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.