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Saturday, February 25, 2012

An Effective Swing Trading Strategy

A TIME-TESTED TRADING SYSTEM

‘The proper execution of your trades is one of the most fundamental components of becoming a successful trader and probably the most difficult to learn. Most traders find it is much easier to identify something in the market that represents an opportunity, than it is to act upon it.’’ - Mark Douglas

Hello:

Can you experience triumph in turbulent markets? In turbulent markets, it is better to be a proficient trader rather than be a long-term investor. When the markets become highly volatile and irrational, long-term investors would probably suffer. For instance, permabulls tend to be worse off in bear markets, and therefore, it would be in the interest of traders to use strategies that work both in bull and bear markets. For you to become triumphant in turbulent markets, you would need a set of high probability Indicators that generate high probability trades (with at least, 40% accuracy). You would need to carry out consistent execution of those trades, and finally, you would need to manage those trades successfully.

Using the Strategy

This strategy comes with a risk-to reward ratio of 1:2.5 – something called a magic formula by one trader and author. With this kind of risk-to-reward ratio, you would be victorious even with a long-term hit rate of 40%. Occasionally, there would be a few losses in a row or a few profits in a row, but you would still be a victor in the long run. The indicators used are Exponential Moving Averages (EMAs), the Relative Strength Index (RSI), and the Force Index (FI). Currency pairs and crosses that tend to trend well have been chosen. You may check the section titled ‘Strategy Snapshot’ in order to check the ‘buy’ and ‘sell’ rules applicable to this trading approach, plus its money and risk management and exit rules. All entry criteria must be met before a trade is opened. Once this has been done, the trade should be exited only according to rules (there are only four exit conditions). These rules are made clear in the trade examples below. Please note that, on each chart, the red vertical line on the left shows where the trade was entered while the red vertical line on the right shows where it was exited.

Strategy Snapshot

Strategy type: Trend-following

Suitability: Good for full-time and part-time traders

Time horizon: Hourly charts

Indicators: EMA 5 (color blue), EMA 12 (color red), RSI 14 period, and FI 14 period

Pairs and crosses: EURUSD, USDCHF, GBPUSD, USDCAD, AUDUSD, NZDUSD, EURCHF, EURGBP, EURJPY, GBPJPY, EURCAD, EURNZD, AUDNZD and NZDJPY

Buy rule: Enter long when the EMA 5 crosses the EMA 12 to the upside, and the RSI 14 is above the level 50, and the FI 14 is above the level 0.00

Sell rule: Enter short when the EMA 5 crosses the EMA 12 down, and the RSI 14 is below the level 50 and the FI 14 is below the level 0.00

Position size: Use 0.01 lots for each $2,000 (thus making it 0.05 lots for $10,000 and 0.5 lots for $100,000)

Risk per trade: 0.5%

Stop loss: 100 pips

Take profit: 250 pips

Breakeven: Move the initial stop to breakeven after you have gained up to 80 pips

Trailing stop: Apply a custom-set trailing stop of 100 pips after you have gained up to 190 pips

Risk-to-reward: 1:2.5

Survivability: Long-term triumph is possible with 40% hit rate

Exit rule: A trade is closed when the stop loss or breakeven or trailing stop or take profit is hit

Recent Trade Examples

The examples below include a trade that did not reach its target. All trades cannot be profitable, yet traders can be permanently victorious. The vertical red line on the left shows where a trade was entered while the red vertical line on the right shows where it was exited. You would be shown how risk is controlled effectively in the unpredictable markets. Spreads were not considered in the examples below.

Example 1

In this example, there was a nice northbound movement after a ‘buy’ signal was generated on the AUDNZD (Aussie versus the Kiwi). But the price action did not reach the take profit target at 1.3140. A trailing stop of 100 pips was set once the profit reached about 190 pips. The price reversed and hit the trailing stop, thus making the order to be closed with 100-pip profit.

Instrument: AUDNZD

Order: Buy

Entry date: October 24, 2011

Entry price: 1.2890

Stop loss: 1.2790

Trailing stop: 1.2990

Take profit: 1.3140

Exit date: October 26, 2011

Exit price: 1.2990

Status: Closed

Profit/loss: 100 pips

Example 2

On the EURJPY, a long trade was opened upon the generation of a ‘buy’ signal from the strategy. The price first went up by over 200 pips and the trailing stop was set at 100 pips. The market entered a period of consolidation after this, something that brought some retracement. This retracement did not reach the trailing stop level before there was a sudden thunderous bullish outbreak on all JPY pairs – something that resulted in a nice profit. Besides, you would do well to observe that the subsequent ‘sell’ signal that was generated after this (on October 31, 2011) moved very well in the forecasted direction.

Instrument: EURJPY

Order: Buy

Entry date: October 27, 2011

Entry price: 105.90

Stop loss: 104.90

Trailing stop: 106.90

Take profit: 108.40

Exit date: October 31, 2011

Exit price: 108.40

Status: Closed

Profit/loss: 250 pips

Conclusion

In order to be capable of investigating the currency market situations more closely, we want to determine exactly when certain signals in market mechanics trends are more successful and when they’re not. Whenever the market mechanics allow signals to be generated, then you enter your positions without being hesitant. From this point on you give the market room, because the swing trading idea becomes a mid-term trend follower. And because you paid a very attractive price for each of your position, it would be a pity to close a favorable position too early. Run your gains.

I’d like to conclude this article with a quote from Steve Ward:

“One of the key aspects that seem to distract traders is excessive focus on P&L and the outcome and results of the trade. That is the trader is so distracted by thoughts around outcome and money to be made/lost that they do not have sufficient focus on the key components of executing their trade to achieve the best outcome. Likewise traders who are low in confidence fail to execute their trades and take opportunities when they arise losing valuable potential profits.”

NB: Please watch out for my coming articles with these titles: ‘The Joke about a Cough Medicine Applied to Trading,’ ‘Angry Traders,’Traits of Successful Traders,’ ‘How the MACD Generates Good Trading Signals,’ ‘A News Trading Strategy,’ ‘Analyze the Markets with the Aroon Indicator,’ ‘A Brief Introduction to Point and Figure Charts,’ ‘Does High Hit Rate Work Always?’ ‘My Typical Trading Day,’ ‘A Trader’s Trick Entry Technique – Sighting Golden Trading Opportunities,’ ‘Making Money out of Losses – A Blessing in Disguise,’ ‘Achieve a Better Hit Rate with Gap Trading (Using the Logic Yourself),’ ‘Play the Markets Victoriously with Nano-cent Accounts,’ ‘Why It’s Difficult to Do the Right Things in the Markets,’ ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘Trading Signals,’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 2 - 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 (2),’ ‘Best-case Scenarios – The Beauty of Trading,’ ‘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,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 6,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Before You Open that Trade,’ ‘Cogent Trading Biases,’ ‘Overview of My Signals Strategies – Can You Become a Super Trader?’ ‘Winning Trades, Losing Trades,’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘I Can’t Express How Grateful I’m to You!’ ‘Yearly Trading Update (2012) – The Big Picture,’ ‘What We’ve Decided to Do in the Markets - Trend Following It Is!’ ‘Yearly Trading Results (2012)’ ‘Monthly Trading Report (December 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, February 23, 2012

Weekly Trading Update (February 24, 2012)

“Learn to change if necessary. If you always do what you've always done, you'll always get what you've always gotten. And, if you always think what you've always thought, you'll always do what you've always done.” - Dr. Woody Johnson

Hello:

The health of a currency isn’t necessarily reflected consistently in the underlying country. A currency is a measurement of value at any moment derived from the supply and demand on it (which is often manipulated). If that’s the case, then the currency wouldn’t move so much in between news and especially economic reports. As far as economic reports, there’s another misconception. A country may generate ‘positive news’ and the value of their currency can still fall. A country can release bad economic figures and their currency value could still rise. In between those periods, the currency would move around over all the place. The bottom line is that there’s no consistency on a day-to-day basis and there’s no tremendous misinformation in books and on the Internet. This fact should be factored in when designing a mechanical trading system. A great semi-automated mechanical system re-calibrates itself. However, systems alone don’t design themselves. The designer has to be selective, administer constant discretion that’s tempered with proper pacing and risk control. This is always work in progress.

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

AUDUSD

Primary Trend: Bullish

There’s been a serious bearish sell-off this week – and in the context of an uptrend. Since the market opened with a gap-up this week, the price has dropped by over 200 pips. There’s a bullish correction at the moment – something that mayn’t hold.

NZDUSD

Primary trend: Bullish

Like its AUDUSD counterpart, this pair - which opened with a gap-up this week – has fallen by over 160 pips. At the bottom of a very strong bearish pressure, prices are not low, they’re ludicrous. Because of this you can be lured in early, if you start thinking things are cheap. At the bottom of a strong bearish dive, a price is so low that when you go to buy there’s no seller there to fill your order the market is broken. This is the true bottom.

AUDNZD

Primary trend: Bearish

A noteworthy rally is following the recent bearish dive in this market. The trend remains bearish, however. The SMA 50 is still below the SMA 200, and the price finds it difficult breaking the former to the upside. This means the price is below it. The RSI 14 has moved clearly above the level 50, supporting the current rally. The Stochastic 14,3,5 is almost going to the overbought area. This remains an opportunity to sell high in a bearish situation.

EURCAD

Primary trend: Bullish

After finding a recent bottom at 1.3017, this cross has jumped up by over 200 pips. One would need to look for a buying opportunity in the present scenario. Last year, we were perhaps in a long-term bear. If this was the case, recoveries would be sharp and short-lived followed by long-term sliding prices, punctuated by crashes and recoveries.

EURNZD

Primary trend: Bearish

This week, the market has rallied constantly by over 300 pips. The SMA 50 still stays below the SMA 200, thought the price has broken the latter to the upside. The ADX 20 is above the level 35 - showing a strong bullish pressure. +DI is far above -DI. It makes sense to look only for opportunities to go long. The bearish bias may soon be rendered invalid. The level at 1.5900 is expected to act as a great support, giving a nice buy signal.

GBPCHF

Primary trend: Bearish

Since February 12, this instrument has fallen by over 300 pips. The best thing to do is to find a shorting level in this market. Then you’ll set a stop in case there’s a rally against you. It takes painstaking effort to be a surviving trader. In the end, you’ll surely succeed. No doubt, you’ll feel your painstaking efforts are not in vain.

Conclusion: Fear and greed influence every part of our lives but they’re particularly evident in trading. Greedy traders use big position sizing to make great fortunes… if they last long enough, as they’re also more disposed to blow up their accounts. It’s sometimes possible that 90% of profits would come from 10% of positions opened. This is the power of letting your profits run. You must be aware of this; for awareness precedes clarity, which precedes choice, which precedes action, which precedes success.

In the early part of March 2012, I’d reveal how I apply effective risk management to my trades in an easily understood method. This would highlight basic risk control tools and effective trade management. I hope the article would greatly benefit many readers out there. Don’t forget also the part 2 of the series of articles bearing the topic: ‘Unlock the Power of Everlasting Triumph in the Markets – Part 2.’

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

“My best trades in the past mean nothing if I’ve a losing trade in the present and vice versa. Experience in and of itself is the most important experience, if you make effort to analyze it along the way. That sounds corny but it’s just like saying that the journey is the reward. The markets move so fast that there is a point where pondering too much on the past or any series of trades can be more of a detriment than a benefit. An insight from the past applied to foresight is most important. Humanoids need boundaries. Boundaries give closure and allow logic to flow seamlessly. Without closure, there’s cognitive dissonance, which causes stress and irrational behavior and actions that can start small and snowball into full blown destruction. The market loves to give a little and take back incrementally until you’re at its mercy without realizing how you got into that situation.” - Jea Yu

“Why can't most market speculators get it right? In my opinion, it's a combination of human emotion and just plain old laziness. People tend not to want to put in the hard (and smart) work it takes to develop the market skills needed to get paid from the "unskilled." There are no short-cuts. If someone is not interested in putting in the hard work it takes to attain proper trading skills, profitable trading opportunity will equally not be interested in them. The most rewarding opportunities always go to those who enjoy working hard, not those who lack interest in hard work.” – Sam Seiden

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, February 18, 2012

Cogent Trading Biases

AVOID THEM LIKE A PLAGUE

“Traders tend to believe that a method should be working in all market conditions at all times. When the method doesn’t produce consistent results, the blame usually falls on the method or on the trader (in most cases, the trader blames the method). From there, comes the whole back testing and tweaking process in a tireless attempt to perfect/optimize the method. With each tweak comes a success period and subsequent failure, the trader eventually will conclude the invalidity of the method and move onto another method. This continues until the trader eventually blows out or gives up. This should sound familiar to you because it happens to everyone.” - Jea Yu

Hello:

Regrettably, profitable trading is an endeavor that goes against human nature, mainly because of these annoying flaws called emotions. Fear and greed compose the actions of the market. You’d need to overcome the wrong trading biases mentioned below if you want to be a permanently victorious trader.

1. People hate losses. In fact, they dread losses more than they cherish returns. They prefer to cut their profits quickly if they’re right and hold onto losers. They feel that a trade in a plus territory may go to a minus territory if they don’t cut it, while thinking that a trade in a minus territory would eventually come back to a plus territory. Some pairs go in our favor by 40 to 50 pips and we truncate them and instead give enough room for losers. This is likened to watering the weeds and uprooting flowers. We tend to be conservative with profits and risky with losses. This would ultimately lead to unwanted results. Please let your winners run.

2. Traders tend to put more emphasis on the last losing streak they went thru more than the last winning streak they went thru. For instance, if a market speculator is using a certain strategy for playing the markets. If the strategy goes thru a period of losses - something normal for all trading strategies under heaven – the market speculator would be more saddened by the last period of losses without remembering a period of winnings she/he had with the strategy in the past. When using a good strategy, we tend to be subjective rather than objective. Because of the past losing period, the market speculator may change her/his trading rules or disregard the subsequent signals generated by the strategy. This would have adverse effect on the strategy results and the general performance of the market speculator. You make no mistake if you lose; you only make a mistake if you don’t follow your trading rules.

3. Traders tend to follow only viewpoints and convictions that tend to support their wrong trading biases. For instance, loss trades that turned positive in the past would reinforce our decision to hold onto losers. The past loss trades that didn’t turn positive would merely be ‘an exception.’ This is detrimental to our long-term survival in the markets, for we tend to ignore warning signs from erroneous trading decisions; making us to be futilely and adamantly optimistic when running losing trades indefinitely.

4. We tend to praise our adeptness when we gain money from the markets, but we blame other people or the markets when we sustain losses from the markets. This is something that can lead to egotistic tendency, thus failing to objectively evaluate the factual reasons behind our success and failure in the markets. There can’t be improvement if you blame others for your problems. You’d need to stop blaming others and take your destiny into your own hands. You need to conquer yourself before you can conquer the markets. Nothing can stop you from improving your trading career if you accept responsibility for your failure and start working towards success. If it’s going to be, it’s up to you.

5. Excessive expectations and recklessness are rampant in the trading world. We tend to overestimate our ability, forgetting that we’re only human. We think we can achieve more positive trading results than we can realistically do. It’s illusory to think we can predict the future movements in the markets. It’s illusory to think that we can control the markets. It’s fallacious to think that we’re superior to other traders or can perform better than them. It’s fallacious to think we can predetermine the amount of profit we want to make on daily, weekly or monthly basis. This is one reason why many traders use big position sizes to attain big profits in a short period of time. They use high risk because they feel they can control the markets and they think the next trades they want to open must go in their forecasted direction. As pleasant as illusions are, they have one disadvantage: They tend to burst like a bubble.

An argument in favor of these biases is that they’re largely what most humans are prone to do and that it’s still possible to make money with them. Although this kind of argument might seem plausible, in reality, it isn’t true. You can only make significant improvement in your trading when you understand these biases and avoid them like a plague.

I’d like to conclude this article with more quotes from Jea Yu:

A. “Some of the most successful traders I know blew out their earlier accounts first. It’s almost a rite of passage amongst the old school traders. The pain and agony they suffered is a constant reminder of what they did wrong. It forced them to reevaluate and re assemble their methods. It allowed them to identify when a bad situation is forming and they are wise enough now to avoid it. I remember reading an interview with a successful fund manager who claimed his success was based on making ‘every’ mistake possible enough times to know not to make them again. Traders don’t have to go this route any more.”

B. “Please note that I am referring to the trading conditions, not the market index gains or losses. A strong or weak market is irrelevant to a trader. A tradeable environment is composed of follow through, trading channels and liquidity. Don’t mistake a market being up huge or down huge as a tradeable market. Sometimes they do overlap but not always. The best litmus test is to take your best setups and see if they play out. If they fail back to back to back, then it tells you the market environment is not fertile. Don’t punish yourself for this. It’s not your fault. The only actions you need to take are to preserve your capital and your confidence levels which means quit for the day.”

NB: Please watch out for my coming articles with these titles: Traits of Successful Traders,’ ‘How the MACD Generates Good Trading Signals,’ ‘A News Trading Strategy,’ ‘Analyze the Markets with the Aroon Indicator,’ ‘A Brief Introduction to Point and Figure Charts,’ ‘Does High Hit Rate Work Always?’ ‘My Typical Trading Day,’ ‘A Trader’s Trick Entry Technique – Sighting Golden Trading Opportunities ,’ ‘Making Money Out of Losses – A Blessing in Disguise,’ ‘Achieve a Better Hit Rate with Gap Trading (Using the Logic Yourself),’ ‘Play the Markets Victoriously with Nano-cent Accounts,’ ‘Why It’s Difficult to Do the Right Things in the Markets,’ ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘Trading Signals,’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 2 - 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 (2),’ ‘Best-case Scenarios – The Beauty of Trading,’ ‘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,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 6,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Before You Open that Trade,’ ‘Cogent Trading Biases,’ ‘Overview of My Signals Strategies - Can You Become a Super Trader?’ ‘Winning Trades, Losing Trades,’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘I Can’t Express How Grateful I’m to You!’ ‘Yearly Trading Update (2012) – The Big Picture,’ ‘What We’ve Decided to Do in the Markets – Trend Following It Is!’ ‘Annual Trading Results (2012),’ ‘Monthly Trading Report (December 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, February 16, 2012

Weekly Trading Update (February 17, 2012)

The successful trader has an intimate understanding about the importance of emotional intelligence, i.e., managing emotional volatility through protocols, routines and habits. They focus on doing the "right" things habitually (following trading plans, rules, money management and position sizing) as if their life depended upon it...and their trading life does depend upon it. In this way, they set themselves up to get the right results habitually. They know that consistent successful execution is intimately related to mastering the right things. This represents the development of a "positive trading trance." – Dr. Woody Johnson

Hello:

Trading is a living. It’s a way of life. It’s something you do for as long as you like, as it got no age of retirement. The older and the more experienced you’re as a trader, the wiser you become. Here’s a caption. 106 years Old Irving Khan Is Still Investing: Irving Khan, who turned 106 years old on December 19, 2011, has been working on Wall Street since 1928 and he’s still investing his money today. The value investor told CNN Money he doesn’t watch stock market all that closely even though he’s a Bloomberg Terminal on his desk. That’s because he follows the 20 stocks that he currently holds. Khan, who didn’t always have Bloomberg Terminal or a cell phone, has seen a lot of changes besides the technological ones during his days on Wall Street. “Well when I got to the Street in ‘28/’29 it was much more of a rich man’s game – not that I was rich, but I mean it was designated for banks, insurance companies, railroads or public utilities,” he said in an interview. “It’s no longer a rich man’s business. It’s a business for everybody.” How many people get paid to do what they absolutely love? Those who love trading and are serious enough to learn the principles that work would be paid by the markets. Active trading has become a world-renowned industry. What once was a business on Wall Street has become a personal business for market traders around the world. New products are being introduced and more are sure to come. A structured business plan with references to time frame, asset class, trading strategy, risk management, and position size increases the likelihood that traders will adapt and evolve with the markets.

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

AUDUSD

Primary Trend: Bullish

The bullish trend on this pair, though losing its strength, is still valid. One way of handling this kind of situation is to buy on a dip. However, if the price should happen to break the support level at 1.0620, it may lead to a renewed bearish steam.

NZDUSD

Primary trend: Bullish

Simple directional analyses shouldn’t be obfuscated on this pair. There’s has been a sharp sell-off in the context of an uptrend. The present bearish pressure must continue before it can threaten our bullish outlook; otherwise we might buy at a great support. In general there are corrections of these movements.

AUDNZD

Primary trend: Bearish

Resistance levels have been broken on this pair (the culprit being the rally that happened on Wednesday). The SMA 50 is still below the SMA 200, but the price has moved above the former. The RSI 14 has moved clearly above the level 50, pointing to a significant northward outbreak. The Stochastic 14,3,5 is sprinting towards the overbought area. This could be an opportunity to sell high in a bearish situation. If that fails, then it’s the return of the bulls.

EURCAD

Primary trend: Bullish

Is there a modicum of reliability in the signals generated by this cross? One sold and the price shot up; only for the price to nosedive after the previous order was smoothed and a bullish stance was assumed. The outlook is still northward, and the price has fallen sharply. I’m looking for a short sale opportunity. Waiting for the prefect setup to form can be frustrating and boring, with pressure to open a position pushing you to get in.

EURNZD

Primary trend: Bearish

Since February 10, the price has fallen by over 400 pips, found support at 1.5580, and has rallied by more than 160 pips since Wednesday. The SMA 50 still stays below the SMA 200 while the price remains below the former. The ADX 20 is above the level 30 - showing strong movements. -DI is above the +DI. It makes sense to go short.

GBPCHF

Primary trend: Bearish

The present rally on this instrument has posed a formidable threat to the bearish outlook. If the present straight buying continues for a few more days, then the bears’ prospects would be jeopardized. With a sizable amount in your portfolio and a move in the right direction, who knows whether you may earn enough money to get a Toyota jeep? But what if you’re a tenant and after pulling up your jeep, and subsequently your landlord/landlady announces that the house rent has been increased?

Conclusion: Position sizing is critical for traders as frequency increases; the risk of ruin also increases. Remember: traders are risk managers. You plan your trade religiously. Consequently you place an order and a protecting stop to cut possible losses. You think that there’s nothing more you can do – now it depends on the currency market god, if he likes your trading idea, doesn’t it? No! What follows now accompany your work as a trader in general and in particular. Thank you for your interest in my weekly trading updates and good trading everyone!

I’d like to conclude this article with quotes from Dr. Van K. Tharp:

1. “Many of you have heard me say that it requires just as much work to become a good trader as it does to become proficient at any other profession. For example, opening an account with a broker without doing the preparatory work is a little like walking off the street and into a hospital to perform brain surgery. With little preparation, your patient probably would die from that surgery. Likewise, your brokerage account is likely to expire if you trade it without the appropriate education. Perhaps you’ve had an experience of your account dying? The proper preparatory work to trade is a significant task.”

2. “Facing who you are and working on yourself is probably the hardest thing for most people to do. But the rewards of doing so (on your trading, your life, and your happiness) are immense.”

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, February 10, 2012

Annual Trading Results (2011)

I WAS PERFECTING MY TRADING SKILL

“Do you see a man skilled in his work? He will serve before kings; he will not serve before obscure men.” – Proverbs 22:29

“Nothing great was ever achieved without enthusiasm.” – Ralph Waldo Emerson

Hello:

Can you bend a bow of bronze? Are your arms trained for battles? In other words, can you pull the triggers in the markets? Are you able to defend your portfolios in bad market conditions? Here are my trading results in the year 2011. As I said earlier, the last year was a difficult one but a good trader should know how to make money in good and bad markets. I gained a minimum of 9,800 pips with my Gap Trading Strategy (thus gaining about 49% profit from that) and a minimum of 2,178 pips from my Non-directional Strategy (thus gaining about 10.89% profit from it). This is a combination of 11,978 pips and a total growth of 59.89%. Please note that my trading results on demo and live accounts are similar; only position sizes are different.

Considering the amount of pips I made last year:

If I used 0.01 lots per pip then my profit would be $1,197.8

If I used 0.1 lots per pip my profit would be $$11,978

If I used 1.0 lots per pip my profit would be $119,780

If I used 10 lots per pip my profit would be $1,197,800

All these are only approximate figures. My position sizing depends on the amount of an individual portfolio. This year, I expect to outperform the last year’s figure in terms of pips. By signing up for my trading signals, you can see how I trade and do so accordingly. You may get my access to those accounts and Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

Remember that like any trader under heaven, I’m subject to the uncertainties of the markets. I experience many losses as well, only that I’ve learned how to control those losses no matter how many they are. Some people refer to their trading systems as being magical. Quite to the contrary, you will need to take decisions based on partial knowledge and probabilities, not certainties. Trading is a personal journey with different levels of development. It’s never too late to start again and trade your way to financial freedom.

I Was Perfecting My Trading Skill

While some were busy discouraging people from going into Forex, spreading myths and lies about the markets, I was perfecting my trading skill. While many people were busy looking for the Golden Goose strategy (they asked for the Holy Grail but they were given a mare’s nest), I was perfecting my trading skill. While some fans were busy hailing their stars and heroes with inordinate enthusiasm (hero worship) without thinking of how they themselves could be hailed, I was perfecting my trading skill. Some were busy blaming generational curses. Some were blaming their spouse or parents or children or the markets for their unpleasant experiences. They were blaming their enemies, witches and demons for their problems – whereas I was perfecting my trading skill.

While some kept blowing their account out of greed, using big position sizing because they couldn’t just see why they must use small position sizing, I was perfecting my trading skill. While some people were waiting for miracles and doing nothing, praying for breakthrough, but doing nothing; having their heads in the clouds, but doing nothing, I was perfecting my trading skill. While some people were busy begging for money, relying on some friends and family members or unknown persons to feed them and carry their financial burden, I was perfecting my trading skill

While some were expecting their politicians to pay their bills and put food on their table, they were expecting to be fed from the public treasury. While some people were busy blaming their government for their calamities, pointing accusing fingers at their politicians for the economic woes befouling their nation, I was perfecting my trading skill. While some were busy wasting their time as con and scam artists, proposing bogus and spurious deals, announcing fake lottery wins, devising ways to swindle people out of their hard-earned money, telling all sorts of lies, committing various Internet crimes, I was perfecting my trading skill. While some were busy imperiling people with email extractors, phishing email, spy software and Trojan horse, I was perfecting my trading skill. While some believed that the only way to get out of poverty was to engage in illegal activities and become criminals, I was perfecting my trading skill. While some were committing themselves to armed robbery, pilfering or shoplifting – I was perfecting my trading skill.

Innumerable people are lamenting the ever rising waves of unemployment in their country. In one land, the number of the unemployed is increasing by over 4.5 million per year. Some were begging for jobs, and some had put their destiny into the hands of their employers. While some had accepted that they were destined to be indigent because they tried many times and failed, because they tried their best in life but failed and because they struggled but didn’t succeed, I was perfecting my trading skill. The assassination of motivation is procrastination. Certain people were busy postponing the day they would start training for trading. They might choose a date that was 6 months away. When the day arrived, they’d choose another day that was 2 years away; yet I was perfecting my trading skill. While some were busy nursing hatred and resentment because the truth about trading is constantly revealed, I was perfecting my trading skill.

While some find it difficult to decide what to do with their life and while some see university degrees as the open sesame to riches, I was perfecting my trading skills.

Your PhD doesn’t make you the greatest man in the world. Certain people seem to think erroneously that the automatic solution to their problems is their college degrees. Some don’t even know what they could do with their life: they do something only because many people are doing it. They go to the university because many people are going there. They seem to be at the university because they couldn’t do anything else or don’t know what else to do. Everything seems to be alright as long as daddy or government is paying. Why do so many people want to become accountants? People think life is just as simple as getting great degrees and getting great jobs and getting married and living happily ever after. For them, I realized it’s not about getting very rich, it’s to enable them to do ‘safe and respectable’ professions that perhaps mildly impress their parents and other people. However, I was perfecting my trading skill. While some were dabbling from one business to another, rushing into one venture and quitting after facing challenges, I was perfecting my trading skill.

Life itself is a zero sum game. When would you start doing what really needs to be done rather than doing what people want you to do? Are you fascinated by what you wanted to hear or the blatant truth? I remained a failure for as long as I was listening to what I wanted to hear. I experienced breakthrough only when I started to follow what I didn’t want to hear. “I've been lucky enough to be involved in a number of other 'cool' careers, but nothing has satisfied that need within my soul for a meaningful existence like being a trader does,” writes Lance Beggs, a profitable trader. Trading is dynamic. Trading is fantastic. Trading is salubriously stimulating. Trading is liberating. Trading is wonderful, intriguing and rewarding.

Last but not the least, FXInstructor.com wants you to have the greatest success in trading the Forex currency markets. They look forward to helping you to learn and grow your skills as you trade this huge, but extremely volatile, Forex market. During these turbulent times, they’ll be at your service through market forecasts, webinars, trading rooms, blog articles, support services, free educational tools, trading signals and many more. They want to help you make good trading choices. And, if needed for special help, they’re also available via e-mail. They look forward to your capitalizing on their services.

I conclude this article with quotes from Rob Booker:

1. “There is a myth in American culture, and it’s spreading around the world: your job should be fun. You should enjoy what you do for a living. “Do what you love and the money will follow.” And so on. Perhaps we’ve had too strong of a dose of this doctrine. The truth is that although we are better off choosing a career that interests us, we’re going to be bored at work if we learn our job really well. The promise is simple: if you become a world-class Forex trader, at some point your job will be ho-hum. Not all the time, but it’s not going to be an adventure every day of the week. Sorry.”

2. “Once you discover a set of true principles, they’ll do you no good if you disregard them. I’ve met Forex traders that understood many, many true principles, but they were still dumb as a bag of hammers and poor as church mice because they failed to obey them.”

3. “You can succeed in the Forex market. As a day trader, you can be paid more handsomely than doctors, lawyers, and just about everyone else. But if you want to be a member of the elite class of highly successful Forex traders, then you have to put the time in. You can’t expect profits to come easily. Successful Forex trading will offer you more time, more money – and more stress – than you have probably ever experienced. But you can do it. Success is not about your IQ – it’s about your work ethic and your discipline.”

NB: Please watch out for my coming articles with these titles: Traits of Successful Traders,’ ‘How the MACD Generates Good Trading Signals,’ ‘A News Trading Strategy,’ ‘Analyze the Markets with the Aroon Indicator,’ ‘A Brief Introduction to Point and Figure Charts,’ ‘Does High Hit Rate Work Always?’ ‘My Typical Trading Day,’ ‘A Trader’s Trick Entry Technique – Sighting Golden Trading Opportunities,’ ‘Making Money out of Losses – A Blessing in Disguise,’ ‘Achieve a Better Hit Rate with Gap Trading (Using the Logic Yourself),’ ‘Play the Markets Victoriously with Nano-cent Accounts,’ ‘Why It’s Difficult to Do the Right Things in the Markets,’ ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘Trading Signals,’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 2 - 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 (2),’ ‘Resist the Lure of High Risk – Part 4’ ‘Best-case Scenarios – The Beauty of Trading,’ ‘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,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 6,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Before You Open that Trade,’ ‘Cogent Trading Biases,’ ‘Overview of My Signals Strategies – Can You Become a Super Trader?’ ‘Winning Trades, Losing Trades,’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘I Can’t Express How Grateful I’m to You!’ ‘Yearly Trading Update (2012) – The Big Picture,’ ‘What We’ve Decided to Do in the Markets - Trend Following It Is!’ ‘Yearly Trading Results (2012) – I Was Perfecting My Trading Skill,’ ‘Monthly Trading Report (December 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, February 9, 2012

Weekly Trading Update (February 10, 2012)

“As a trader, I prefer less trading opportunities with better probabilities, not the other way around… In the meantime, keep it simple and the losses small.”– Sam Evans

Hello:

Successful traders live by the rule to keep their losses small. On special occasions though and given the right market opportunity, bulls and bears still convinced a turn for the better is near, might look to repair those losses at no or very little costs, and drastically improve their odds of getting back even. For many traders, it’s difficult to admit losing trades and close them out early. This can lead to stops continuing to be activated until they move into the loss area and to the position increasingly spiraling out of control. And we all know how this may well end if worst comes to worst. The end result will be total loss of one’s trading capital. Many traders account histories bear this out. This phenomenon isn’t only true of trading – after all, it’s only human to dislike implementing measures that have adverse effect. We want to avoid the negative the best we can or at least suppress it. By the same token, acting according to those principles isn’t a rational and sensible decision – except in rarest cases. Clearly the bottom line is: make sure you always exit while losses are small, a lesson which applies not only to trading.

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

AUDUSD

Primary Trend: Bullish

The best thing to do in this uptrend remains buying low. The price moves up, hits a resistance level, pulls back, before moving higher than the previous resistance level. A long trade that was executed is still open and the position now has 76-pip profit.

NZDUSD

Primary trend: Bullish

The outlook and trading approach for this pair is quite similar to that of its AUDUSD counterpart. It should be noted that the NZDUSD moves slower than its aforementioned counterpart; its moves are slow but steady. Many speculative methods can be used to take advantage of this pair. All of these methods need to be determined independently of the underlying trend. The real trend is determined in the context of the present underlying. For example, an instrument can reverse to a downtrend after a strong uptrend and still quote above the 200-day MA. The traditional market indicator ‘instruments over 200-day MA’ would register this positively although the trend is already down.

AUDNZD

Primary trend: Bearish

My current short trade here is still negative by -32 pips; though my maximum possible loss on it is 0.5% in a worst-case scenario on the trade. In the present context of a downtrend, this market is consolidating seriously. The SMA 50 is below the SMA 200, while the price is above and sideways over the former. The RSI 14 is slightly above the level 50, pointing to a mild rally. The Stochastic 14,3,5 is trudging towards the overbought area. If the price reaches the overbought region, it may signal a shorting opportunity. There’s a great possibility of a breakout in the direction of the overall trend.

EURCAD

Primary trend: Bullish

The successful bullish attempt that started early this week has overridden the bearish sell-off that occurred last Friday. On our preferred timeframe, there seems to be a head-and-shoulders pattern. Should this be taken serious? These days, head-and-shoulders patterns are less and less applicable to today's markets. While they are still valid for company stocks, there is very little in the way of accumulation or distribution in the most heavily traded markets, such as stock indices, currencies, and interest-bearing instruments. The pattern is virtually worthless for intraday trading.

EURNZD

Primary trend: Bearish

The bullish attempt on the cross is still seems to hold, but the bearish bias is still valid. The bulls need to wield their power long enough before the trend can change significantly. The SMA 50 is far below the SMA 200 while the price stays above the former. The ADX 20 is just pointing around the level 10 – showing a market without steam. -DI is above the +DI, whereas it’s only slightly above it.

GBPCHF

Primary trend: Bearish

The resistance level at 1.4590 proved very effective. The bullish attempt on this instrument was rejected and the price nosedived – by over 180 pips. Is the price movement in your favor or are you caught in a wrong side? Watching your wallet would make a difference. You can make all the Forex winnings you want, and if you don’t have mental and actual ring fences around your capital and your trading habits you can lose it all plus a house in an afternoon.

Conclusion: While the difference between a good strategy and a duff strategy certainly separates some of the losers from the winners, the difference between effective execution and ineffective execution separates far more. What you need to do to survive as a trader has been constantly revealed – not some feel-good motivational buzz (the word that it’s easy to make consistent profits in trading rings hollow), but a dead-eyed ruthlessness about behavior that doesn’t help your trading, and a nimbleness about courage needed to take advantage of opportunities that do.

I’d like to conclude this article with a quote from a blogger at Elitetrader.com. It got to do with biased attitudes in human beings (something that militates against us in trading):

"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat.

…Meanwhile, the rats are still beating the Yale students.”

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.

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.