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Sunday, February 14th, 2010Guest Blog @ INO
Thursday, December 24th, 2009For those of you that missed our blog post for INO’s MarketClub check out the post below! You can also see the post by clicking here.
A commitment to trading means a commitment to continued effort and education. The road to success can be long and there are often tough times along the way. It is often the case that many people who set out to trade are blown out of the market within a few years, months, or even within a few days.
From my experience, and also many of the traders that I have met, there seems to be a consistent learning path that we all take. As a technical analyst I found a basic picture was the best way to describe the journey.
During a trading career there are often three distinguishing periods:
1. Our early trading experiences
2. Early development: education and risk management
3. Consistent profitability
Many novice traders are fueled by the adrenalin and the rush that trading provides. The excitement of trading is what attracts us, however at this point we often do not understand the risks attached and the discipline required. It is during this initial induction, inexperienced traders begin to focus on how much money they stand to make rather than how much they can afford to lose.
Overconfident traders who were hitting home runs in the early sessions begin to feel the affect of strike outs and at this stage do not have the psychological capacity to deal with losing trades. Traders who were making a loss begin to struggle with how to overcome these losses, often resulting in unnecessary risk. This stage is critical as many will walk away or blow out their accounts.
Traders who are motivated to succeed eventually begin to understand the possibilities that trading brings. Getting through this stage is not easy and there are often setbacks as strategies are tried and tested and we begin to discover what type of trader we are and better understand the markets we trade. Not everyone makes it past this stage and the time to get there can vary from person to person however those that are willing to put in the effort to learn the rules of the game begin to stack the odds of success in their favor.
The end goal is to become consistently profitable, however no matter how good you are, there are sure to be some setbacks throughout your career. Consistently profitable does not mean you don’t make losing trades and remaining in this final wave will become dependent on you staying motivated and consistently applying the rules you have learned along the way. Most trading rules are simple to understand but easily overlooked, let us now examine 3 simple rules that you should never forget.
3 “One Size Fits All” Rules
1. Make a Plan
You need to ask yourself what is your trading strategy; what are your tactics and what conditions need to be fulfilled for you trading to succeed. In simple terms, if you are going to cross a freeway to get to the other side, do you just walk across blindly without looking out for the moving trucks or do you find a crossing or a bridge?
Your choice of technical indicators will depend on your trading strategy and your personal preference. Some indicators are more suitable for trend following rather than breakouts or reversals and some indicators work better together than others. Entry, exit, and risk/reward parameters should also be defined in your plan.
Once you have your trading plan be sure to stick to it. When your plan is working well it is easy to become overconfident and increase the risks that you take, don’t make this mistake. Spend some time in developing something that works for you. A bad plan is better than no plan at all!
2. Cut your losses with a stop-loss
There are not many things that can be guaranteed in life but there is one guarantee we can all be sure of; you along with the best traders in the world will make a losing trade at some point. It’s just part of the game so you better prepare yourself you deal with it.
It is easy to get paranoid about the market trying to stop you out before continuing in the right direction. Long-term success is impossible if you let your reactions trump planning. The solution is simple; don’t chase the losses by moving your stop-loss!
The best way to deal with it is to control your risk. If you risk 10% of your account on one trade then you may find that your account size falls rapidly during a draw-down period. If on the other hand you are risking 3%, you will find yourself in much better shape to continue trading and stay in the game.
3. Understand Your Market
Different markets can and do trade differently so when you pick your market it is important you do your research before you start trading. The research and information you gather will form a basis for your trading tactics.
For example, if you’re trading FX determine which technical indicators work best, which pairs are correlated and which economical announcements are likely to cause spikes in the market. If you are trading stocks, find out exchanges they trade, how liquid are they, are they seasonal and how much can they gap up or down?
The more you understand what you are trading, the more effective you will be able to execute your strategy. This will move the odds in your favor and you will find it easier to time the market and hopefully enter a market closer to the low and exit nearer the high for a long (and vice versa for a short).
In this post I’ve tried to touch briefly on a few of the issues I faced early on in my trading career along with some of my colleagues. If you would like more information on any of the points raised or would like to provide any feedback then please contact me and I will be sure to help.
Good Luck & Merry Christmas
USD…..
Tuesday, December 1st, 2009Today we will re-examine the USD/JPY after November saw the biggest monthly drop this year. A lot has happened in the last week with the biggest news being the debt crisis at Dubai World. The dollar remains weak after a Dubai’s banks eased investors’ concerns with more liquidity for the market.
USD/JPY fell to 86.03, the lowest level we have seen for some time.
Technically speaking we have broken through the previous low for the year of 87.12 the downside still looks favourable. The 50, 100 and 200 day moving average are all trading below each other respectively. One possible positive sign from this graph is the long shadow on the candle for the 27th November: this long lower shadow shows that people are still going long here however it is too early to see signs of a reversal.
This market still remains in a strong down trend.
Today we will re-examine the USD/JPY after November saw the biggest monthly drop this year. A lot has happened in the last week with the biggest news being the debt crisis at Dubai World. The dollar remains weak after Dubai’s banks eased concerns with more liquidity for the market.
USD/JPY fell to 86.03, the lowest level we have seen for some time.
Technically speaking we have broken through the previous low for the year of 87.12. The 50, 100 and 200 day moving average are all trading below each other respectively: the downside still looks favourable. One possible positive sign from this graph is the long shadow on the candle for the 27th November: this long lower shadow shows that people are still going long here however it is too early to see signs of a definitive reversal.
This market still remains in a strong down trend.
AUD Opens Lower After Falls In Equity and Commodity Markets
Sunday, November 1st, 2009The rallies in the equity markets seem to be taking a break giving more time for long-term investors to pick up a bargain. For traders however this is a time for caution to see which direction the major trends are going to take us.
The Australian dollar opened lower tonight after equity and commodity prices fell quite sharply last week. There’s a bit more caution from traders and since the Australian currency is a “growth currency” it has some positive correlation with commodity prices and equity markets.
AUDUSD moved down to a low of 0.8907 but has since bounced off this primary support level and is now trading at 0.8978. AUDJPY moved down to a low of 79.48 shortly after the open but has bounced back to 80.45 as of 23.27.
quantum-fx version 2 continues to look for trading signals in all of the major currency pairs.
Later today GBP (9:30 am) and USD (4:00 pm) have some major data releases with respect to Manufactiring PMI and Pending Home Sales: expect increased volatility around these times especially if there are any surprises with the numbers.
The rallies in the equity markets seem to be taking a break giving more time for long-term investors to pick up a bargain. For traders however this is a time for caution to see which direction the next major trends are going to take us.
The Australian dollar opened lower tonight after equity and commodity prices fell quite sharply last week. There’s a bit more caution from traders and since the Australian currency is a “growth currency” it has some positive correlation with commodity prices and equity markets.
AUDUSD moved down to a low of 0.8907 but has since bounced off this primary support level and is now trading at 0.8978. AUDJPY moved down to a low of 79.48 shortly after the open but has bounced back to 80.45 as of 23.27 GMT.
quantum-fx version 2 continues to look for trading signals in all of the major currency pairs.
Later today GBP (9:30 am) and USD (4:00 pm) have some major data releases with respect to Manufacturing PMI and Pending Home Sales: expect increased volatility around these times especially if there are any surprises with the numbers.
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EURUSD: Signs of a Bear
Tuesday, October 27th, 2009Today we saw EURUSD decline to its lowest level in three weeks after breaking through support @ 1.4845. Looking at the chart we can see that yesterday’s move down gave an indication of a bearish reversal; not quite a textbook Bearish Engulfing Pattern. The signal is strengthened by the continuation of the move down. There is some support around the 1.4800 level and if we see a major breach or a close below this level then there is a possibility of some more moves down in the following days.
Sterling: take your bets
Monday, October 26th, 2009Opinion is really split on British Pound. Friday saw large drops in GBP after the UK economy failed to escape the last of the recession. Estimates of GDP show that the economy contracted 0.4% in the third quarter despite the lowest interest rates since 1964.
Goldman Sachs came out today stating that the economic downturn is being overplayed making GBP too cheap. RBS on the other hand, who are one of the biggest FX traders, said that they expect the pound to weaken further and their outlook is echoed by a number of other large institutions.
We saw positive gains in the first half of last week for GBP on the back of rumours of interest rate rises. In our view, once we see an actual rise that might be the catalyst for a reversal on the pound or at the least we will see some sort of bounce back.
We cannot be sure when these macro shifts will take place. The Bank of England expected the UK economy to expand over the second half of the year but we have not seen much evidence of that. But we can always find a story in the technical’s…
We have made a 50% retracement from the recent lows and critically we have crossed over and above the 200 day moving average. We have some support around the 1.555 region which includes a double bottom. For the moment this market is moving sideways and a breakout from this could give an hint as to the next long term direction.
Goldman Sachs came out today stating that the economic downturn is being overplayed making GBP too cheap. RBS on the other hand, who are one of the biggest FX traders, said that they expect the pound to weaken further and their outlook is echoed by a number of other large institutions.
We saw positive gains in the first half of last week for GBP on the back of rumours of interest rate rises. In our view, once we see an actual rise that might be the catalyst for a reversal on the pound or at the least we will see some sort of bounce back.
We cannot be sure when these macro shifts will take place. The Bank of England expected the UK economy to expand over the second half of the year but we have not seen much evidence of that so far. But we can always find a story in the technical’s…
GBP has made a 50% retracement from the lows in the first quarter and critically we have crossed over and above the 200 day moving average. We have some support around the 1.555 region reinforced by a double bottom. For the moment this market is moving sideways and a breakout from this will give a hint as to the next long term trend.
Managing Your Risk
Sunday, October 18th, 2009Possibly the most important aspect of trading is managing your risk. Losses are a part of trading and you have to learn to take them. If you lose 3% of your trading account you will find that even a few losing trades in a row will not have a huge impact on your trading account. However if you take even one 30% loss you will find it very hard to last any length of time in the game. Managing you risk comes down to discipline and trading psychology. You must be able to take losing trades and concentrate on the bigger picture which is long term compounding returns. Whilst the discipline is down to each individual trader, QVirtue has developed a risk management tool to help you quickly and easily calculate your position size with each trade. Use this tool!!! As simple as it might seem, it will have a big impact on your trading.
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