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Friday, October 28, 2011

Resist the Lure of High Risk – Part 3

USE LOW RISK AND REAP BENEFITS

“Of all the hundreds of traders I have met over the years I only know a handful that still trade and make money year after year. All those traders without exception have strict money management principles and a simple method or system. Don't be in a rush to make it in trading. You need to learn this profession. You need to have money management principles in place that allows you to stay in the game even when you go through a bad patch and trust me they will come.” - Mark McRae

Hello:

Can you stomach big losses? Taking big bites will ultimately result in taking big blows on the account you opened with your hard-earned money. Anyone who expects huge returns in a short time isn’t psychologically prepared to be a permanent victor in the market. You may see a title like this: ‘How To Make a Million Dollars in 40 Trades’, but this is tantamount to how to receive a margin call in 40 trades. Someone who’s showing you how $200 was turned into $5000 in one month is, in effect, showing you the quickest route to a margin call. Just as an automobile can be wrecked if driven carelessly, your trading portfolio can be ruined if you use large position sizes to achieve huge profits. Thus, when a trader mismanages his portfolio, he easily experiences big losses. Many traders would be better off if they just stopped doing that.

What do you believe? Why is it that big roll-downs, headaches, outbursts, and abrupt end to careers run rampant throughout the trading world despite warnings from professional risk managers. Why is it that many traders seem to be dashing headlong into self-destructive course, turning a deaf ear to repeated warnings? It’s of no use talking to deaf people. But I’d continue blowing my horn, perhaps some traders out there may hear.

Using low position sizing isn’t easy because we live among people who promote the use of high position sizing and think that risk control is cowardly. Many unwary traders yearn for the kinds of gargantuan results flaunted by vendors. On an individual level, many are tempted to crave the trading results that are beyond realities. This can be a trap. Some of the trading results flaunted by the vendors aren’t genuine either. Why follow someone else in their irrationality and end up in financial trouble?

Many of the most successful traders in the world don’t seek to double their accounts in a short period of time. Nevertheless, they find satisfaction in slow and steady growth of their accounts, which go alongside strict application of safety measures. Like those who use small sizes, if you ‘seriously stop going after big profits,’ you too can enjoy that consistent survival. You’ll see how you’d be unaffected by bad markets, being immune to the damage the uncertain markets can bring.

Some speculators have experienced profound disappointments but have improved their trading results by choosing to follow safety rules in trading. Although it was very difficult, I did away with anything that encouraged the use of high risk in trading. Yet the temptation stayed in my mind for a long time. Whenever I happened to see an advert that shows how, for example, $500 was turned into $20,000 in 6 months (with a supposedly magical entry system), I immediately thought of my past experiences. I didn’t want to mix those unpleasant memories with everything good that was now taking root in my heart and trading experience. So I intentionally avoided those who promised the moon and the sun. And whenever I was tempted to become greedy, I stayed away from trading until I came back to my normal senses. Doing so helped me to experience the survival and consistent profit that follows it. I see the damage that high risk does, and I want no part of it. The trading principles that work have helped me realize that my dream of consistently huge profits in short periods of time was connected with fallacies practiced by unwise traders. This kind of dream has little permanent value. I’ve witnessed how those who constantly targeted huge profits have experienced bitter disappointments in their trading careers. Seeking a way to double your account many times in the shortest time possible is the fastest way to ruin your trading career. One the other hand, I’ve found the greatest aim in trading – capital preservation.

Traders need an end to big losses and margin calls. Risk less to make more, risk more to make less. Whatever the case may be, be modest and realistic about what you do as a trader, and make your decisions with risk control in mind (in case the market goes against you). Being a carefree high-risk taker can be addictive and can lead to heartache. So work on being a cautious and prudent speculator, which can put you in a position to enjoy permanent success in the markets. You can be a permanent victor on the battlefield of the financial markets. You can gain several benefits by following risk control principles regarding trading activity. You’ll avoid the harsh consequences suffered by gamblers.

We need to adjust our trading viewpoints to align them with safety measures because that’s what can protect our nerves. Risk control measures protect the portfolios of those who employ them. These measures prevent them from doing things that can jeopardize their trading objectives and survivability. A portfolio trader thinks about the total value of his portfolio rather than the success or failure of the individual trades on it, and as such, he approaches trading in a different way than just being concerned with picking a winner every time.

There are many effective trading strategies. The most common element to all successful strategies is good money management. Availability of risk management is a privilege and part of successful trading. Since we aren’t sure of what the market will do next, we should always remember to apply risk control before trading. Beware of greed. Find contentment by going after small but consistent profits. In one of my coming articles, I’ll explain clearly how risk and money management may be effectively applied to trading strategies. These suggestions can help you avoid big losses and/or margin calls (moving ahead consistently in the markets) but only if you put them into practice. This is the best thing you could ever do in trading. But if you could do it, the rewards are commensurately greater. I implore you to partake in the benefits that come to those who control risk.

This article is concluded with a quote from one funds manager who also takes risk control very serious:

You might wonder why our equity long/short strategy is aiming at relatively low annual return of 15% at most. On the one hand this is due to the fact that major investors don’t like to lose a lot of money. As funds being managed may belong to some individual investors, capital preservation is the prime target. And it’d behoove funds manager to behave accordingly. Nevertheless, astronomical returns are rendered impossible…”

NB: Please watch out for my coming articles with these titles: ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘The Most Important Trading Skill – Who’s a Winning Trader?’ ‘Recent Market Conditions (The Most Difficult Aspect of Trading),’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 1 - 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘A Hedge Funds Strategy,’ ‘My Hedge Funds Strategy Update,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple Positive Expectancy System – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Resist the Lure of High Risk – Part 4’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Gap Trading Revisited,’ ‘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,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 5,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘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,’ ‘Monthly Trading Report (November 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, October 27, 2011

Weekly Trading Update (October 28, 2011)

“Without a doubt, trading is something I’ll do for the rest of my life!” – Tom Alexander [paraphrase]

Hello:

A satisfying trading career – why so elusive? Why do many traders struggle without finding any real meaning in their career? Do you know how to attain satisfying trading experience? It looks like a blanket of pessimism about the uncertain markets seems to cover much of the trading world. It’s evident, therefore, that many traders aren’t leading a fully satisfying trading career. Some traders are totally perplexed. They’re unsure whether or not their next trades would be winners or not. I can even say that we, professionals, are largely to blame. Why? We mayn’t realize, until much damage has been done, how our know-it-all attitude is undermining the principles that can keep our trading portfolios safe. Inability to use safe position sizing is the commonest problems of traders in the world today. Yet there are traders who confront uncertainties with a happy spirit. Having a positive attitude despite losing streaks may even have a healthful effect. By having a positive attitude, we can cope with the inevitable loss in trading. The existence of risk control methods is the greatest benefit the trading family has ever experienced. Every attempt to ignore them isn’t in the interest of your trading career. The principles that can keep your money safe have time-tested value.

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

AUDUSD

Primary Trend: Bullish

The AUDUSD is breaking one resistance after the other, being fueled by fundamentals. Even if one was stopped out previously, it’s high time one tried to find an entry price in the favor of the bulls.

NZDUSD

Primary trend: Bullish

The trend on this pair just turned bullish – something that shows that it’s still early to join the northbound journey. An uptrend could be established when higher lows are developing, as opposed to a downtrend which is caused by lower highs.

AUDNZD

Primary trend: Bullish

Supply zones get penetrated continually on this cross; another evidence that there are trending pairs/crosses somewhere, even when the markets are irrationally volatile. This price has risen by about 500 pips since October 6, 2011.

EURCAD

Primary trend: Bullish

This market remains irrational and volatile, the reason being that both the EUR and the CAD are strong. It isn’t uncommon for the price to rise by over 200 pips and later fall by almost the same amount. Correctional attempts on this market are being watched closely. Since not every slight correction results in a trend reversal, it’s necessary to determine the reversal amount.

EURNZD

Primary trend: Bullish

On this cross, the previously directionless movement in a bullish outlook is tricky. The SMA 50 is above the SMA 200: the price is below the former and hovering just above the later. The ADX 20 rose above the level 30 and later fell below it, indicating a serious struggle between buyers and sellers. -DI is trying to cross +DI to the upside.

GBPCHF

Primary trend: Bullish

On this instrument, the bullish bias which remained intact for a long period of time has begun to be threatened. If this kind of situation continues for a few more days, then the bullish outlook would be over. I’d be looking for a way to go short, and put survival methods into consideration. The market does not care how we feel.

Conclusion: What, though, if you aren’t currently using risk control methods? Is it possible to change your trading style? Would your past mistakes hold you back from your future success? Consider the fact: Some market wizards were formerly gambling, na├»ve, irrationally emotional and undisciplined. They chose to change their trading styles, and they reaped great benefits. Today, thousands of traders throughout the world have made a similar choice. They’d freed themselves from dangerous trading styles and have experienced the benefits of bringing their conduct in harmony with safe trading principles.

The article is concluded by more quotes from Tom Alexander:

1. “Well, most retail traders are discretionary traders and a much higher percentage of institutional traders are systems based. I believe a good experienced discretionary trader can trade circles around an institutional systems trader. Also, a lot of institutional trading now is driven by High Frequency Trading (HFT). I think in both cases there’s a real lack of understanding of how the markets actually work. Institutional traders usually take a more rigorous approach testing their approaches. Retail traders tend to look for the magic bullet, the single Big Secret that’s going to lead them to riches. Of course, there’s not one.”

2. “Most traders don’t understand what having an ‘edge’ means – a positive expectancy for a large sample of trades. Traders want to ‘trade’ before they’ve the skills and understanding to trade. Imagine getting in a Formula One racing car before ever passing a beginning driver test. That sounds absurd, doesn’t it? Well that’s exactly the approach most traders apply to trading. Another thing that has always fascinated me is that almost everyone is aware that more than 90% of traders fail, yet the first thing new traders do is to try and emulate all the stuff other traders are doing.”

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, October 22, 2011

Another EURUSD-USDCHF Correlation Strategy

EURUSD-USDCHF CORRELATION TECHNIQUE NUMBER 2

“The market trading environment is unemotional and unforgiving for the novice trader. Professional traders indulge themselves every time a market turning point occurs. They know when a novice trader is making a mistake, because they’re on the wrong side at every turning point. The result for novice traders is a washed account, because they’re constantly losing money at these critical trading areas.” – Brandon Tristan

Hello:

This article features another useful EURUSD-USDCHF correlation technique, following the one I revealed some time ago. Its logic is based on some dynamic characteristics of the price action. Sometimes the price may encounter some resistance. Here attention should be paid to how long the market which remains at a certain price goes up or down to the next level. In general, the longer it takes for the market to exceed the current price level, the greater the current resistance. Volatility is an expression of uncertainty. In other word, lack of volatility is lack of uncertainty. Therefore a non-volatile trend is more predictable and as such more certain.

Since trading is a zero sum game, there must be a seller for every buyer or vice versa.

Either the EURUSD or the USDCHF may just make a huge move at some point because of a fundamental event. This move causes the indicators on the chart to react. However, the technique shown here isn’t being used for either of the pair just for their sake, but for the fact that either of the pair may show a nice move over the time. At times, some news items would deliberately be released to get rid of some large positions without significantly worsening the market situations. Private traders would wonder why the pair in question has fallen despite positive news and they’re now sitting on losses.

For example, a speculator who sees a downtrend may decide to go short, having been convinced that the market sentiment is bearish. Suddenly another institution might decide to buy hard into the market, and therefore cranking a big chunk out of the trend. When this kind of order has run its course, the original trend will resume. Those traders, who’ve already positioned themselves long, would smooth their positions sooner or later by being forced into selling as well, all of which is driving the market further downwards.

You of course can’t be sure what’s going to happen. What you do is put a stop in your order where it’s necessary and in a place that gives the price room to jump around within its normal volatility.

This strategy comes with no timeframe (non-timeframe specific), yet a big timeframe could be watched just to see what’s happening to the trend. You should never spend more than 60 minutes per week on these trades; just place your trades and go away. You may check the outcome at the end of the New York session on Monday. If one trade is still on, you can manage it as suggested below. The open position mayn’t go on for more than 60 hours. Sometimes, both the EURUSD and the USDCHF may be caught in bearish moves and both trades would be winners; thus maximizing profits.

Strategy Snapshot

Strategy name: A Non-directional Trader

Suitability: Strictly for part-time trader

Signals frequency: Once per week

Timeframe: Non-timeframe specific

Instruments: The EURUSD and the USDCHF

Entry time: Just prior to the close of the currency markets on Friday

Position sizing: 0.02 lots for each $1000 (making it 0.2 lots for each $10000). Add 0.02 lots for each $1000 you gain

Entry rule: During the entry time, go short on both the EURUSD and the USDCHF

Stop loss: 60 pips

Take profit: 180 pips

Breakeven: Move the stop on the winning trade to breakeven after you’ve gained up to 60 pips

Trailing stop: Apply a 60- pip custom-set trailing stop after you’ve gained up to 120 pips

Exit rule: Exit is triggered when the stop or the breakeven or the trailing stop or the take profit, is hit

Winning probability: 50%

Total returns: Total returns are better evaluated on an annual basis

Trade examples

Spreads weren’t considered in the examples below.

Trade A

Instrument: USDCHF

Order: Sell

Entry date: October 7, 2011

Entry price: 0.9235

Stop loss: 0.9295

Trailing stop: 0.9175

Take profit: 0.9055

Exit date: October 10, 2011

Exit price: 0.9055

Status: Closed

Profit/loss: 180 pips

Trade B

Instrument: EURUSD

Order: Sell

Entry date: October 7, 2011

Entry price: 1.3420

Stop loss: 1.3480

Trailing stop: N/A

Take profit: 1.3240

Exit date: October 10, 2011

Exit price: 1.3480

Status: Closed

Profit/loss: -60 pips

In the examples above, we can see that the USDCHF moved positive while the EURUSD moved negative. We can also see that the profit from the USDCHF trade was bigger than the profit from the EURUSD trade. At times, a trade on the EURUSD will be a winner while a trade on the USDCHF will be a loser. The logic is to make more money than you lose.

Note: This strategy mayn’t be used in sideways markets. As a seasoned trader, you should know when the market has entered a sideways phase. When the market enters another strong trending mode, then you continue using this strategy. There are many tools which can help you recognize trending markets and sideways markets. This strategy is for part-time traders only. I implore full-time traders to bear with me. There are other effective strategies that are perfect for full-time traders. These strategies would be revealed by me soon.

Conclusion: I am not advocating trading with a Machiavellian mindset, for the market rarely rewards iconoclasts. What you really need are simple trading methods that work. If a strategy sounds complicated, it likely does not work. This strategy could make you gain some long-term profit no matter the direction of the market. The ultimate formula is to gain more than you lose; since you can never go broke if your income is higher than your expenses. Finally, it is very much important that enough patience is exercised as regards the entry and exit criteria explained in this article.

I conclude this article with some quotes from Brandon Tristan:

“A majority of novice traders don’t begin with a trading plan. To have and follow a trading plan takes discipline because of all the external events and internal thoughts that occur, thus the focus must remain on the trade plan. This takes discipline. Before a novice trader engages the market, a plan must be tested and approved. The time and effort it takes to test and follow a plan pays off. Of course, the payoff is having the ability to find novice traders in the market.”

NB: Please watch out for my coming articles with these titles: ‘The Most Important Trading Skill,’ ‘Recent Market Conditions (The Most Difficult Aspect of Trading),’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 1 - 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘A Hedge Funds Strategy,’ ‘My Hedge Funds Strategy Update,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple Positive Expectancy System – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Resist the Lure of High Risk – Part 3’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Gap Trading Revisited,’ ‘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,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 5,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘Overview of My Signals Strategies,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘The Cost of Discipline,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Monthly Market Review,’ ‘Monthly Trading Report (November 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, October 20, 2011

Weekly Trading Update (October 21, 2011)

“It took me several years to become consistently profitable. I had the great misfortune of making a lot of money quickly and thinking that I knew what I was doing. I did not. I lost all the money I had made and a lot more before I realized I had no clue.” – Tom Alexander

Hello:

If you want to play the markets triumphantly, you need to determine the direction of the trade based on the overall trend. Then you need to determine the best location for the entry and the stop. You must not make a trade that does not meet your exact entry criteria: you require rock-solid discipline to achieve this. You ought to compute the exact amount of risk; the position sizing, safety measures and the target. Trades should not be taken without seriously considering safety measures. Make certain that you are trading the best opportunity available; something that requires more work, some charts to view, etc., but it forces the trader to be more selective, which is very important to long term success.

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

AUDUSD

Primary Trend: Bullish

The AUDUSD is precariously bullish, which means that the present outlook may be short-lived. A great resistance at 1.0370 was able to reject further bullish move. The price tried to go back to this resistance level, but with very limited success.

NZDUSD

Primary trend: Bearish

The outlook on the NZDUSD looks convincingly bearish - something that may pull the AUD itself down if proven true. The SMA 200 is now serving as a resistance on the 4-hour chart. This is corroborated by the fact that the SMA line has been tested twice, but the line held out. The bearish move may become accentuated.

AUDNZD

Primary trend: Bullish

The northbound movement remains slow, but steady on this instrument. The levels that tend to serve as demand zones have been slowly penetrated. At the present, it seems that some selling pressure is mounting, though only the time would tell if it’s a correction or a new potential trend.

EURCAD

Primary trend: Bullish

This market is very volatile right now. Both buyers and sellers may be whipsawed if they entered at wrong price levels. But this kind of movement wouldn’t go for time indefinite. Typical movements of some currency pairs/crosses have to terminate sometimes in their lifespan.

EURNZD

Primary trend: Bullish

This market is almost directionless, though still bullish. The SMA 50 is above the SMA 200 while the price is zigzagging along the former. The ADX 20 has moved below 15, indicating a very quiet market. +DI is above –DI, whereas it doesn’t give any conspicuous signal.

GBPCHF

Primary trend: Bullish

The overall trend remains bullish on this cross. The present situation is more favorable to trend riders than short-term traders. Speculators would need to buy at a lower price and ride it. It shouldn’t take you too much time to enter the market if you find an opportunity. How many seconds does it take you to blow your nose?

Conclusion: According to Mr. Tom, you must understand how the markets really work. Most traders want to focus on set-up gimmicks, but long-term success will never be attained unless one has this understanding. Traders focus on making money by trading before they’re capable of making money consistently. You got to have a sound, solid foundation. Try and think of one profession that isn’t built on a valid foundation – medicine, engineering, law, etc, all have basic sound valid foundation. Traders focus on the superficial without even considering the necessity of having a valid foundation. Trading is difficult but it isn’t that difficult. 95% of medical students don’t flunk out of medical school, 95% of law students don’t flunk out of law school, and 95% of engineering students don’t flunk out of engineering school. Such a high percentage of traders fail because they focus on superficial things that have no validity. The material they rely on is mostly garbage.

The article is concluded by more quotes from Tom Alexander:

1. “I began as a stock broker, which I hated. But I loved the markets. I quickly was attracted to trading and began trading…”

2. “I’ve a lot of responsibilities and activities… so I can’t focus entirely on trading all day. However, in spite of that I still trade almost everyday. My trading is almost automatic at this point. If I see what I’m looking for in some market, I take the trade. There’s isn’t a lot of sitting there wondering should I take the trade; if it’s a trade that fits my trade plan and I’m lucky enough to notice the market setting up, I take that trade. I miss a lot of great trades, but as I tell our clients, there’s an infinite number of trade opportunities. I don’t worry about the ones I miss.”

3. “I don’t think markets are efficient in a certain manner. But they reach ‘efficiency’ through what’s sometimes a ‘messy’ and volatile process. To think that markets on a day to day basis are efficient is ridiculous.”

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, October 15, 2011

Excellent Money Management Flexibility

MAKE THE BEST CHOICE!

“Build a buffer around your emotions. The market doesn't care about your position size. A 50 pip move on a mini lot in the EURUSD is only $50. But a 50 pip move on 5 standard lots is $2500. Does the market care about your position size of 5 standards? No. The only difference is how the larger position size affects you. Building up your position size slowly allows you to not be emotionally affected by the massive changes in the profit and loss column from trading larger sizes.” – Rick Wright

Hello:

Is it true to conclude that most traders fail in the long run because they lack enough money to practice sound position sizing? A few decades ago, this assumption was true, but now it’s no longer true. The power of leverage has changed that assumption. Leverage being the ability to control a large position with a small investment, is very good, provided one knows how to wield this double-edged sword flexibly and adroitly. Without good money management flexibility on trading portfolios, nearly all traders in the world would constantly find trading to be some recalcitrant deadlock. It was revealed that Stalin de-motivated prisoners by getting them to dig ditches and then fill them in again. Most traders are working at portfolios that are equivalents to that. They never seem to get ahead or fulfill their trading purposes.

Many a market speculator thinks that one must have a great amount of money in one’s trading account before one can use effective money management. But the fact is that you don’t need a big amount of money to practice good money management flexibility – on the condition that you use a proper trading account type with a reliable broker and that you don’t rely on the small account as a source of income. At the beginning of my trading career, I came across a trader whose aim was to turn $100 to anything from $300 - $600 per month. In a nutshell, he was planning to make between 200% - 500% on monthly basis as a news trader. He even wrote a book on how he would achieve this. Unfortunately, he disappeared from the scene in a few months.

Many people hate my position sizing recommendations because they think that their accounts are too small, and that the kind of position sizing I mention would prevent them from making a living from trading. That’s human nature for you. In trading, human nature is surely not your friend. People argue that 30% per annum is great on one million dollars but inconsequential on $500. This is a garbage notion that hasn’t helped 95% of traders. As a trader, you have to take your destiny into your hands. Don’t try to make a living from an account that is less than $2,000, otherwise your career would be short-lived. If your account is that small, the best thing is to have another source of income if you’re doing online trading, so that you won’t put your entire livelihood on your small account and eventually make regrettable mistakes.

How can one attain good money management flexibility with small accounts? To go straight to the point, I’d use some examples to show what I’d do if it was me. While I’m aware that one can even start trading with $1, I wouldn’t open an account with %1 – not even with $50 or $180. This is ridiculous! Based on my money/risk management rules, I’d never open an account with less than $200. This small amount would be put into a cent account, thus showing the balance as 20,000 cents. This would enable me to use 0.1 lots safely. The 20,000 cents would just make me start playing the markets in a safe way. However, I wouldn’t depend on an account that is less than $20,000 for a living. If my account was, say $2,000 or $5,000 or more or less, I’d need to find other sources of income.

I’d never put anything less than $2,000 in a mini/micro account on which 0.01 lots are allowed. Anything less than $2,000 goes to a cent account. In addition, if I’d between $2,000 to $20,000, I’d put that in an account on which 0.01 lots are allowed. If the minimum lots allowed on a type of account are 0.1 lots, I’d never fund it with less than $20,000. If the minimum lots allowed on an account are 1.0, I’d never fund it with less than $200,000. This is what can make me enjoy excellent money management flexibility. There’s no way around the fact that you’d go thru many losses in a row. Some losing streaks can even be painfully protracted, but victory is sure if you know how to defend your account.

It’s important to remember that trading isn’t an arithmetic exercise and these are real currencies, meaning you shouldn’t make a decision based on just your whims and caprices. Besides, always be on the lookout for unexpected news that can topple even the most carefully constructed speculative evaluation. Excellent money management flexibility is a tool that would make you overcome all the trials and tribulations you may experience as a trader.

I’ve a strong desire to tell people about the beauty of risk control in trading. Many traders have gotten support from risk management professionals when the going got tough. One of my past trainees reported that he was up to 9,000 points last year, but a series of losing streaks later came in. It just happened that whenever he opened new trades, most of them would sooner or later turn against him. This made him to be on the defensive for months. He went down to around 7,000 points, but he ended last year with 35% returns (7,000 points) – in spite of harsh losses. Most of his profits were successfully defended, not to mention his capital. Another client of mine who was formerly a losing trader said: “The knowledge about risk management in trading has touched me even to the point of tears.”

I’ll continue showing you some ways to be consistent in trading. Yet, to enjoy the benefits inherent in this, you need to learn how to choose those ways. Some topics like “Resist the Lure of High Risk” and “Developing the Right Attitudes towards Losses” will help you become a better trader and enjoy success. I’m sure that you’ll find my articles rewarding. If you also want to see how I apply effective risk control in my trading, you may subscribe here: http://www.fxinstructor.com/en/analytics/ituglobal

I conclude this article with some quotes from Thomas Wacker:

1. “You’ll have trouble finding a successful man who wasn’t driven by clearly-defined targets. Now almost every person has certain desires and goals, but very few make them become reality…. And to be really good at something inevitably requires experienced coaches and trainers as well as a high level of expertise.”

2. “As a trader, though, you’ve to decide on every little thing yourself: selecting brokers, marketing, products, strategies, trading times, investment horizon, learning sessions and time period s for analysis, just to name the most important things.”

3. “The earlier you plan your trading and structure it in the best possible way, the sooner you’ll be successful.”

NB: Please watch out for my coming articles with these titles: ‘The Most Important Trading Skill,’ ‘Recent Market Conditions,’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 1 - 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘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 Positive Expectancy System – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Resist the Lure of High Risk – Part 3’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Gap Trading Revisited,’ ‘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,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 5,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘Overview of My Signals Strategies,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘The Cost of Discipline,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Monthly Market Review,’ ‘Monthly Trading Report (August 2011),’ etc.

I end this article with this quote:

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, October 13, 2011

Weekly Trading Update (October 14, 2011)

“If you are expecting the market to rise, the risk is relatively small and you are seeking substantial long-term wins. If you are expecting the market to fall, then you would have to wait until you actually see it falling… The true trend of the market is found in the longer-term charts. I have always felt that the big money is made by finding the time frame in which you can see and trade the trend. Sometimes it is as small a time frame as a 15-minute chart, perhaps even less. But at other times, it requires stepping up to the very largest time frames.” – Joe Ross

Hello:

Nicolas Darvas was one of the past market wizards (thanks to Mr. Ralf Kraemer for shedding more light on Darvas’ trading method). Though, he embarked on a multi-year world tour, he maintained constant communication with his broker. He understood the nature of the market. To him, the market behavior was compared to that of a dancer who’d first squat before getting ready for a jump. This means that some consolidation would be in place after a price jump; something that makes the market ready to jump to the next higher target. There was a time when the market fell heavily and affected many players seriously, but Darvas was able to keep his fortune largely intact, thru rigorous risk management in the form of stop orders. According to him, it’s totally bad for traders – or more appropriately, gamblers – to stick to their losing positions although prices keep moving more and more against them, while hoping that the prices would turn and go back to their entry levels. It’s true that the dream of the future is what people find gripping, not reality.

Can you learn any lesson from this?

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

AUDUSD

Primary Trend: Bearish

There’s a clear violation of the current trend outlook. Since hitting a major support level at 0.9380, the price has been going up. It has gone up by over 850 pips – a good example of the benefit of trend following, even in a difficult market.

NZDUSD

Primary trend: Bullish

From the support level at 0.7460, this pair has gone up by over 500 pips, but the threat to the bearish outlook isn’t that serious. I was able to gather 100 pips from this move. If the present bullish conditions remain longer, the NZDUSD graph may become asymptotic.

AUDNZD

Primary trend: Bullish

Since the last ‘buy’ signal was generated by the system I use for these analyses, this cross has moved up by over 250 – slowly but steadily. Only a significant weakness in the Aussie would reverse the current trend.

EURCAD

Primary trend: Bullish

Although the current outlook in this market remains bullish, one would’ve been stopped out a couple of times if one had entered at wrong levels. The price is very slow in action, and it takes much experience to know the exact thing to do when the price is cheap and when it’s expensive.

EURNZD

Primary trend: Bullish

This market is currently flat, though still bullish. The SMA 50 is above the SMA 200 while the price is slightly below the former. The ADX 20 has continually found it difficult to rise vividly above the level 20. Even -DI remains above +DI. It’s still not prudent to assume any position in this market right now.

GBPCHF

Primary trend: Bullish

The volatility on this cross is very high at the moment. There’s been some bearish correction this week. It first became predictable before going haywire. The problem came when the price churned above and below the volatility line. Traders were then unmercifully whipsawed regardless of which time frame they used.

Conclusion: Some people have developed hatred for trading, thinking that there are many other types of risklesss business. There’s no business without risk. The only problem is that almost 99% of traders hate the principles that can keep their money safe. If we do the right things, trading would simply be like any other types of business.

The article is concluded by some explanation from Sam Seiden:

Not long ago, I was spending time with a friend of mine who I have been close with since we were children. For years, anytime my career comes up in conversation, he insists that trading is nothing more than gambling. I actually get this question from others at trading events as well. It is a very hard question for me to answer because I think the whole question is wrong. Whether you are a trader, gambler in a casino, Pepsi buying advertising space on a network, retail store owner, casino, car dealer, franchise owner, street vender, someone who buys and sells things on eBay, and so on, YOU ARE A SPECULATOR at some level. The trader takes on risk in a market for a potential reward. The gambler risks a $5.00 chip on the black jack table to try and make $10.00. Pepsi pays $1,000,000 (risk) for a commercial spot during the Super Bowl hoping to see a return (reward) on that investment much greater than the cost (risk) of the commercial. The retail store owner buys inventory (risk) in hopes of selling that inventory to you and I at a much higher price (reward). I think you get the point. If you think of it this way, the real question becomes: "What type of speculator are you?"’

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.

Friday, October 7, 2011

Guarantees in Trading

UNREALISTIC TRADING PROMISES

“Don't be a hero. Don't have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.” – Tudor James

Hello:

As a trading signals strategist, funds manager and coach, prospective clients and trainees often ask these questions:

What percentage profit can you guarantee per month?
Would you promise that there won’t be losses?
Can you guarantee that I’ll be a competent trader after this training?

Before answering the questions above, please consider the senselessness in asking for guarantees of certain things in life, not in trading alone:

Give me a guarantee that my marriage will be problem-free.

Give me a guarantee that I can’t be sick.

Give me a guarantee that this drug will cure my illness.

Give me a guarantee that I’ll get a job after graduating from this university.

Give me a guarantee that none of these cars will have an accident.

Give me a guarantee that this lovemaking will result in pregnancy.

There are long-term successful traders all over the world. As successful trading experts, some people now talk about them and their trading beliefs. Some traders would like to become their clients or trainees. They’d like to make some pips like them (they only survive the markets by making more money than they lose), but they’d never accept the possibility of losses. They want perfect trading results. My advice to people with this kind of mindset is: “If you won’t get involved in the Forex markets without getting guarantees, you may try something else. There are many low-risk ventures out there.” Risk is compulsory in any game of speculation. Without it, there can’t be profits. The bigger the expected gains, the bigger the losses; the smaller the expected gains, the smaller the losses. Successful traders take risk control very serious, while using positive expectancy systems that enable them to make average profits that are much bigger than average losses.

Many believe certain spiritualists can predict the future with stunning accuracy, as it’s being popularized by the media. No prophets can predict what the markets would do tomorrow. No-one can determine what happens to the markets in future. I’m not saying that religious faith is useless, only that the markets don’t favor anybody because of their religious beliefs or post. Nobody is immune from unforeseen occurrences that do befall mankind: take earthquakes and tsunamis for example. Nowadays I’ve personally seen prophecies that failed woefully. I’ve witnessed prognoses that weren’t fulfilled. Like deceptive market forecasters, many so-called diviners tend to keep mute about their flopped prophecies, while mentioning the prophecies that were fulfilled as testimonies. I know students who failed their exams in spite of promises from spiritualists. Academic students fail mostly because they fail to stick to simple instructions from teachers. Likewise, many traders fail because they put excessive faith in trading systems rather than risk control. I’ve seen marriages that crashed despite approval from psychics, plus marriages that worked despite disapproval from psychics. Yet, a person who believes in prediction tends to see a failed prediction as an exception while a prediction that has come to pass tends to reinforce his/her viewpoint.

Astrologers who predict the direction of the financial markets are often interested in the fees that will be paid by their clients. Why would a psychic charge $20 for a service rendered? Why can’t the psychic use his/her perception to enrich himself/herself? Wouldn’t it be better if the psychic buys lotto tickets and makes millions by his/her ability to predict the future? Why can’t the prophet trade on the markets without a single loss and become a billionaire in a short period of time? Isn’t that better than charging peanuts for services rendered for clients?


Personally, I believe that, rather than predicting the markets, traders should cut losses if they’re wrong and run their profits if they’re right. Psychic or prophetic abilities are irrelevant in the financial markets.

This is a paradox. Anyone who insists on getting a guarantee isn’t psychologically prepared to make money. Why am I emphasizing this? It’s because there are certain people who promise the moon and the stars – giving guarantees – just because they want to sell some trading products and services, although they still put disclaimer since it’s legally required that they do so. Don’t just go blindly with what’s popular or appeals to the sense of greed. If a funds manager or a system vendor tells you that you can’t lose, then you’re being deceived by a scam artist. People who don’t want to hear the truth constantly lose their money and learn bitter lessons. No-one can be helped alone by the virtue of loquacious garrulity. Beginner traders fall prey to vendors who give guarantees, halting their sanity in doing so. Because they’ve received guarantee, they use large position sizes and eventually crash. Many novice investors and speculators are now worse-off regardless of the unrealistic guarantees they were given in the past. “I get fed up with the educators that come in and say, ‘I’m going to make you rich beyond your wildest dreams.’ I am very realistic about it. Most people will lose, and it’s not necessarily the methods they’re using. I think that the psychological, the mental and emotional aspect of trading probably kills more people than the methods they use.” complains Joel Parker in a recent interview.

I’m not saying this to support or oppose atheism or religiosity. I believe that a good religion provides people with high moral standards and discipline. But you should beware of people who talk as if they’d the power to move the market in their direction. When it comes to the mechanics of trading, I am convinced that traders have only natural abilities at their disposal in navigating the financial markets, not supernatural ones. The best and the most adroit traders don’t know the future, and therefore can’t ethically and responsibly give assurance of gains.

Given the nature of any type of financial markets, it’s unrealistic to give any guarantees. Guarantees mustn’t be made, never by any sane professional. So my answers to the questions asked earlier are…
What percentage profit can you guarantee per month? Nope.
Would you promise that there won’t be losses? Nope.
Can you guarantee that I’ll be a competent trader after this training? Never.

Guarantees in Trading Are Unethical and Irresponsible

Yes trading activities need no assurances. Some traders are so skillful that they may be referred to as being clairvoyant, whereas the ostensible clairvoyance is a result of years of experience and learning. There are timeless principles that can contribute to constant and permanent survival in the markets. For example, thru risk management and safe position sizing, a good trader would only sustain negligible roll-downs in bad markets and easily recover the losses and move ahead in good markets. But no matter how good you’re, you should never give guarantees as regards any level of trading outcome.

Anyone can open a brokerage account and start gambling but professional trading of statistical evaluation requires skill and risk control. Inevitably, losses will be included in our trading account history. Skillful traders make money by following their entry criteria and making sure that they eventually make more money than they lose. Forex trading, which is my own area of specialization, requires years of learning the things that work and the things that don’t work. This is a fact, so one needs not get blinded by personal bias, ignorance, myths and destructive pig-headedness.

Traders should talk in terms of probabilities and caution, not with brazen impudence and guarantees. The quote above this article supports this. We must be humble in our trading career – permanently humble. Pride is very dangerous to our long-term survival in the markets. A skilled surfer humbly knows his size and strength relative to the ocean, and respects the waves. A skilled trader, likewise, knows his size and strength relative to the worldwide marketplace. There is no place for over-confidence. We should always use discretion and common sense in our trading careers. Another basic problem is that there are many people with really good analyses who can nevertheless gain no added value from those analyses. In other words, many experts are essentially right on what they conclude from their analyses – but they’re often right at the wrong time or they’re using the wrong instruments. This is the only way to become better at trading. Trading mastery is an ongoing process; a journey of a lifetime.

Finally, a trader who wants to survive long enough must never repeat his past mistakes. We should always acknowledge and learn from our errors: trying never to repeat them. A trader must take advantage of the wealth of experiences gathered on the battleground of the markets; moving ahead regardless of any uncertainties of the future. But the trader mustn’t be daft and irresponsible as to guarantee certain amount(s) of income.

NB: Please watch out for my coming articles with these titles: ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 1 - 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘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 Positive Expectancy System – 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,’ ‘Gap Trading Revisited,’ ‘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,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 5,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘Overview of My Signals Strategies,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘The Cost of Discipline,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Monthly Market Review,’ ‘Monthly Trading Report (August 2011),’ etc.

I end this article with this quote:

“Basically, you’re making a conscious decision to risk something so that you could pick up a potential profit in the future. I think this is why some of us find trading hard to begin with. It’s a totally new mindset from what we grow up with.
We’re taught to work hard and earn a salary. We expect to always get paid and never lose. And I think this could be why we’re not as good at dealing with business risk. I know it’s hard to accept but losing trades are a natural part of any winning strategy. Unfortunately, as soon as a losing streak hits, people tend to panic and quit trading altogether. In doing so you could miss out on some serious profits when they do come. Don’t be like this.
Start treating your trading like a business venture... start developing that entrepreneurial mindset.”
– Forex Round Up

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.

The default minimum deposit amounts are: $100 for Micro accounts, $500 for Pro-Managed accounts, and $2,000 for Pro accounts However, an optional "suggested deposit amount" parameter may be used.