How I discovered that I have NO trading system

As I find myself learning more and more about price action in the last few weeks with James in the chat room, I found my confidence of reading price action increasing.

I found out why trendlines, resistance and support lines work so well. I also learn how to be more aware of price action formations like double tops, double bottoms, fib retracement. I'm far from being an expert but I feel reasonably comfortable looking at charts.

But what do I do with TL ?

I know that price may stall at those places, but I can't do anything about it. Will the price break the line or will it bounce off it? Should I take a long or short at this point? Yes, there's a fib and TL here as support line but the trend is very bearish (or is this just a retracement?) so what do I do, still go ahead with the long? Or Which line is more important?

There seems, at least for me, to be 'information overload'. And by the time I finish analysing, the trend started and I missed the train.

It is this and a series of losses that really shook me. It made me doubt myself. I became unsure. I became unclear what my trading system was, of which entry is only a small part! In fact, when I think about it, I can't say if I even HAD a system.

A trading system needs to have an EDGE. (Edge means a unbalance probability favouring you.) It should have a Risk/Reward ratio that favours you. It should have an exit that's defined so that it captures the Reward.

All I had was a fuzzy entry point at ib/ob (and entries, in my opinion are the least important in a system)... it is hardly a trading a system.

I spent the entire weekend thinking about the system.

Thanks to my trading great buddies - Robin & Chris, with their help, I wrote down my entries, my exit, my expected risk/reward..etc I still can't figure out what is my edge because I do not have enough data. But with everything written down, I now have an intelligence basis to take or not take trades. I know what risk is acceptable and what is not.

Suddenly, it helps me seperate the trees from the forest. Things got clearer.

For the first time in 2 weeks, I started off with a clearer head. Thanks guys. :)

Trading Live vs Trading Demo

Last 2 weeks was tough man. I started trading live!

I had a roller coasted 2 weeks. I could blame it on the market which was so erratic! But then, since when it's not? Or I could take the responsibility and re-look at my trading system.

I figured I should do the latter and thankfully I did because I discovered that I DON'T HAVE A SYSTEM! aaahhh. (more on this later)

Apparently I was using the 'force' and it wasn't quite with me.

Added on to that was the pressure of REAL money.

To be honest, naive as it sounds, I wasn't expecting that REAL money would adde on THAT much pressure. A little yes, but not a lot. This is because I was pretty competitive when I was trading in demo. I took a loss in demo seriously as if it was my own money but stil REAL money added more pressure.

So to those beginners, when you're 1/3 ready, start with a mini micro account. Use Oanda and trade 100 units even. (I think they're the only guys that allow you to trade any unit size). You'd be surprise how different USD 0.001/pip feels as compared to 'demo trading'.

Why pivots don't work as well..

as say trend lines, support and resistance. And as I learn more from James I understand why and it's completely logical. It's not a Jedi mind trick as I have previously thought it was.

This is because pivot works as a mathematical average. It's an mathematical estimation and it's 'dead'.

However if we draw the trend lines and support and resistance correctly, this represent actual psychological barriers which is more accurate.

Why is this more accurate? because (our first assumption of Technical Analysis, is that) price is a direct representation of what the market is thinking, feeling. And by drawing trend lines, support and resistant line, we accurately represent the current sentiment of the market. That's why price always go back to where it's been before.

On the other hand, pivots are mathematical averages which try to estimate such barriers.

And since trend lines are more accurate, why use any less?

Your computer will also thank you more for using less computation power, lines to draw on your screen that ocassionally looks like multi-coloured spaghetti. I know mine does, my laptop is getting 'old' and 'slow'. hahah

That's why James hardly uses any indicators (except for stochastic)... or for that matter, any trader who is a 'price action' guy.

I suppose some people find price action hard to learn because there's no fix formulas.. or perhaps they feel that it is 'dangerous'? Perhaps some find drawing TL from 'significant' points could be as subjective as 'beauty'which lies in the eye of the beholder? But really, significant is just that- significant, obvious, kinda hard to miss. (Just take a bit of practice), and everything you think is significant probably is.

I just find learning more about price action really good and fun actually. It may be difficult at first but the more I learn it, the more I can discern what to do and how to take a position - stand, long or short. And the more I learn, the 'easier' it becomes to 'survey' the landscape.

On the other hand, I figured that relying solely on indicators is a bad thing. Don't get me wrong, I just think using some indicator is good but depending on them heavily is a bad thing for the simply reason that indicators are mathematical formulas trying to quantify human behaviour.

It would work sometime but since human behaviour is as erratic as it can be, it can also be wrong a lot of times. Take for an example, an engineer usually have a pen and pocket calculator in his pocket. So whenever we have these 'signals' we say - that's an engineer.

You can easily see why it'll generate a lot of false signal- an accountant, a model, a mom, a child and just about anyone can have a pen and pocket calculator at one time or the other in their pocket.

Laslty, someone did a program to test it out. Check it out here. As you can see, if you don't know what you're doing with indicators, it can tell you anything you want it to say.

Oanda

Next week, I'll start trading on Oanda. We've look through a few brokers and chose that one to start with. The reasons are:

• Tight spread. Among the non-ECN brokers, which needs higher capital to start account, Oanda actually gives very good spread.
• Trade any volume/unit you want. I need to start a mini account and Oanda allows you to trade on any volume, or unit as it's called.
• Reviews in online for them are consistently good and I when I have questions, their online help chat is also really helpful.
• The online help chat is REALLY awesome.
  
• Charts are all online, web based (using JAVA).
  

The only bad thing I don't like about them is that the charts are kinda hard to manuever. Plus I was used to MT which allows me to 'scroll back' to past data easily, add a TON of (useless) indicators. Now all I have is stochastic and price action. :)

Lets see how I fare on a real account. Been really stressed out this week just to think about that. Hahaha. I guess it's a growing stage I have to get to.

Result this week has been down a bit.

Brokers

I've just started to use Oanda. My take on Oanda.

The 'almost' complete forex syllabus

Having just started my forex trading education, I'm starting a page here to share what I've learnt. When I started, there's an overwhelming information on the net - that I just didn't know where to start. Most of them are either:

• too advance or


• junk.

And I find it hard to find a place which gives me a 'complete syllabus' forex course, I had to scavenge from site to site to learn.

So I plan to share the sites I've been to give you a more balance feel what's out there. Hopefully, it can help you shorten your learning curve a bit and direct you to good websites. Hopefully in the process, help us form a more complete roadmap for our forex education.

And if you could share a few good links here, I'd really appreciate as all of us are constantly looking to learn more. Thanks in advance!

I think forex is mainly seperated into the following category

1. Forex Technical knowledge


2. Economics


3. Psychology - the market and yourself


4. Money Management

Forex Techincal knowledge

Forex technical knowledge comprises of mainly of the hard facts of forex, eg. what is forex? what is a pip? how to you earn trading forex? when is a good time? what are indicators? what do they do?...etc

These are the fundamentals of forex trading and is our basic forex trading tools. I've always felt that to become a jedi, one needs to master the basic of the (market) force. Hahaha. I'm such a geek.

• I highly recommend you go to to Babypip's 'school' of pipsology to learn the basics. It's really easy to understand and funny - a refreshing read - and when you completed all the topics there from kindie to college you get a good grasp of what's going on when people talk about Mac-d or RSI or WTF-that-isn't-happening!


• Black Knight's Forum. In the forum there's 10 lesson to get you started in all the basics.


• Chart School is also an excellent place to learn about charts. Although it's a place meant for stocks but the principals are the same. Packed with loads of information.

Economics

If you've read the basics, then you'd know that knowing the news is important for forex trading. World economies affect values of currentcy. Some good sides to get update includes:

• Fxstreet.com


• Forextv.com

Personally I also subscribe to TIME and FORTUNE to give me a good idea what's happening all around the world.

Psychology

Check back this space!

Money Management

Check back this space!

A new blog

Well, I'm starting with a new blog here, partly because I'm not sure what to do with www.forexwtf.com . D is having a new gig soon and I don't have a tech partner to help me do up all the nitty gritty stuff. So this blog is as close to one for 'dummies' as it can get.

I hope you all like it. I will continue to post up more stuff on what I've learnt in the last week and I've learnt a LOT. Now where should I start?....

Also I guess it's a good new start because next week I'll be starting my trades with Oanda.

Credo.

A few friends gathered and started a daily MSN room to chat about possible trades, targets and the like. And while we are all learning, and making mistakes I came up with a little 'motto'/credo if you will which everyone agrees on.

So repeat after me 1000 times:

I will only take SURE trades. I will take only trades that I'm confident. That means when I enter a trade I would have my TP, SL figured and plan out. I will not chase or jump in or take any other trade besides a SURE trade because Discipline is my friend. The TREND is my best friend.

Undergoing MyBlogLog Verification

Technorati Profile