Monday, October 27, 2008

Automated Trading systems

As I have said before, I have never been a great fan of automated trading systems but the past 6 months or so of testing various Expert Advisers (automated systems) has persuaded me that this is probably going to be the future of trading. These systems have become sought after trading tools for traders at all levels including part time amateurs and professionals alike. That's not to say any of these systems are the be all and end all of trading, it will still require astute professional traders with proven track records and trading systems to design systems that work.

As with all trading systems there are pro's and cons.

Some of the major advantages have been the fact that the EA can find trades I would not ordinarily do as I have to sleep sometime and cannot possibly watch the market 24/7 unless I employ someone to do that for me. A good EA can become a cheap faithful and loyal employee.

Using an EA removes all the emotions from the trading process. As humans we are often subject to different emotions. When things are going our way, the adrenalin is pumping and we cannot wait to execute the next trade. However, have three losses in a row and it becomes difficult to follow your tried and tested system and doubts start to creep in and we start looking for a more reliable method.

The speed at which the EA can execute trades and make decisions is far faster than the human can and they are consistent in executing the trades giving an even spread of trades 5 days a week. This consistency is important because when we have a bad run and stay out of the market suddenly things go our way and we miss the trade.

Obviously the downside is changing market conditions, EA's are programmed to trade specific events, (maybe the cross of moving averages, break of support or resistance or a host of other triggers.) when it suddenly fails we have no Idea how to fix it other than to turn it off until market conditions change.

The EA I was testing in my previous article performed very well for three consecutive months, producing consistent profits daily. When the big move started in August it literally blew the entire account in a week. Looking at equity curves on promo material often doesn't reveal the entire truth, as with the previous test. Though the profits were consistent the actual risk is not visible on the equity curve as only the final result of the closed trades become part of the equity curve.

The reality was that often the account was down sometimes up to 10k before the profits were realised. A 30 to 40 percent draw down is just too large a risk on a 25k account and the warning bells should have sounded that sooner or later it would not recover and the account would be blown.

I have tested a number of systems over the past 6 months and have only found one that has stayed in profit profit regardless of market conditions and that one is Forex Auto Pilot. Having said that I do not believe it can live up to its advertising hype and produce the sort of returns it claims over a 12 month period. The operative word is('it stayed in profit') it did not make buckets full of money.

I have yet to find one that operates on sound fundamental trading principals and a review of these principals mean.

1 ...... Risk for most the risk is an input figure by the user rather than a figure based on an equity calculation that uses the difference between the entry point and the previous high or low to calculate the actual risk and adjust the lot size accordingly.

2 ..... Take profits again are mostly arbitrary input figures by the user rather than a decent risk to reward of 1.5 to 2 times the risk factor.

3.... They all seem to be focused on the entry with scant regard to risk or a decent risk reward ratio.

All these systems can be used on demo and rather than entice people to first lay out good money. A protected time limit demo EA could be offered for traders to first evaluate before making a purchase. If the Demo version lives up to its reputation then I am certain people will rush to buy the system.

I do believe though that the really good ones will stand out head and shoulders above the ordinary ones and will become a benchmark for developers to strive for. I won't go so far as to say that Automated systems will entirely replace humans but I can foresee a time in the future when many institutional traders will be replaced by automated systems.

Commando Ea

I was sent a copy of this ea to test about 3 months ago and tested it on demo for the full 2 months. The system is based on the martingale system, as recommended I traded the four majors simultaneously. on a 10c 5 k account and on a 25k 1$ account.

On the 1 $ account it produced profits of up to 13 k in a week and the 10c account a record week of $1300. Whilst the profits sound impressive they don't show the ever present risk in trading the Martingale system. Like all Martingale systems it piled on the profits during the quiet periods but had big losses when the market trended in any direction. Week after week it managed to recover the losses and then some but would then give it all back the moment there was a major move.

After 2 months the account finally blew itself out. It does have a 200 pip stop loss so the pyramiding effect was not infinite. It also has a timer that can be set to stop trades at particular time which helped to eliminate many of the large runs which might have brought about the accounts demise a lot earlier.

Maybe when the Forex market gets back to normal, this might be a good EA because it certainly could pile on the profits. Then again what is normal in a Forex market that changes daily. Because it is based on the martingale system and doubles lots against the trend the risk reward ratio is always against the trader and sooner or later will probably blow the account.The cost of this Ea has been reduced from $145 to $75

Money Grid
The same developer also sent me this EA about 2 weeks ago, also based on the martingale system but with a few changes. Instead of doubling up a set number of pips from entry it used increasing increments against the trend.

So if the first Grid was 20 pips the next double was at 30 pips then40 and 50 and so on. This definitely had the effect of reducing the number of lots placed in the market but made it equally difficult for the market to retrace enough pips to take profit.

The recommendation was to trade the 4 Majors and the Aud/Usd and Cad/Usd pairs simultaneously on a 1c account with a min of 5 K equity. After 2 days of trading it had piled on about $200 in profits, then took a 600 $ loss on the first big run so I reduced it to the 4 major pairs. I simultaneously ran a 500k demo trading one Mini lot at a a time on the four major currencies. It only took 5 days to wipe out both accounts completely.

Money Grid sells for $165.

The developer of these two systems Pro-FX-Experts is a good programmer and if you have any good Ideas for an expert adviser he can code it for you at a reasonable price.

Sunday, July 27, 2008

Automated Trading Systems

Before I started this article I checked my mail box was bombarded by no fewer than 10 emails promoting new trading systems, automated trading systems and a lot more.

Each one promised that it was better the any other system that had ever been traded before, each one promised a money back guarantee, and had a dozen testimonials from various traders round the world. Some even went so far as to say that you don't have to know anything about trading, just load their system sit back and watch yourself become very wealthy.

Again I must emphasise that most of these systems are unknown to me and I cannot say that without any shadow of a doubt they either work or don't work. I just keep going back to the supposed fact that if 90% or more of traders out there are still losing their money, then what is the real truth. With all these amazing systems available to all and sundry," how can this be possible?" Surely we should all be making a killing in the market and only a small % should be losing

The stats bandied about in forex circles suggest that 90% of all traders entering the market wind up losing their capital. I cannot vouch for these stats as I have no idea where they come from, or seen any official publications based on scientific research to support these stats.

I am not suggesting that these figures are not true, only that some factually based regularly published statistics would help to emphasize the real risks for new participants entering the market.

With so much hype and advertising about the potential rewards the forex market has to offer and only a general CFTC warning about the risks, the question is?, "are new traders or investors not entitled to the actual facts rather than an arbitrary warning."

The only organisations who can provide the necessary data are the trading platforms. Maybe someone should suggest to the NFA (National Futures Assn.) and CFTC (Commodities Futures Trading Commission) that each registered Market Maker, Broker, Trading Platform make the following stats available.

1 Number of traders with live trading accounts.
2 Number and percentage of traders who lost money during the report period.
3 Number and percentage of traders who made money.
4 Number and percentage who broke even.
5. Total amount of capital lost by the losers
6 Number of traders who lost all their capital and the total amount involved.

These two controlling bodies should then compile the stats from all concerned and publish the figures on a quarterly basis, which should then be made compulsory so that anyone wishing to to advertise any forex related product have these stats clearly visible on their ad or marketing material.

The FDA (Food and Drug Administration) require strict health warnings and labels on food, drug and tobacco products to protect our physical health , should we not be entitled to the same protection of our financial health?

The question is will this have any affect on the number of new participants entering the market?

Here's an analogy, I am sitting with a packet of 20's cigarettes in front of me with the following clearly written highlighted warning on the front of the packet "Every time you smoke those around you smoke too. Your smoking increases the risk of lung cancer and heart disease. Stop smoking for the sake of you health and that of your family and friends. For more information call...."

There are numerous different warnings on cigarette packaging in our country, smoking in public places restaurants and bars have been banned.

Has this stopped kids and adults from starting, or had a major effect on the bottom line of tobacco companies? I don't think so. Yes! there has been a slight reduction in numbers but people can no longer say I did not know. They can make an informed decision based on fact and clear warnings.

Brokers and trading platforms keep impressive and extensive accounting records for every trader and the figures should not be difficult to extract. These figures would go a long way to providing potential new comers with the true facts.

I do not think it will have a major effect on the number of new participants entering the market simply because human nature dictates that we rise to the challenge and believe that we can be rated among the 10% who can actually make money in the market in spite of all the evidence to the contrary.

If the NFA and CFTC are really serious about weeding out and putting a stop to much of the bogus marketing splurb that promises the earth and delivers very little then these stats should go a long way towards deterring a lot of people who do not have excess funds available as risk capital from getting involved in trading.

Having said all that I firmly believe that anyone who wishes to trade should be given the opportunity, after all life is all about learning new skills and rising to new challenges. The true stats however will help potential new traders make an informed decision based on fact

I am also not suggesting that all the marketing and advertising is bogus. There are many great traders out there with great trading systems that have the potential to earn traders vast sums of money if the trader has the discipline to follow the rules of the system.

I have never been a fan of automated trading systems, and have tested numerous over the past year or two. I unfortunately have not found a single one that lived up the its marketing promises. That is until almost three months ago a friend sent me an EA (Meta Trader Expert Advisor or automated trading system) that he had developed and asked me to test it.

The EA is account specific so it cannot be copied or pirated without the developers permission. It is also not available to the general public for sale as it was developed strictly for their own use.

This article is also not to promote it in any way or sell it but simply to highlight the pitfalls and the potential of automated systems.

When he sent it to me it came with specific instructions. Only trade an account of $25 K or more with at least 200:1 gearing. Only trade the GBP/USD pair and only trade 10c lots. Do not trade more than one currency pair and keep to the default settings. The instructions were clear and concise and did not require a rocket scientist to understand them.

I duly, with much scepticism opened a new demo account with a balance of 25K to test the EA but failed to ensure that it was a mini account or that the gearing was 200:1. The first few days were impressive as I was trading 1$ lots and not the recommended 10c and the balance began to grow steadily, I thought, "hey this is a great EA I am certain at this rate I can double my capital every week or so with no effort from my side".

That's where human nature took over and I decided to add the GBP/JPY to the fray as well, the balance continued to rise. I spoke to my friend he told me I was a lunatic trading 1$ lots and two pairs with only 25k. I still did not fully understand the significance of his instructions as the EA was raking in the $'s every day. Greed then took over and I added a third pair, the EUR/JPY to the fray and now had three pairs running, determined to prove the system could meet my greedy expectations.

That's where everything went pair shaped and I took a 16k loss dropping the balance to 13k because I ran out of margin and the new orders were rejected. I duly closed the GBP/JPY pair as that was the one that that caused the bulk of the loss. Over the next week or so the the balance returned to 25k with 2 pairs running and then disaster struck once more with another 8K loss.

24k in losses to learn a simple lesson, (follow the instructions) and I am certain there are many traders out there who take those risks on live accounts and then wonder why the system did not work. So it was back to the drawing board and reduced to one pair GBP/USD trading 1$ lots. Still not according to instruction but the best I could with the account I opened. The major problem though was the account I opened only allowed gearing of 50:1 not the recommended gearing which caused a few problems.
Click to Enlarge







The Above is the equity curve and balance taken from the detailed trading report that clearly shows the two losses. I did have to make another adjustment to the inputs that differ from the default to cater for the low gearing and the fact that I was trading 1$ lots instead of 10c lots. The results were impressive once I followed the rules and were it not for human folly the balance would have tripled in the three month period of testing.

The above is a perfect example of how human nature can ruin a perfectly good trading system and I have no doubt that a new trader without any knowledge of how Gearing, margin and lot sizes affected an account, would have wiped out the entire 25K in the first month.

I would not recommend the EA unless the trader could prove he had a mini account of 30k or more and was disciplined enough to stick to the rules. It is certainly the best and most consistent EA I have tested as the balance increases daily and I cannot remember when last there was a negative balance on a trading day.

Sunday, June 22, 2008

Asian Break Out Strategy 5

Over the last few months I have had numerous letters like the one below.

Hello Graham,

I've read your posts about the Asian Breakout Strategy and I wanted to thank you for sharing this strategy and all the data of your trades.

I was just wondering if you still applying that strategy with similar results? If so, what do you do when the price already break the range at 8:00 GMT?

What is your discretionary exit strategy?

Have you made any updates to this strategy?

Thanks for sharing your thoughts and knowledge all your posts and articles are helping me a lot!

Best Regards,
Dan

Click Charts to enlarge


The two main questions I have had over the months from many traders are!
What do I do when the breakout occurs during the period between the Frankfurt and London opening ?

What do I do when the breakout misses the target and retraces?

Over the months I have worked on refining the system somewhat in order to avoid the false breaks. I imagine there are numerous indicators available that can act as a filter to ensure we only trade the correct breakout and ignore the false one.

Obviously no system is infallible but these few simple indicators have certainly helped a great deal with improving the profitability of the system.

I have added a 120 period ema (red) that acts as my long term trend indicator, a 5 ema (black) and a 21 ema (blue) as well as a standard 12,26,9 MACD line indicator.

The above eur/jpy charts are 1 hr and 15 min. We can see the market was clearly long at the time of the breakout on the 1 hr chart. Price was above the 120 ema and the 21/5 ema cross was also long. The MACD had also signalled a long. My obvious choice was therefore also to watch for and trade the breakout long. The 15 min indicators confirmed my thinking.

Shortly after entering the market retraced slightly and bounced at the 120 ema and then carried on long without threatening my stop.

The entry for the trade was at 167.58 with my stop 40 pips below at 167.18 and profit target 168.18. As we can see price only went as high as 168.11 then retraced. 168.11 was also at a previous high in the market and therefore alerted us to the fact that it was possibly the end of the run.

Whilst I don't recommend a 15 pip trailing stop at the entry point as this would inevitably close out the trade on any small retracement, once it was 50 pips up and at resistance then a trailing stop would ensure closing out the trade with the bulk of the profit in tact. Alternatively we could have closed out when the ema's and MACD crossed short at 167.84.

There is no doubt that simple indicators can improve the results and filter out the false breaks.
If therefore the breakout occurs prior to the London opening in the direction of my long term indicators on the 1 hr chart then I will take the trade, If it is in the opposite direction then I will ignore it and assume it is only a retracement.

The same strategy applies to the breakout of the London opening, I will only trade the breakout in the direction of the indicators. If the 1hr and 15min indicators disagree then I will wait till they are in sync before entering the trade.

The Pivot Point can also be a useful indicator as price often heads to the PP then continues.

Summary
  • Establish the overnight Range
  • Confirm the trend on 1hr using a long term trend indicator like a 120 period ema
  • When 15 min indicators concur then trade breakout in direction of 120 ema
  • If 1hr and 15 minute do not concur exercise patience until they do.
  • If target is not realised then add a trailing stop at support or resistance or close out when indicators turn

Wednesday, March 5, 2008

Fx Active Liquidation

FxActive Liquidation
The popular FxActive trading platform has been closed down now for more than a month. The very reason the company was created (to facilitate trading) now no longer exists. I know there are many traders in South Africa and other parts of the world who would like some clarity on the affairs of the company.

The sister company JICM was placed into liquidation about 6 months ago. I have been approached by a number of traders and investors to initiate liquidation proceedings against FxActive due to my large trading account with the company.

It is apparent that no single individual is prepared to throw good money after bad by incurring further substantial costs in an effort to recover their funds. In light of these requests I have approached a number of investors and traders involved with FxActive to initiate liquidation proceedings against FxActive via a class action.

After lengthy discussions with attorneys we have been provided with a cost to bring an urgent liquidation application before the court. To date I have pledges from investors and traders for half of the amount necessary to lodge the application.

Obviously the Idea of the class action is to limit the cost for each individual involved. I know that there are hundreds of traders out there who would like to participate but cannot do so on their own.

This therefore is an invitation to contact me via my email feed or comments to participate in the process. At the moment the estimated cost per participant is R800. I am certain though that if we can get another thirty or fourty people involved this amount will be halved.

All the funds will go directly into the attorneys trust account to lodge a security bond with the high court necessary to institute the proceedings.

Obviously there are no guarantees as to the percentage of investors funds individuals will be recover once the process is complete.

The current status is that the company still has offices and staff and for all intents and purposes are pretending to be a going concern. Traders however are not able to trade on the platform. These costs have to be met each month and I can only speculate that investors funds are being used to fund this sinking ship.

As the JICM liquidation process is well advanced, the close ties between the two companies could result in the liquidators of JICM seizing the assets of FxActive as well. This would leave little or nothing for FxActive traders and investors to claim at a later date. We will therefore endeavour to have the same liquidator appointed to handle the Fxactive liquidation in order to ensure an equitable distribution of funds.

Many might also be aware of criminal proceedings being handled both by the National Prosecuting Authority (Instructed by the Financial Services Board) Contact Connie Bakkes Special Senior Investigator on +27(0)12 842 1400 / 1445 and the Commercial Crimes Unit (private initiative) These actions are designed to prosecute should any illegal activities or fraud have taken place, not necessarily recover clients funds.

As you are also aware it is near impossible to contact the company or CEO either telephonically or via email to get the answers we need.

If you would like to participate in this process then please contact me as a matter of urgency to expedite this matter. Your details will not be published or used for any purpose other than to expedite the Liquidation process

Wednesday, February 27, 2008

Asian Break out Strategy 4

This will probably be the last post on this strategy otherwise I will start sounding like a stuck record. As a last post I will include today's trades on the Gbp/Usd, Gbp/Jpy and Eur/Jpy



Once again the shaded area is the Asian/Pacific session with the high at 1.9901. The trade was entered at 1.9911 and within 2hrs reached the 50 pip target making a high at 1.9972.



The Gbp/Jpy broke out after the open of the london session at 212.49. The trade was entered at 212.39 and again hit the 70 pip target within about 2 hrs. At time of writing it had run 140 pips plus for the day.




As has been the case the past few weeks the Eur/Jpy proved to be the poor relation struggling to hit the 50 pip target but at the same time not causing any stress on the trade. The breakout also occured after the London open at 160.39, the trade was entered at 160.29.

At time of writing the US session has just opened and I closed out the trade for a 40pip profit. Add this to the monthly tally of 2110 pips and the total now stands at 2270 I don't know many traders who have those sort of figures month on month neither can I guarantee that the strategy will produce these results consistently.

The past four months though have all ended positive. As this is very much a mechanical system that requires 10 min a day to set up, limiting the exposure has helped on the days where it has not worked.

Remember three orders are being places simultaneously and when all three go wrong at the same time and you are overexposed in the market then it is going to hurt.

Tuesday, February 26, 2008

Asian Break Out Strategy 3

For the month of Feb I have been recording the breakout trades on three currency pairs, the GBP/USD, GBP/JPY and EUR/JPY. The EUR/JPY has gone from being the most consistant to the worst performer for the month.
If I look at the monthly candle for the EUR/JPY it is still an inside candle well within the January range.


EUR/JPY 1 hr Chart Click to Enlarge

The Blue shading is the Asian Pacific trading time and the candles above and below are the breakout trades. Whilst I have tried to aim for 60 pips a day, some days the market only ran 30 to 50 pips and I have locked in profits or closed out at break even.

Thats fine for traders who monitor their trades as I do, but for those who place the orders and leave them for better or worse, the figures would differ by 200 pips for the month. The net result would be 290 pips up for the month to date and for those who can monitor trades 490 for the month.

Many days the market has run more than the required 60 pips but that has not been taken into consideration for the above calculations.

There were four outright losing days with two of those days producing losses on both the long and short entries. There were 9 days where the trades produced the full 60 pip profits.
On a number of days the market stopped just short of the 60 pip target and lesser profits were recorded. Some days there were more than 2 trades as price broke through then retraced and broke out a second time.

The daily average for this pair was about 28 pips per day profit. Thats not great but there are many traders out there who would love to make 20 pips per day.

GBP/USD
On this chart I have recorded the maximum run for the day but those figures are not included in the calculation. The daily target on this pair is 50 pips per day with a 30 pip stop loss. For those who trade cable you will know how volatile this pair can be at the open of the European session, yet the pair has performed well on the breakout strategy.

There were only two outright losing days and many days with moves in excess of 200 pips. The 50 pip target was achieved on 14 of the trading days.
The daily average for this pair 33 pips per day.


Gbp/Jpy
One of the most volatile trading pairs, yet the star performer for the month achieving the 70 pip target on 15 occasions. There was only one outright losing day, with 4 losses recorded for the month.

Total profits for the month Gbp/Jpy 1110 pips for an average of 62 pips profit per day.

I have ignored the overnight rule of 80 to 100 pips as sometimes after a large overnight move the trade still produces the required profit and I am not in the market. I have also instituted a mandatory 30 pip stop as it makes no sense to risk the same amount that you stand to lose.

The total profits for Feb for all three pairs 2200 pips or 122 pips per day, must make this simple 10 min a day setup, worth adding to any Forex Trading arsenal.

It is obvious that market conditions change and a pair that performed well previously might not perform as well in the future. There will also be drawdowns and sometimes two losses on a single currency pair on a trading day. This should be allowed for in any trading strategy.

It is only through consistency and good equity management principals that any trading strategy can either prove itself or fail. If we are going to employ a particular strategey then all the trades must be taken, it does not help to do the occasional one as that will inevitably be the losing trade, which will cause us to discard the strategy and go in search of a new one.

I have been using the strategy as part of my trading routine for almost 4 months now and it certainly gets my vote for its simplicity and results.

It does differ from the Power Break strategy in that it involves three currency pairs rather than the two Eur/Jpy and Gbp/Usd employed by the power break system. The Power break system I understand uses a mandatory 40 pip profit limit and 40 pip stop loss with overnight moves larger than 80 pips resulting in a no trade. Other than that I think the methodology is similar.

Thursday, January 17, 2008

Forex Power Break Challenge Series 2

The Forex Power Break Challenge :-Marketing Tactics Suck

A few months ago I received a marketing splurb in my mail box entitled "The Forex Power Break Challenge" by "Expert Forex Systems."

The Challenge
The marketing hype invited 500 Forex traders from all over the world to join the challenge and turn $1000 into $80,000 over a 24 month period working only 10 min a day using only the Power Break System.

The Cost
All this for the amazingly low price of $97 for an e-book and a further $48 per month to receive the daily trade signals.

The Spam
The challenge sounded too good to be true, but offered 2 free trading e-books just for leaving a name and email address. As an avid reader I figured no problem, leave my name and e-mail address and get 2 free e-books. The e-books promptly arrived, but so did the spam. These had nothing to do with the Power Break System.

Yes there is an unsubscribe option available but I was curious to follow how the challenge materialised over time and therefore decided to live with the spam.

My Trading Philosophy
My personal philosophy is to make my own trading decisions and live by those decisions for better or worse. If I suffer a loss due to a bad trading decision, I can live with it and also learn from it. Because of this philosophy I decided not to get involved with the challenge.

I suppose its like getting a hot tip from a punter on a horse race and then wind up backing a donkey, or a stock market analyst working for a prestigious brokerage firm maintaining a buy recommendation on a rapidly declining stock, all in the interest of the brokerage and their client, but little or no regard for the investors .

Don't get me wrong I am not averse to learning all I can about this amazing industry and that includes occasionally testing new trading systems.

Time Frame
This is round about the time "Power Break Challenge 2 started. It definitely did not sell out in 2 days as they claim the first challenge did. Four months later the emails still arrive daily urging me to join the challenge at a cost.

The Marketing
If nothing else I would call it a brilliant marketing coup. A possible $97,000 in sign up fees and $48,000 a month for the next 24 months all for a system that is freely available on the web.

The Results
To be fair the promos I receive about the challenge, indicate that it is on course to meet the target. Whether or not they make the final target remains to be seen and I wish those traders every success.

What prompted me to do this article though was the marketing methods, specially the last few emails I received regarding the challenge.

Extract from an e-mail sent to me.
The Hype

SECONDLY, I wanted to update you on the Challenge, and offer you a unique opportunity.
Due to various circumstances, we have a number of vacancies in the Challenge.


I have also had fund management companies contacting me who wish to use the Power Break system for themselves, and who don't want this open to the public at all. In fact they want me to pull this from the internet right now.

So here is what I have decided to do...
I am inviting a selected group of traders to join the Challenge to fill 100 vacant seats.

Then I am closing the doors the Challenge forever.
I am going to dismantle the website completely on *MONDAY14th JANUARY*
This means the Power Break Challenge will never be available to the public again.
I am dead serious about this.

*INSTRUCTIONS*
If you want to grab this genuine last chance offer to join the Challenge, then immediately visit the book website at
www.expert-forex-systems.com and grab your copy of the Expert ForexE-book. You must own the book to join the Challenge.

The Issues
More marketing splurb! My curiosity got the better of me so I decided to do a Web search to determine if the site had been closed down. Bingo! you guessed correctly. It is still up and running. Today is the 18th of January!! What happened to the 14th cut off date. Only 27 vacancies left, I seem to recall a similar number a month ago.

My second issue is with the "Supposed Fund Managers" who want you to stop marketing a system that is free for all on the web. What are they worried about?

Surely as traders they are aware that market movement is all about traders perceptions of what the price should be. The more traders who share the same perceptions the more likely the market is likely to move in a direction.

Why then would it be in yours or their interests or the interests of the traders who have purchased your system to suddenly limit the access to the system and only make it available to a few select fund managers. In this case " More is definitely better"

Fund Managers
Maybe they should not be managing other peoples money if they have to pay you for a trading system that takes 10 minutes a day to set up and is Freely available to anyone on the web.

All they need do, is a Google search, as I did, to see if the site had been closed down. Simply type in the words "Forex Power Break System" and they can find out exactly how your system is traded.

The Search Results
There are many references to the system, listed with Google, there is nothing unique about it, there are many similar systems traded each and every day by many traders around the world including a free system on this blog.

They do not cost $48 per month or $97 for an e-book and that's not to mention the possible residual income you would receive from new traders who sign up through your IB.

The Opportunity
There is no problem with you seizing an opportunity and making money out of it. I even believe it is a good system as I use a similar system very successfully every day.

Surely your results should speak for themselves and the testimonials from satisfied clients should help fill the remaining spots without resorting to the spam and bull dust about limited numbers, so called fund managers, and pulling the site off the web.

Conclusion
Surely your tactics are not doing anything to repair the already tarnished reputation of Forex Trading in our country. Your pressure tactics and spam have probably chased more potential clients than you realise.

Quote
Abraham Lincoln once said " You may fool some of the people all the time, and all the people some of the time , but you cannot fool all the people all the time."

Tuesday, January 15, 2008

Asian Breakout Strategy 2

Follow up on the Asian Breakout Trade

As I said in the last post I had a feeling this would not be something new. Some of us just take longer to discover them. I have since had phone calls and emails from other traders confirming they have been trading the system for a while.

Some of them only scalp 15 pips using this entry, still others aim for 40 pips on a trade. Now that the holidays are over and trading is back to normal I have had to change my thinking a bit on the system.

Some of the feedback I got from other traders using the entry method is don't trade this system if the overnight move is more than 60 Pips and others say more than 80 pips. I am inclined to agree with the 80 pip strategy. Don't use this entry method if the overnight move for the Asian and Pacific markets is more than 80 pips.

Another glaring problem is trading both the Eur/Usd and USD/Chf pairs as they are definitely the slowest moving pairs. The correlation between the two means, if you lose on one you are likely to lose on both. Some days you get a good run on both but it seems most days they just don't perform. Having said that I have reduced my entries to 4 pairs.

Two other changes I have made are, firstly only enter after the London opening, not Frankfurt. The hour difference between the two opening times often coincides with news from Germany causing some spikes in the market, picking up the order, only to reverse when London opens.

The second change is on the entry. I have changed that to 10 pips above or below the market.

Here is a look at today's charts using the Asian Breakout Method. All the charts can be expanded by clicking on them. The yellow coloured section is the overnight move, the blue section represents the profitable break out and the red coloured section represents a loss.

The first one is the GBP/USD Pair. Had I taken the trade with the Frankfurt opening it would have resulted in a loss as it just broke through the Asian high then reversed. The next move up easily bagged 50 Pips. The pair in fact continued to run up another 100 pips.

The next chart is the USD/JPY Pair and as you can see it ran 100 Pips down on the day. Another one I can kick myself for, as I closed out with 40 pips profit.

Eur/Jpy the first run down was 70 pips, easily hitting my 60 pip target before reversing. I was fortunate enough to catch this one a second time at 161.25 to go short and the trade is still running 200 pips up.


The last one was the Gbp/Jpy The first move down was 95 pips that I closed out on 60. Then it picked up the buy for 40 pips but was closed out on 25 pips profit.

The next two charts show the Eur/Usd and Usd/Chf just show how the days profits could have been lost on these two pairs.

The first one is the Eur/Usd that broke the overnight high and barely covered spread before reversing. It then ran down breaking the low yielding about 25 pips then reversing again. The first break was with the Frankfurt opening so it could have been avoided. The second could have been a 15 to 20 pips scalp.

The last one is the Usd/Chf Again this would have resulted in two losses as neither of the original breaks yielded much more than the spread.

This simple strategy yeilded 210 pips today without much effort. Today was also an exception rather than the rule as there are days when 1 or 2 pairs might fail. But overall the strategy has proved extremely profitable yielding more profits than losses.
Recap
  • If the overnight move is more than 80 pips be weary as the market might not run to your profit levels.
  • Don't trade the Eur/Usd pair and Usd/Chf together or better yet don't use this method to trade them.
  • Place entries 10 pips above or below the overnight high and low.
  • Only enter positions after the London opening

Sunday, January 6, 2008

Asian Breakout Strategy

My Day Trading diary for 2008.

I suppose the holiday season is a time to reflect on the years trading activities. I decided to take a bit of a break and only do an early trade each day with the opening of the European Market. The results were pretty good and required very little effort from my side.

I have always taken a discretionary (personal view or judgment) approach to trading, doing my daily analysis, then waiting for the right setup before entering the market. That does not mean I do not have a trading plan, I believe a trading plan, no matter how simple or complicated is vital for any trader wanting to succeed in any market.

Having said that I suppose my methodology is a combination of discretionary, mechanical and fundamental trading. Discretionary in that I wait for the correct setup to occur using mechanical means, Laguerre RSI, Fibonacci, Macd, and stochastic and then if it fits my fundamental view of the direction I think the market should be taking I will do the trade.

Many times my preconceived fundamental view or big picture is wrong and I get my but kicked. This preconception of where I believe the market should be going has resulted in staying in the market for extended periods of time resulting in a disproportionate amount of overnight Interest paid. $35,000 for the year. I have always thought of myself as an intraday trader and most of my trades are opened and closed daily. Though the interest charges for the year only amounted to about 6% of the profits made, I can't help thinking I would be better off with that interest in my back pocket.

On closer examination of the longer trades I found that very few resulted in profits and generally kicked me out on stop loss along with the added interest burden. Now I know that "HOPE" is not a plan and "HINDSIGHT" is an exact science so I am not going to beat myself up over it. I am however going to try and close my positions specially the (losing ones) by the days end.

A few months ago I received a trading article in my inbox, relating to Leverage and decided to browse the authors website (Dr.Forex) The author of "Bird Watching in Lion Country". I read the book a few years ago and found his methods controversial to say the least. None the less very informative and I hate to say it a "must read" for every aspirant or even experienced trader.

As it was borrowed material when I read it I cannot quote from it or use it as a reference source because I returned it shortly after reading it. My browsing though led me to a statement he made on trading indicators where he states that the only trading indicator he uses is what he calls the "Asian follow through Indicator" This peaked my curiosity but I could find no other information on how to implement it.

Trading is an ongoing learning experience and I embarked on a quest to find out more about the indicator. The Author of the book is a highly reputed trader with a solid track record, who, by his own admission does not use indicators for trading. I therefore figured that this would be a method rather than an indicator like a stochastic, or MACD.

After spending hours examining charts relating to all the JPY pairings I was none the wiser and so decided to look at the major pairs as well. My only conclusion at the end of this exercise was that generally the overall market movement during the Asian session was less than the market movement during the European session and for me not the best time to trade.

I then started to isolate the Asian session on my charts by colouring it in each day between the close of the US market and the open of the European Market. This gave me a clear picture of the overnight range on the majors.

The picture that emerged was that the greater movement during the European session generally pushed price beyond the highs and lows of the Asian session generally in the direction of the overall trend but not always.

If we look at the above 1 Hr chart of GBP/USD the yellow shaded area represents the overnight range of the Asian session. The red line shows price first broke above the yellow shaded area, failed to reach the 50 pip profit target, and resulted in a 40 pip loss.

Price then broke out below the bottom of the yellow shaded area and continued short for 230 pips allowing the recovery of the loss and a handsome profit to boot.

If we look at the other indicators on the chart we can see that price crossed below the Laguerre filter line, the fast Lag, slow lag MACD, and stochastic all conformed the move.

With a bit of back testing I found this could be a good entry for a Break out trade above or the below the overnight range. I then concentrated on the GBP/USD pair because of its greater market movement. After a few dummy runs I decided to do a live trade on gbp/usd. Murphy's law states "anything that can go wrong will go wrong"

The European Session opened in the middle of the overnight range on the gbp/usd pair so I placed a buy order above the overnight high and a sell order below the overnight low. As with every good trading strategy I placed a 50 pip stop loss and a 50 pip profit limit on each entry. As the pair had been ranging for a few days I figured a 1:1 risk reward ratio would suffice for the day.

My short order was picked up shortly after Europe opened and ran about 30 pips my way. I assumed when London opened it would run the extra 20 pips and close me out on a 50 pip profit. However when London opened price immediately reversed and closed me out 50 pips in the red. The buy order was then picked up and ran 37 pips my way, I again I assumed I would at least close out square for the 2 trades. A cable news announcement then caused price to suddenly reverse and I was closed out 50 pips in the red, "double whammy" and not a good way to start my trading day or a new strategy.

Back to the drawing board, maybe I was greedy, as the losses were totally unnecessary. I could have locked in a few pips profit on both positions or at least locked in at break even. The system was not at fault I was. The following day I placed the same orders and my sell order was picked up shortly after the London opening and closed within 20 minutes for a 50 pip profit, cable continued to run another 120 pips for the rest of the day, I had left a substantial amount of profit on the table.

Over the next week I made my 50 pips a day on cable and on one day had a double entry long and short for a bonus 50 pips. It was time to test the strategy on the other majors. I placed 8 orders 4 buy and 4 sell on the major pairs over the next week with varied success, specially on the Euro as it seemed to plod along some days and fly others.

None the less the week closed with only 2 losses which I limited to 30 pips on each of those trades, 1 one on Eur/USD and one on Usd/Chf. The cable pair still remained the most difficult because of its large swings and sometimes closed me out at break even or a few pips profit but I did manage to avoid the fiasco of day 1.

Over the last few weeks I have expanded the system to 6 pairs by adding the Eur/Jpy and Gbp/Jpy placing 12 orders a day at the open of the euro session. No system is infallible and losses do occur, but overall the system is extremely profitable and well worth the few minutes a day it takes to do the analysis and place the orders. The Eur/jpy is the most consistently profitable pair and so far has produced 20 winning trades in a row.


The above 4 hr chart shows the entries and exits for the past 14 trading days. 1 with 1 outright loss and 2 BE days and a number of days with double entries long and short.

No this is not one of those "Eureka" moments as I have no doubt that other traders have probably traded this method long before I did. I cannot even be certain that that this was the original intention of author who's article I read. I also cannot give the Author credit for the method as I had to figure it out myself. What I am certain of though is it works well. If you do not have the time to spend hours monitoring the market then the Eur/Jpy can be an Ideal 5 min a day trade.

For lack of another name I will refer to it as my "Asian Breakout System"

I have tried to find a way of reducing my stop loss but the previous high is sometimes higher than my intended stop of 50 pips or too close to the entry point. So I have just accepted it as a 1:1 risk reward ratio. I do use the Laguerre filter line on the chart and if price reverses and breaks above or below the filter line I will close out regardless of whether or not the profit or stop loss target has been reached. Once the trade is up 20 pips I lock in at BE + 1 and when it is up 30 pips I lock in 10 pips.

On Eur/Usd, USD/Chf and Usd/Jpy I look for 30 pips per trade with a 30 pip stop. Cable, and Gbp/Jpy 50 Pips profit with a standard 40 pips stop. Eur/Jpy 60 pips or I let the latter run for the day with a Standard 40 pip stop.

I have deliberately kept all indicators out of the strategy to keep it simple, It is a breakout trade and must either break the overnight level or it is a no trade. Using other indicators will only confuse things. I enter the trades on the buys spread &1 and on the sells 2 pips below support. This you can adjust to suit yourself.

If one order is executed I leave the other until about 11 am est then cancel it if it is not picked up by then as the US afternoon session is definitely quieter than the morning session.

This 1 hr GBP/USD chart shows Fridays trades using the Asian breakout system The first short trade yielded 30 pips which I closed out with a 10 pip profit as it never ran the required 50 pips. The second long trade yielded the fifty pip profit prior to the Non farm payrolls announcement. I did not trade this pair again during non farm.



This chart shows Fridays trade that was only executed during the news. After the initial run down there was large pull back just missing my stop by 5 or 6 pips before price dropped again and closed out for a 60 pip profit. You will notice the large overnight move on this pair of 112 pips (yellow shading). I have found that when there is a large overnight move 90 pips plus this system is less likely to achieve its target based on this entry method, so maybe a smaller target would be prudent or don't do the trade.

Of the 12 orders placed 2 were not executed, the balance yielded 450 pips on the day. Though I have other indicators on the charts I do not allow them to influence the entry point for the trades. I might use them to to stay in the trade past my preset target but not often.

This is a completely new method of trading for me that has so far has proved extremely profitable. It is still early days yet and only time will tell how consistent it will be.