Forex Trading Signal 9-30-2009

[Sir Pipsalot]

Hey folks,

As far as the trend is concerned, we're still right on the edge so to speak as we were yesterday. A day of USD weakness and stock strength above Monday's highs will likely force us into loss-minimization mode on our long term trades and bias, but we've seen some encouraging action as well, so we'll wait and see what things look like tomorrow. Please refer to recent signals for more information on what we're looking for in trends on EUR/USD, Gold, Silver, and Stocks.

In news Tuesday we saw UK GDP and US Consumer Confidence come out too close to expected to illicit a clear trade. In news Wednesday:

0815 US ADP Employment Change (-200K expected) - If there's a nice surprise here, I think we'll see a corresponding trade on USD/JPY. It might not be a ton of price action quickly, but a good fill should see some profits creep in.
If it comes out at -120K or higher, USD/JPY should rally 30-40 pips.
If it comes out at -280K or lower, USD/JPY should sell off 30-40 pips.

0830 US GDP 2Q final (-1.2% expected) - We should see a decent market reaction on US GDP figures, but every now and then market will just completely ignore GDP numbers because they're old news (expecially with these final revision releases). So if you're trading this and you see a lot of hesitation short of your targets, don't be terribly patient with it... just get out.
If it comes out at -0.8% or higher, USD/JPY should rally 30-40 pips.
If it comes out at -1.6% or lower, USD/JPY should sell off 30-40 pips.

 

[dancingphil]

It's been an adrenaline pumped week. Started with $19,000 and hit $50,000 within the 7 days - exclusively down to you correctly reading the short opportunity for the get go.

Most other commentators were still bullish the Euro, whereas you stood firm on your short advices and proved 100% correct.

Well done SirPips, my bank account salutes you!

DancingPhil

 

[Sir Pipsalot]

It's been an adrenaline pumped week. Started with $19,000 and hit $50,000 within the 7 days - exclusively down to you correctly reading the short opportunity for the get go.

Most other commentators were still bullish the Euro, whereas you stood firm on your short advices and proved 100% correct.

Well done SirPips, my bank account salutes you!

DancingPhil

Well first off, congratulations... some great gains there. Second off though... you're trading waaaaaaaaaaay too heavy in all likelihood. At that pace, it might just take a bad run of 8 trades or so to whip you back down below $20K. Because of the ups and downs of winners and losers, you want to make it so that a string of losers doesn't put you out of business. I think you want to leave the table while you're ahead so to speak, and come back risking less on every trade.

For example, typically on short term scalps I'll risk 0.5% to 1%, swing trades 1-2%, and position trades 3-5% respectively. With a 50K account, each 1% is $500, so that means risking no more than $500 on a scalp, and even with a big position trade, make sure if you get stopped you won't lose more than $2500 max.

Losers often come in bunches, and if you lost 10 trades at 5% each that would be 50% of your account, now all of a sudden you'd have to win 20 trades in a row to make 100% from that point just to break even. When you reduce the % risk per trade, that levels out the rollercoaster and makes it a lot easier to recover and get back into the green. If you had risked 1% per trade and lost 10 in a row, you'd be at 90% and only need 11 net winners from that point to break even which is a lot easier than 20.

If your average month is 10 net positive trades, which means 10 more trade-weighted winners than losers, than at 1% risk, you'd gain 10% average per month, and at 5% risk you'd gain 50% average per month. However, the variation on your returns if you're a good trader might be about +/- 20 net trades, which means a good month would be up to +25 while a bad month would be -10. Also, within any month you get drawdowns, and especially on a bad month, drawdowns tend to be twice as bad as the final tally which would be -20. So, using this rudimentary common sense analysis, that means on a bad month using 5% risk, you probably wipe out your account at some point that month (-5% x 20 = -100%). Meanwhile, with 1% risk you probably drew down to 80% and recovered back to 90% by the end of the month.

Often times the worst thing that can happen is a bad habit causing you to actually make money. Then that reinforces the bad habit further and you get hooked on it. Trading heavy risk is very exciting and at times very lucrative, but one day (sooner than you'd think) you'll get slammed and lose it all. Typically traders have to learn that the hard way, painfully (I did), but if you really put your mind to it you can figure it out without suffering the pain.

 

[tom.finanz]

nice advice

but hard to follow before someone did not eperience what you stated.

Also the correct money management involves adjustment of position size after every change in equity.
So at 5% loss/trade after 10 losses there would be no draw down of 50% of original equity.

 

[sundown_858]

money mgmt

I couldn't agree more with Sir Pips. Heck, I made $250,000 two years ago using a bad habit and ended up losing all $250,000 because of the same bad habit. You almost have to learn the hard way to use proper money mgmt. But if you can trust the wisdom of SirPips and others who have been there before, you'll save yourself heartache.

 

[Ricardo Fernandez]

I did too

I Completely agree with Sir Pips, Two years ago, when I started Forex, I began with a $40,000 USD account (stupid for a beginner) I read a lot and tried bunches of strategies and at the beginning it worked I had like two AMAZING months in a row getting my account up to around $120,000, and then the dark times came, just as sir pips said, I had very bad months after that, I even involved on an increasing risk strategy where you risk more money every time you loose expecting a single win will get the lost money back... bad idea, the win didn't came on time and my 120000USD account was reduced to 5,000, then I learned the bad way why is it that EVERY EXPERIENCED TRADER is talking more about risk management than about profit hunting.

After that I had some few good trades and stupid me again decided to invest more money on that account, I increased it by 5000 USD and tried again some high risk strategies, guess what... my account fell to 3000 that same week...

Very tough, and painful for sure, but believe me, it's a hard lesson I'll never forget (even if I have been a lot more successful afterwards with a lot better risk management, for a year and a half, I still have not recovered even the initial 40000... but I'm in my slow-but-safe way).

 

[dancingphil]

Thanks guys for the good lessons and feedback.

Certainly I was given correct advice of the short timing/direction by SirPips (thx again for that), and yes I was VERY lucky to close several 8 and 12 lot short trades which I had opened and closed with great pricing at both ends - and which also made live 8 and 12 lot pending buy trades to catch the 65% retracements. Not sure if I just made sense there with those words.

I certainly do take on board very seriously your advices that I was playing to hard and fast.

Will cool my heals for a while now.

Not sure what to make of the break above the trendline that seemed to be holding OK until 7 hours ago - though my 16 lots are in safe territory just now.

Thx again,

dancingphil

 

[Sir Pipsalot]

but hard to follow before someone did not eperience what you stated.

Also the correct money management involves adjustment of position size after every change in equity.
So at 5% loss/trade after 10 losses there would be no draw down of 50% of original equity.

You're correct. Technically, mathematically 10 5% losers in a row would drop you to 59.87% of your original balance, but changing your lot size every time you win or lose is not practical. Typically my lot size rarely changes for a given stop amount. I'm a strong proponent of keeping your account around the same level, and when it gets a decent amount above that, withdrawing your profits. That way I don't have to calculate lot sizes all the time... I just trade the same size for a given SL amount since my account is always around the same level. When I change lot sizes is I'll drop them after a bad week, or raise them if I decide to trade a bigger account and send my broker some of my old profits.

Don't confuse yourself though, you still vary your position size according to your SL. For example, I'd use maybe 100K on a 50 pip SL, 200K on a 25 pip SL, and 25K on a 200 pip SL so every trade is $500 = 1% risk (assuming you have a 50K account like Phil).

 

[MarkB]

Why do you use the USDJPY pair, as the move would probably be greater on other more volatile USD pairs such as cable?

 

[greenback junkie]

money mgt/strategy

hello everyone. i wish someone had told me dat on d 1st of september. i trade gbp/usd. started trading in august made profit,had some problems,debt i needed to take care of. so i increased my lot size and...BANG!! i lost 50% of my account on d 1st of sept. i continued wit d same lot tnkn i wud get back wat i lost. 2 days later i lost anoda 20%,and since den i've bn losing to dis point which wat i have left is just 5%. my creditors are calling in the debts and life isnt really funny right now coz i have to increase my leverage to 1:500 or else i won't be able to trade my account. i've discovered putting your emotions into trades blinds one to good signals. you tend to get in wen it's late and den get stopped out. I believe there must be someone going through wat i'm going through right now.:unhappy:
i need some hand holding i guess even though i believe i can get out of dis. if there is anyone willing to help me, i will be extremely grateful.
cheers all.