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 | To illustrate an FX trade, consider the following two examples.Let's say that the current bid/ask for EUR/USD is 1.46160/190, meaning you can buy 1 euro for 1.46190 or sell 1 euro for 1.46160. | |
Forex is the world's largest market. With about 3.2 trillion US dollars in daily volume and 24-hour market action, we believe it is a true "step above" the equities market for the serious trader. Some key differences are:
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose. If you have any doubts, it is advisable to seek advice from an independent financial advisor.
Lately, currencies have been on a rollercoaster ride with record breaking highs and lows. The world of foreign exchange is dominating news headlines; but what does it mean, and more importantly, what do you need to know before you get on board?
First of all, it's important that you understand that trading the Foreign Exchange market involves a high degree of risk, including the risk of losing money. Any investment in foreign exchange should involve only risk capital and you should never trade with money that you cannot afford to lose.
The Forex market is the largest financial market on Earth. Its average daily trading volume is more than $3.2 trillion. Compare that with the New York Stock Exchange, which only has an average daily trading volume of $55 billion. In fact, if you were to put ALL of the world's equity and futures markets together, their combined trading volume would only equal a QUARTER of the Forex market. Why is size important? Because there are so many buyers and sellers that transaction prices are kept low. If you're wondering how trading the Forex market is different then trading stocks, here are a few major benefits.
The mechanics of a trade are virtually identical to those in other markets. The only difference is that you're buying one currency and selling another at the same time. That's why currencies are quoted in pairs, like EUR/USD or USD/JPY. The exchange rate represents the purchase price between the two currencies.
Example: the EUR/USD rate represents the number of USD one EUR can buy.
If you think the Euro will increase in value against the US Dollar, you buy Euros with US Dollars. If the exchange rate rises, you sell the Euros back, and you cash in your profit. Please keep in mind that forex trading involves a high risk of loss.
Finally, it cannot be stressed enough that trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose. If you have any doubts, we recommend that you seek advice from an independent financial advisor.
Well, I spent last evening tracking down some problems in my next foray into programming expert advisers.
It turns our that a simple logical test was using an '&' instead of an '&&' between two terms.
This little horseshoe nail caused some position closing attempts to fail with an error 138 -- meaning that the price being used to close the position was too far away from the market price.
I also ran into the example code for iHighest() again. The example shows it implemented with High[iHighest()] when you generally may want iHigh(...,...iHighest()) instead.
In all, I find programming in MT4 a bit frustrating. Sure, sure, hard core programmers may blame me for being imperfect, but it's time programmers realized that humans are imperfect. I know -- I program for a living.
I recently bought the Dell Mini 12 thinking it would be noiseless, so that I could leave it on overnight while I slept. I tend to wake up from time to time so that would be an easy way to check for Forex opportunities during the night.
Unfortunately, running the Oanda FxTrade application causes the system to grind to a halt. Right now my profile automatically opens multiple charts (1 min, 15 min and 1 hr) -- which if I'm very lucky is part of the problem. On launch I see the base chart and trading platform open up but it hangs after trying to display the additional material. If I have any success with future experiments I'll let you know.
Anyway, the Ubuntu Mini 12 is great. No, I don't mean you want to do massive computing tasks, but for high availability wireless web access this thing is great. The screen is very bright. The size and quality of the display is very nice. I've added a "cookie swapping" add-on to Firefox so I can switch user profiles on the fly.
In all, even though I bought this thing hoping I'd be able to trade Forex with it, I still love it even though it seems that I won't be able to. There will surely be upgrades in the future, better processors and more memory, which might make it available. I'll probably upgrade and continue the quest for a long battery life wireless trading platform.
Okay, it's working.
I have Oanda running a single FXTrade window while I'm open in another browser typing this blog post.
Here is what I did to get this working:
I've been thinking about grid based strategies designed to take advantage of volatility without incurring great risk.
The idea is that the strategy be followed using a carry trade pair in the event that you do inevitably end up holding some positions. You'll want a platform with a decent spread. Oanda often has about a 3.0 pip spread on the AUDJPY pair -- my current pair of choice.
So, let's start with these parameters:
While I don't have any pictures to show, yet, I am working on an EA that trades AUDJPY based on the market price relative to the average price of positions held.
The first few passes at this type of system were pitiful. My testing starts from September of last year to now while only opening long positions. As you can imagine this is a difficult period of time for a long only system!
However, late last night I was able to complete a test that showed profits.
The strategy behind this EA is basically as follows:
As I often do, especially when the markets are excruciatingly slow in determining when to make the next significant move, I've been thinking about Forex.
Take a mental walk with me...
The DOW falls from 10,000 to 5,0000 and loses 50% of it's value. It returns from 5,000 to 10,000 and gains 100% of it's value.
Wait, think about that for a minute. In the normal world having the ability to gain double digit gains, per year, is considered excellent.
If you are confident that an upward cycle will eventually happen, in a suitable time frame of course, then movement is valuable. If you aren't trading on margin, and you don't have the associated risk, then you can afford to look at each dip in price as an opportunity.
While this may be applicable to the DOW, it is ever more applicable to the Forex markets. If you are trading with little or no margin it's simply a matter of scaling your entry and exit based on price moves. This is very similar to the gridding concept that I posted recently.
However, when the margin is gone the risk is gone. You choose the price range you expect and scale your entry and exit points within it. If you must, you leave some positions in place while you recapitalize to attack another range. In fact, perhaps you simply allocate a set number of dollars per thousand pip trading range. If the price falls into a lower range you simple ante up and play within a lower range -- while your higher range positions provide interest income.
However, keep in mind, it's possible that currency pairs adjust interest rate differential. This could erode or reverse the suitability of holding a pair over a long period of time
I blogged about this idea not too long ago. The concept is to use very small trades relative to your available margin and net asset value (NAV). I'm doing this with the AUDJPY pair so that when I accumulate positions I am earning a positive carry trade return.
My trade size over the last week has been such that the margin involved in each trade is 0.2% of my NAV. That's tiny. Twenty five trades in and you are looking at using 5% of your available margin.
However, the carry trade interest would represent approximately a 3.65% return if annualized. At the same time my unrealized profits had me up almost 4% earlier this morning. This 4% unrealized profit is due to only the last 10 days of trading. We've had a downturn, I've accumulated positions, and the AUDJPY has jumped just recently.
Anyway, I hope this demonstrates that short term scalping is not the only way to earn money using forex. While this concept won't make you rich overnight the risk is very low and the returns can be good compared to currently available financial instruments.
The AUDJPY currency pair is currently trading around the 76.00 mark.
Over the last twenty days, from May 7 through May 27, I've been experimenting with a concept I've been calling microtrading.
I don't intend to close all of my positions at the moment, but if I did my account NAV would increase by more than 10% over that period.
While I realize that active trading can return spectacular results compared to a paltry 10% it does require a lot more effort and time. Personally, my full time job and other issues have my complete attention. I don't have the luxury of time or the mindset to take larger risks at the moment.
Anyway, open up your trading platform and I'll walk you through the process of trading this strategy.
1) On May 10 we topped out around 76.00 on the AUDJPY pair.
2) Based on my account size I could safely open long positions for every fall of 20 pips. This isn't the goal but it is the maximum density of trades I'd allow.
3) As the price of this currency pair dropped to around 70.50 on May 15 I would accumulate positions based on the previous point. Basically, when you see what looks like a support point or if the price moved down a lot while you were at work or sleeping, then you open another micro trade.
4) When any one trade has more than 200% profit with respect to margin committed and you believe you are at a resistance point, consider unloading it.
5) Be patient when the market moves sideways. In terms of serious monetary strategies a week or a month is not a long period of time. Keep in mind that you are trading a carry trade pair so you will be paid to wait.
6) I firmly believe that eventually the AUDJPY pair will recover strongly. I'm willing to hold positions for long periods of time as I wait for this. If you don't believe this or you aren't willing to wait, then this strategy may not be useful for you.
Using the above method, with almost zero stress except for impatience during several weeks of sluggish movements, my trading account never committed more than 6% of it's NAV (using 50:1 leverage which is the maximum at my fx broker -- Oanda). However, this morning, as I've stated above, I could close out all my positions at a 10% NAV gain.
This is a simple trading system, though purists may balk at calling it a "system" due to its loose definition. Wait for a drop and buy tiny positions. Capture large profits when they present themselves. Be patient and don't accumulate too large a portion of your NAV. I'd definitely recommend using Oanda due to the ability to trade any size positions and the fact that you can't trade with extreme leverage.
Have you been following people involved in fx trading on twitter?
Have you noticed how many people are happy to tell you what happened? While macroeconomic news and previous day post analysis can be useful, it certainly doesn't help you make a trading decision based on current charts.
I have a little proposal to make.
Instead of tweeting that you've opened a long or short position provide some information that other people can use to apply their own strategies. Frankly, I don't care what crappy decisions others are making. I care what the charts are saying. I'll do my own technical analysis and decide on my own trades.
So, tell me that a pattern is forming on a named pair's chart in a certain timeframe. For example, right now the AUDJPY is retesting May highs of 76.00 and obviously this is true on any chart -- though you may need a longer chart to actually see it.
Then, I can whip open my chart, draw some lines, figure out a strategy, and trade on the opportunity.
To summarize, we need to tweet about opportunities that are shaping up. We need to just drop each other a note that something is happening. Anybody who has traded for any length of time can figure out what to do -- but unless we have the luxury of trading full time we just can't spot all the opportunities.
In short. Smarten up and stop trying to show the world how damned smart you are. We don't care!
How about we call this the Useful Forex Tweet Agreement (UFTA).
For ease of use, most online trading platforms automatically calculate the P&L of a traders' open positions. However, it is useful to understand how this calculation is formulated:
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| To illustrate an FX trade, consider the following two examples.Let's say that the current bid/ask for EUR/USD is 1.46160/190, meaning you can buy 1 euro for 1.46190 or sell 1 euro for 1.46160. | |
