strategy to be used effectively.

The exemplary trader doesn’t talk of quitting trading because of transitory losses. She/he knows that profits will soon show up. For the trader, trading is a passion of a lifetime. John Carter says: “Honestly I cannot [stop trading]. Everyday is different. It’s mentally stimulating. I like to have breaks form time to time where I don’t trade for a couple of weeks, but I can imagine looking at the markets right up until the end.”

All the disciplined trader needs to know is embedded in her/his mind or at their disposal. She/he knows that if some good trade setups are missed, with patience, there’ll soon be new setups. There’s no need to be trading always or everyday; trading is done only when certain criteria are met. The trader thinks of the extra time she/he has. You can trade and still have a life! When new positions are opened, the markets are allowed to play themselves out. The exemplary trader uses stops to truncate losses, and give profits sufficient leeway. Who knows whether a trade that has gone positive by 120 pips would still go positive by 200 pips or more? Moreover, each market movement will favor some traders and disfavor some traders. The market makers and other traders are only human, just like the exemplary trader. By using positive expectancy systems, the trader can be triumphant with 50% probability.

A rookie may first be disappointed by the fact that there’s no magical strategy, but this fact can change forever their attitude to trading. She/he may then decide to know how successful traders manage to move ahead without the fictitious Holy Grail. These secrets have been mentioned tirelessly in my articles. I admire the strength of character that I observe in traders who can still smile and laugh in spite of occasional losses. Have you ever been in a situation in which you felt troubled and disappointed in trading? Even while you were undergoing this tough time, the experience might be helping you to become a better trader in future.

You have only 2 choices: Forge ahead on your way to success, or turn to hopelessness and go do something else.

In Praise of the Disciplined Trader

You have laid your rules on the battleground,

You gather gains effortlessly,

You are a veteran who does not waver

That to win is to survive;

The loss and profit are the same

To you when the trade must be executed;

Yours are the wits that scan the markets:

The chance is come again!

Prove to them if you are still the pro

That you have always been!

I conclude this article with quotes from Dr. Van K. Tharp

1. “I learned that successful traders possess certain qualities and thought processes that enable them to produce outstanding results.”

2. “I believe that every person produces the results he or she gets in life. This is especially evident in trading: the results you get in the market are the direct and precise consequences of your choices and actions. Most traders battle the market for many years before they realize this. Conservative investors seldom get to this point—they just have too few results to ever know this.”

3. “The vast majority of traders make mistakes and lose money first before they realize that they are the cause of those mistakes, and that they can help themselves to stop making mistakes.”

NB: Please watch out for my coming articles with these titles: ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple RRR – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Excellent Money Management Flexibility – Make the Best Choice!’ ‘Resist the Lure of High Risk – Part 3’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Developing the Right Attitude towards Losses - Part 4 (Losses Aren’t Abnormal) ,’ ‘The True Holy Grail – The Long Sought for,’ ‘Suicide Trading Techniques,’ ‘Achieve Success through Sensible Risk-to-reward Ratio (An Interview with a Trading Enthusiast),’ ‘ Clarifying Some Issues – Part 5,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘Overview of My Signals Strategies,’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Is It Realistic to Give Guarantees in Trading?’ ‘Monthly Trading Report (Augsut 2011),’ etc.

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

If you want my coming trading articles delivered directly into your inbox (I don’t support spamming in any way), you can send me an email titled “Request for Trading Articles.”

NB: There is risk of loss in trading, but it is possible to be a successful trader.

Thursday, September 15, 2011

Weekly Trading Update (September 16, 2011)

“A bad trade is a bad trade. You shouldn’t need a large loss to prove it.” – Steve Beaumont

Hello:

The goal in trading should be in sustaining as little loss as possible, while trying to gain as much as possible (your broker will hate you for this). It means we shouldn’t pretend that trading strategies are the key while risk management is. Of course, like many professionals in other walks of life, professional traders’ often fail in their attempts. But their success rate is generally much higher than that of their novice competitors. This is the central truth: Adequate knowledge and application of risk control keeps your account permanently safe.

Here, you’ll notice that AUDNZD and GBPCHF have replaced EURAUD and AUDJPY. Below is the summary of some of my trading activities this week.

AUDUSD

Primary Trend: Bearish

After a sharp sell-off, this pair has been in a ranging mode for most of this week. There’s a support at 1.0180, from which the price has been attempting to go up. If this support is to hold, some bullish dominance would be expected.

NZDUSD

Primary trend: Bearish

The price level at 0.8120 has been interesting because it has acted as a good support, which would be more justified with the time. Having patience in these choppy markets where returns are hard to find is the toughest game that traders play.

AUDNZD

Primary trend: Bullish

The Aussie is currently trying to show it’s stronger than the Kiwi, whereas there was a bearish move this week. Although long-term trend changes few times a year, they’re ignored only at a trader’s peril.

EURCAD

Primary trend: Bearish

Last week, I said that the bullish outlook was seriously violated on this cross. Yes, the bulls were rendered powerless – the price fell by over 600 pips before finding a good support at 1.3460. There’s been a minor rally since then.

EURNZD

Primary trend: Bearish

The price on this cross is above the SMA 50, but below the SMA 200. The ADX 20 is moving along the level 30. +DI has moved above –DI, indicating some new buying pressure. One way of speculating could be buying at a demand zone.

GBPCHF

Primary trend: Bullish

The bears’ power has been rendered conspicuously invalid. It looks dangerous to hold a long-term short position on this instrument right now. This is also true of other CHF pairs. Correlation between instruments becomes much stronger during periods of large-standard deviation moves (when potentially diversification/non-correlation would be required most).

Conclusion: The foregoing analyses, of course, are swing trades and they’re something a trader would be expected to hold for many days if not weeks as long as the trade is going their way. Some people can’t handle this pressure of ‘sitting on a trade’ but it’s a habit that’s important to develop. The best thing a trader can do many times is nothing. Just sit on your hands.

I’d like to conclude this article with the quotes below:

“...and remember, trading is a 100% mental game. If you don't have mental and emotional tools in your tool box, it's like hammering a nail with your fist; it's not only painful, but causes lots of damage.” – Dr. Woody Johnson

“Regretting missed profits is one of the most powerful psychological forces at work to make you change your trading plan. Armed with the knowledge that his system has a decent exit efficiency, however, a trader can maintain the willpower and discipline to stick to good trading rules in the future.” – Ken Long

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

Yahoo! Messenger ID: saazalmu

If you want my coming trading articles delivered directly into your inbox (I don’t support spamming in any way), you can send me an email titled “Request for Trading Articles.”

NB: There is risk of loss in trading, but it is possible to be a successful trader.

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