40 Pips a day !!!

Are there scams out there?

2011-10-18T19:56:00.001-04:00

Ask the question "Are there scams out there? As they say in Minnesota, "Ah you betcha! Sure!."

Here is one of mannnnny so be aware and do your due diligence.

http://www.moneyandmarkets.co.uk/

Personally I don't think anyone should mentor with anyone they can't sit across a table from and look in the eye. As far as signal services, I could flip a coin and have a better track record than most.

EU Update

2011-04-20T08:22:00.000-04:00

After such a parabolic move on the EU I am booking some profits here in the 1.4520 area. I will look to add back on lower, possibly 1.4450 area

EU Update

2011-04-19T18:59:00.000-04:00

EU longs at 1.4220 are up over 100 pips with 1.4377 area the first hurdle, beyond that I am looking for another run at 1.45 Happy trading.

Why do my stops keep getting hit.

2011-04-17T14:05:00.000-04:00

I get asked this a lot and my question is always the same, where do you place your stops? and the answer is always some mechanical number. i.e. 20 pips, 30 pips, etc

I never have some one in this situation say that they analyzed the charts and placed their stop above a recent swing high for a sell or below a recent swing low for a buy.

This begs the question of time frame. I always say without exception, we ALWAYS measure risk in the time frame we trade in. Trade the 1 hour chart? Then place stops based on recent swing highs and lows on the 1 hour chart.

Next question: But I want to trade the daily charts and that would mean a 200 pip stop and that would margin out my account. So how do I do that? If that is the case you need to trade a smaller time frame (because swings get smaller as the time frames get smaller) or you need to reduce your lot size so that a stop out does not margin out your account.

The only time I consider a mechanical stop (30-40 pips) is when price is at crucial support or resistance and I want to trade counter trend back into the range. In that case I know a breakout can take off fairly quickly and I want a small loss instead of a big one.

The rest of the time that strategy is like asking the big money to come drain my account. Believe me they know how the majority of retail traders think and there is no reason they shouldn't exploit that. After all, all is fair in love and war, and man do I love this war. By the way, they have habits that can be exploited too. Good trading to all!

Trading with the enemy

2011-04-14T17:20:00.002-04:00

Some friends and I have had some interesting conversations via Skype and email and cell phone. We have been talking about how much the new trading laws affect retail traders. I don't feel that it does at all provided the trader has enough money in their account. If your account is over 100K USD I see no reason to use more than 10:1 on your trading. But even with 5-10K USD a retail trader can supplement their income and even make a living provided they follow a few guide lines.

1) Understand real trading that cranks out consistent returns is b-b-b-boring. Adrenaline junkies take your money to the horse track and God speed. People who know me well will laugh because they know I started out trading news announcements and doing straddle trades (enter long and short right before the news announcement and attempt to take profit on both trades or at least minimize the losses on one of the trades.) Of course those type of trades aren't even possible anymore with the new "no hedging" and "FIFO rules". The markets are better off without such non-sense.

2) Understand that laziness will not serve you well. Screen time = payday. Just like a lawyer prepares for court or a salesman prepares a presentation or a politician prepares a speech, so must the retail trader prepare their mind and understand what the charts are saying. If you think you can put in a trade leave it unattended come back a few hours later and cash in, it may work once or twice but more likely you will subject yourself to huge drawdowns, pray for a week that it will somehow fix itself and then margin out your account. (Can I get a witness?)

3) Understand there is no free lunch, there is only the tried and true. People will work a job for 30-40 years and sweat to get by and retire on small sums of money but if they have to devote 4 hours a day to trading then they better make $10,000.00 an hour or why bother. Huh? I call it the game show mentality, If someone competes on a game show and they get their potential winnings up to 50K USD but somehow fail at their task and they leave with a parting gift of $1,000.00 USD, everyone says, "What a shame, they lost." Really? They just made $1,000.00 in 30-60 minutes. That is law partner money!

4) Understand who your enemy is on the field of battle. In a zero sum game there are winners and losers on every single trade. Know where your enemy is willing to lose and your equity curve will get much steeper. Even if they are not directly opposite of you on a particular trade, the market as a whole is reflective of this one concept.

Good trading to all.

My review on Amazon

2011-04-09T13:52:00.001-04:00

As expected, my review on Amazon ruffled some feathers. Successful trading is wrapped up in simplicity. Once I dumped indicators and voodoo strategies, once I stripped my trading down to the basics guess what? I stopped losing money (Mine as well as friends) Once I rebuilt my trading on sound practices I started producing income that is mine to keep. Income I can make from anywhere in the world (provided there is a descent internet connection) and now with the advent of e micro contracts at the CME traders don't have to worry about broker credit defaults. The stage is set for retail traders to seize control of their own future.

Below is a copy of the post I received on Amazon and my response. I hope I don't sound egotistical because that is the farthest goal from my true intentions. I want only the best for fellow traders, my friends and family. After all, when you go down to the ocean to get water (or trade in a multi trillion dollar market) does it matter to the ocean if you bring a teaspoon or a bucket? Good trading to all.

Roland says:

Hi "profitable FX trader"...either you did not read the book or you did not understand it. This system IS about trading with support / resistance. Enter the trade when you show a divergence against S/R...sure one can use many different systems during the years if relying on S/R levels.

IronmanFX says:

Your assumptions about me are incorrect. I read it and I understand it. It is hogwash. Divergence has nothing to do with support and resistance, it has to do with comparing recent price action to more historical price action all through the lens of an indicator. Divergence is never a high probability trade nor does it produce viable profit targets. For as many charts that can show it working I can show 20 charts where it fails. I can use measured moves in a market combined with support and resistance levels and nail a turning point or retracement area 9 out of 10 times. Successful traders have a method that works and they stick with it. Keep it simple and there is plenty of money to be made in these markets.

Indicators are crap to put it mildly

2011-04-05T09:27:00.000-04:00

Indicators are far and away the greatest handicap to successful trading. And I know the market is full of them and most of the time I just ignore it but every now and then I come across an example that is such an in your face assault on people's intelligence that I am offended beyond words. I purchased a kindle version of a book from a well known trainer (even if I disagree with the methodology, I can sometimes find some truth buried underneath that is useful in my trading) There was nothing to find here and I am glad it only cost me $9.48 to find out. I posted a review at the link below. My hope is that you will vote for it and we can send a message to these people, that we will not support products that take our money and replace it with gibberish instead of value.

http://www.amazon.com/review/R1RHXRN155IM2F/ref=cm_cr_pr_viewpnt#R1RHXRN155IM2F

EU at 1.40 The new line in the sand

2011-03-16T12:06:00.000-04:00

Yes the bears have thrown down the gauntlet and how. Alot of FX soothsayers have called for a first quarter drop in Euro and 1.40 is the logical place for that to happen. which makes this Friday veeeeery ominous (third Friday and end of quarter) Whether that means new lows or just a trip down to the bottom of the range (1.30, 1.25) who knows but a departure from highs for sure. While 1.40 has made a great swing line in the last week, it may not prove to be the insurmountable wall some have thought it to be. The expectation of rate hikes by years end is the white elephant in the room. Technically I am playing both sides with tight stops, not willing to get upside down in the event of a break out. Understand this, should the Euro break topside there will be alot of pain since everybody and their brother wants to sell the Euro, something banks will be all to happy to exploit. Good trading to all!

Whats better? Buy and hold or trade and run Part 2

2011-02-16T00:31:00.000-05:00

OK, after looking at the buy and hold market strategy, now a few thoughts on trade and run.

First people need to realize, buy and hold is NOT an investment strategy, it is a hedging strategy. Do hedgers buy to make money? No, they buy to control risk. Hmmm. So what is your goal to control risk or build wealth, both have their place.

Hedging like I bet you never thought of 101

Imagine buying oil futures when they were at $30 a barrel to offset the money spent annually in auto fuel. You would still be paying around $1.05 a gallon.

Perhaps buying the basic commodities that make up your shopping list and buy the equivalent in annual consumption with those futures. Of course there is the tried and true hedge, buy Gold and T-Bonds as a hedge against the Dow Jones Index.

So there you have it, go be a fund manager. Well maybe don't run off just yet but there are some sound basics for you.

If the average person just invested to lock in their monthly expenses at price XX they would be ahead of the game, at least they would not be hemorrhaging their net worth to inflation, unfortunately it all can be a bit confusing and when we get confused the default is to do nothing.

Knowledge ever becomes the key and the more we learn the more things fall in place and the less confusing, the less scary short term trading becomes. There is more to say on this subject. Quite honestly, the topic is ongoing.

You had better sit down before you read this one!

2011-02-10T19:09:00.001-05:00

MUST READ!!!

OIL---you better be sitting down when you read this!

This is amazing but not surprising!!

Here's an astonishing read. Important and verifiable information :

About 6 months ago, the writer was watching a news program on oil and one of the Forbes Bros. was the guest. The host said to Forbes, "I am going to ask you a direct question and I would like a direct answer; how much oil does the

U.S.

have in the ground?" Forbes did not miss a beat, he said, "more than all the Middle East put together." Please read below.

The U. S. Geological Service issued a report in April 2008 that only scientists and oil men knew was coming, but man was it big. It was a revised report (hadn't been updated since 1995) on how much oil was in this area of the western 2/3 of North Dakota, western South Dakota, and extreme eastern Montana ..... check THIS out:

The Bakken is the largest domestic oil discovery since Alaska 's Prudhoe Bay , and has the potential to eliminate all American dependence on foreign oil. The Energy Information Administration (EIA) estimates it at 503 billion barrels. Even if just 10% of the oil is recoverable... at $107 a barrel, we're looking at a resource base worth more than $5.3 trillion $$$.

"When I first briefed legislators on this, you could practically see their jaws hit the floor. They had no idea.." says Terry Johnson, the Montana Legislature's financial analyst.

"This sizable find is now the highest-producing onshore oil field found in the past 56 years," reports The Pittsburgh Post Gazette. It's a formation known as the Williston Basin , but is more commonly referred to as the 'Bakken.' It stretches from Northern Montana , through North Dakota and into

Canada

. For years,

U. S.

oil exploration has been considered a dead end. Even the 'Big Oil' companies gave up searching for major oil wells decades ago. However, a recent technological breakthrough has opened up the Bakken's massive reserves..... aaaand we now have access of up to 500 billion barrels. And because this is light, sweet oil, those billions of barrels will cost Americans just $16 PER BARREL!

That's enough crude to fully fuel the American economy for 2041 years straight. And if THAT didn't throw you on the floor, then this next one should - because it's from 2006!

U.. S. Oil Discovery- Largest Reserve in the World

Stansberry Report Online - 4/20/2006

Hidden 1,000 feet beneath the surface of the Rocky Mountains lies the largest untapped oil reserve in the world. It is more than 2 TRILLION barrels. On August 8, 2005 President Bush mandated its extraction. In three and a half years of high oil prices none has been extracted. With this motherload of oil why are we still fighting over off-shore drilling?

They reported this stunning news: We have more oil inside our borders, than all the other proven reserves on earth.. Here are the official estimates:

- 8-times as much oil as Saudi Arabia
- 18-times as much oil as Iraq
- 21-times as much oil as Kuwait

- 22-times as much oil as Iran
- 500-times as much oil as Yemen
- and it's all right here in the Western United States .

HOW can this BE? HOW can we NOT BE extracting this? Because the environmentalists and others have blocked all efforts to help

America

become independent of foreign oil! Again, we are letting a small group of people dictate our lives and our economy.....WHY?

James Bartis, lead researcher with the study says we've got more oil in this very compact area than the entire Middle East -more than 2 TRILLION barrels untapped. That's more than all the proven oil reserves of crude oil in the world today, reports The Denver Post.

Don't think 'OPEC' will drop its price - even with this find? Think again! It's all about the competitive marketplace, - it has to. Think OPEC just might be funding the environmentalists? Hmmm.

Got your attention yet?

By the way...this is all true. Check it out at the link below!!!
GOOGLE it, or follow this link. It will blow your mind.
http://www.usgs.gov/newsroom/article.asp?ID=1911

Whats better? Buy and hold or trade and run Part 1

2011-01-20T12:03:00.001-05:00

I suppose it depends on who you ask but I tend to let the results speak to me. If you are Warren Buffet and understand companies on a level equal to his and you have the necessary capital then buy and hold may work. Of course you have to buy at a good price to catch a decent wave of appreciation. I am willing to admit that I am not close to the expertise of Warren Buffet in this area. Beyond that my issue of buy and hold is that it is truly a myth. Forget about the example of $1 invested in the Dow 90 years ago would be worth millions now, who has 90 years to wait to cash their paycheck. A successful "buy and hold" strategy is never in the market 100% of the time simply because markets don't go straight up. So the longer you hold a position the more you give back of any gains you acquire.

Brokers love buy and hold because they can charge you a big fat sum upfront, dump your money in the market and let it ride. No analysis, no expertise required. Not even a stop loss order. The only expertise required is being able to convince you not to pull your money when the market dives.

I had friends who retired in 2007 and handed a substantial sum (all they had) to a broker who put it all into the DOW at 13800. The short story is they liquidated at 7800 and now have their money in bonds and are living on their social security only. So the benefit of working a job they hated for 30 years just to get this big lump sum retirement was wiped out in less than 18 months by an irresponsible broker, a buy and hold strategy and no stop loss. Is this a unique story? I dare say no.

How does any of this benefit you and your hopes of a stable, secure, safe life or retirement. With the collapse of so many "fine institutions"; with the shedding of light on so many ponzi schemes one has to wonder what the answer is. All I can say is this, if you always do what you have always done, you will always get what you have always got or put another way, doing the same thing over and over and expecting different results is the definition of insanity. If this latest financial collapse has taught us anything it has taught us the benefits of being proactive and responsible for our own financial destinies, for our own safety.

In part 2 I will look at the other side of the coin, swing and day trading.

Why do Oranges have sections?

2011-01-17T18:26:00.000-05:00

I friend of mine asked why do oranges have sections inside, they further told me they had searched google and found no answer to their inquiry.

I offered the following response: The sections provide separation between the conservative cells that uphold the orange's rights to life, liberty and the pursuit of happiness and the socialistic liberal cells that would give all the rights of the orange away so other fruit can prosper in a discriminate marketplace.

I hope this clears up any pondering you may have regarding an orange.

2011 forecast

2010-12-27T23:21:00.000-05:00

What does 2011 hold for the EU. A look at the monthly chart suggests more downside for the Euro vs the US dollar. With 1.1780 area the next big target. I expect major stops above 1.40 for the bears. A decisive move below 1.1780 on the larger time frames could see a run to parity.

Conversely a bold move above 1.40 would target 1.53 and then 1.60 area. Currently I favor the bears in 2011 or at least some consolidation.

Season Greetings to all my email buddies

2010-12-21T23:09:00.003-05:00

As 2010 nears the end, I want to thank all of you for your educational e-mails over the past year.

I no longer open a bathroom door without using a paper towel, or have the waitress put lemon slices in my ice water without worrying about the bacteria on the lemon peel.

I MUST SEND MY SPECIAL THANKS to whoever sent me the one about rat poop in the glue on envelopes because I now have to use a wet sponge with every envelope that needs sealing.

I no longer have any savings because I gave it to a sick girl (Penny Brown) who is about to die for the 1,387,258th time.

I no longer have any cash, but that will change once I receive the $15,000 that Bill Gates/Microsoft and AOL are sending me for participating in their special e-mail program.

I no longer worry about my soul because I have 363,214 angels looking out for me, and St. Theresa's Novena has granted my every wish.

I can't have a drink in a bar because I'll wake up in a bathtub full of ice with my kidneys gone.

I can't eat at KFC because their chickens are actually horrible mutant freaks with no eyes, feet or feathers.

I can't use cancer-causing deodorants even though I smell like a water buffalo on a hot day.

THANKS TO YOU I have learned that my prayers only get answered if I forward an e-mail to seven of my friends and make a wish within five minutes.

BECAUSE OF YOUR CONCERN, I no longer drink Coca Cola because it can remove toilet stains.

I no longer buy gas without taking someone along to watch the car so a serial killer doesn't crawl in my back seat when I'm filling up.

I no longer go to the movies because I could be pricked with a needle infected with AIDS when I sit down.

I no longer buy cookies from girl scouts since I now have their recipe.

I can't do any gardening because I'm afraid I'll get bitten by the Violin Spider and my hand will fall off.

If you don't send this e-mail to at least 144,000 people in the next 70 minutes, a large dove with diarrhea will land on your head at 5:00 p.m. tomorrow afternoon, and the fleas from 120 camels will infest your back, causing you to grow a hairy hump. I know this will occur because it actually happened to a friend of my next door neighbor's ex-mother-in-law's second husband's cousin's best friend's beautician . .

Oh, by the way..... A German scientist from Argentina , after a lengthy study, has discovered that people with insufficient brain activity read their e-mail with their hand on the mouse.
Don't bother taking it off now, it's too late.

P. S.: I now keep my toothbrush in the living room, because I was told by e-mail that water splashes over 6 ft. out of the toilet.

NOW YOU ALL HAVE YOURSELVES A VERY GOOD DAY…………..AND A HEALTHY LIFE…………….

The Greatest Man in History

2010-12-17T23:49:00.001-05:00

The greatest man in history was named Jesus,
He is the Son of God.
He had no servants, yet they called Him Master.
He had no degree, yet they called Him teacher.
He had no medical license, yet they called Him Healer.
He had no army, yet kings feared Him.
He won no military battles, yet he conquered the world.
He committed no crime, yet they crucified Him.
He was buried in a tomb, yet He lives today.
Jesus is the reason for the season.

Please don't be offended.

2010-12-13T18:20:00.000-05:00

To My Liberal Friends:

Please accept with no obligation, implied or implicit, my best wishes for an environmentally conscious, socially responsible, low-stress, non-addictive, gender-neutral celebration of the winter solstice holiday, practiced within the most enjoyable traditions of the religious persuasion of your choice, or secular practices of your choice, with respect for the religious/secular persuasion and/or traditions of others, or their choice not to practice religious or secular traditions at all. I also wish you a fiscally successful, personally fulfilling and medically uncomplicated recognition of the onset of the generally accepted calendar year 2011, but not without due respect for the calendars of choice of other cultures whose contributions to society have helped make America great. Not to imply that America is necessarily greater than any other country nor the only America in the Western Hemisphere. Also, this wish is made without regard to the race, creed, color, age, physical ability, religious faith or sexual preference of the wishee.

To My Conservative Friends:

Merry Christmas and a Happy New Year!

Attention Deficit Trading Disorder

2010-12-08T22:11:00.000-05:00

Ronald A.Rensink is an associate professor in the Department of Psychology at the University of British Columbia in Vancouver, B.C. A quote from a study entitled, "The need for attention to see change" goes as follows,

"A large fraction of traffic accidents are of the type "driver looked but failed to see". Here, drivers collide with pedestrians in plain view, with cars directly in front of them (the classic "rear-ender"), and even run into trains. (That's right -- run into trains, not the other way around.) In such cases, information from the world is entering the driver's eyes. But at some point along the way this information is lost, causing the driver to lose connection with reality. They are looking but they are not seeing."

Let's try a test.

The object is to count how many times the basketball is passed.
It has been said that one gender has a clear advantage in this exercise.

Click here for The Test

So what is the answer?

What's that?

It wasn't about how many times the basketball was passed?

So your efforts were wasted focusing on the wrong thing?

I'll tell you another one, there is no advantage in this exercise based on gender either. But I'm willing to bet that thinking of that possibility compelled you to work at, to zero in on the wrong thing all the more.

How many busted trades bear the epitaph of misplaced focus?

Show of hands, how many among us enter a trade for the sole purpose of losing money? ... Anyone? and yet, all too often that is what happens. All because of what? Your friend mislead you, the fundamentals didn't ring true, the broker ripped you off.''

May I say, if your trading is not consistently profitable then perhaps it is your focus that needs attention. The markets were before us and the markets will most likely be here when we are gone and there has been little change in the baseline since the beginning. So why do a large group of people give their money to a select group of people over and over again. Quite simply the majority of traders spend their time chasing useless hype and repackaged theories while some have taught themselves to look for the gorilla in the room.

A husband was once asked on his fiftieth wedding anniversary, what was the secret to staying married?
He responded," I asked myself a long time ago, 'do I want to be right or do I want to be happy?'"

Jesse Livermore was once quoted as saying, "There is only one side to the stock market;....not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock market speculation."

For those who are willing to set ego aside, who are willing to give up being "right" for being happy then there is hope. Are you that person? Be honest with yourself.

The Land of Many Theories

2010-07-04T23:03:00.004-04:00

On the morning of June 30, 1908, S.B. Semenov was sitting on the porch of the house at the trading station of Vanovara in Siberia. At seventeen minutes past seven his whole world changed.

Looking to the north above the dense forest he saw the sky seem to split in two. High above the treetops the whole northern part of the sky appeared to be covered with fire. As he watched this stunning sight, it felt like his shirt was catching on fire.

He started to tear it off but never finished the task. He was startled by a loud bang in the sky which followed by a mighty crash which flung him from his chair. As he lay on the ground covering his head, he felt the earth tremble.

Mr. Semenov was about 40 miles away from one of the strangest explosions in recorded history.

One-hundred and two years after the event, scientists are still debating what actually happened near the Podkamennaya Tunguska River in remote Siberia. They know there was a tremendous explosion. The resulting seismic shockwave registered with sensitive barometers as far away as England.

The blast stripped or felled trees out to a 25 mile radius yet it created no significant impact crater.

So, what exploded on that June day?

Welcome to the land of many theories. Some scientists believe it was a large space rock, about 120 feet across. They say it entered Earth's atmosphere and heated the air surrounding it to 44,500 degrees Fahrenheit. Then, right before Mr. Semenov was knocked out of his chair, the combination of pressure and heat caused the asteroid to fragment and annihilate itself, producing a fireball and releasing energy equivalent to about 185 Hiroshima bombs about 28,000 feet above Tunguska.

Other scientists are convinced a small comet or cometary fragment entered our atmosphere that day. Composed of 30,000 tons of water, methane, and ammonia ice, it penetrated the atmosphere at about 130,000 mph creating an intense shock wave which wrapped tightly around its nose. This theory tells us that the nucleus of the comet exploded about five miles above the earth's surface.

Theories ranging from black holes, antimatter, and alien spacecraft have been put forth in an attempt to explain the Tunguska Event. A while back, one Russian scientist stated his belief that an alien spacecraft saved the earth that day by vaporising a huge asteroid that was about to destroy the entire planet.

So What happened? Who knows. All that is clear from history is this: something big exploded on June 30, 1908.

I have been trading FX for a living a few years now and I have examined many theories about the market, I have tried just about every indicator out there, taken more than my share of training courses, subscribed to signal services, started trading rooms and have been part of other people’s trading rooms. I have made big money, I have lost big money and I have learned to control my risk. I have seen so many different methods practiced by other traders, all with varying degrees of success. There are the moving average traders, the fibonacci traders, the pivot traders, the Bollinger Band squeeze traders, the trend line traders, the breakout traders, the pivot traders (using floor pivots and Camarilla pivots and Woodies and here a pivot, there a pivot traders) There are volatility traders and range traders, trend followers and counter trend traders and of course my personal favorite support and resistance traders.

Why do I like support and resistance? Because it follows Dow theory and supply and demand principles which rule the market yesterday, today and forever. Now I could make a case for just about any of the methods mentioned above and the success rate would be negligible. As a matter of fact, I first stumbled upon support and resistance by counter trend trading currencies back to the 800 SMA. I found that price was actually hitting previous S&R levels which at times would coinside with the 800 SMA, sometimes fell short and sometimes exceeded the SMA. The so called “Magnet SMA” was not so much a magnet as it happened to be in the right place at the right time. I could demonstrate similar scenarios with Fibonacci and pivots and trendlines and divergence with oscillators. But before I dismiss it all as smoke and mirrors I have to acknowledge that FX is a global market filled with groups of traders, hedge funds, banks and just like the theorists in regards to the event in Vanovara in Siberia at the turn of the last century, they all have their methods that they pursue with all their resources. A word comes to mind, confluence.

con·flu·ence

a. A flowing together of two or more streams.

b. The point of juncture of such streams.

c. The combined stream formed by this juncture.

d. A gathering, flowing, or meeting together at one juncture or point: "A confluence of negative events conspired to bring down bond prices" (Michael Gonzalez).

Confluence of different methods as it applies to FX trading is not a personal revelation. I have been exposed to several fellow traders over the years that teach and capitalize on these methods. James16 group and Pivot farm to name a couple of the better ones that I have encountered. People often ask me, “How do you know which levels of S&R will hold and which ones do not?” The short answer is I don’t but trading is all about skewing probabilities in our favor and confluence for some is the way to do that very thing.

Consider when S&R levels line up with Fibonacci retracements or extentions, pivots or S1,S2,S3,R1,R2 or R3 or Camarilla levels or meet at trendlines, the more the better, we can often see bigger reactions. My theory on why? Perhaps all these different groups with their different methods are at these moments looking at the same levels and so technically the scenario plays out well. But before you drive yourself nuts trying to figure all these different levels out yourself, consider streamlining the process, less stress equals better living in my book. Happy trading to all!

Twitter has a new feature that is really cool

2010-06-27T11:56:00.003-04:00

For the currency trader on the go now you can get your tweets via SMS.

Get updates via SMS by texting follow Ironmanfx to (choose the code for your country listed below, ex. In the US text, follow Ironmanfx to 40404)

Two-way (sending and receiving) short codes:

Country Code For customers of:

Australia 0198089488 Telstra

Canada 21212 (any)

United Kingdom 86444 Vodafone, Orange, 3, O2

Indonesia 89887 AXIS, 3, Telkomsel

Ireland 51210 O2

India 53000 Bharti Airtel

New Zealand 8987 Vodafone, Telecom NZ

United States 40404 Any

Good trading to all!

Home, Home on the Range

2009-07-08T20:22:00.001-04:00

"Home on the Range" is the state song of Kansas. Dr. Brewster M. Higley originally wrote the words in a poem called "My Western Home" (early 1870s) The poem was first published in a December 1873 issue of the Smith County Pioneer under the title "Oh, Give Me a Home Where the Buffalo Roam." All it needed was a little music which a friend of Higley's, named Daniel E. Kelley gladly provided. I mean, what are friends for if not to encourage and even partner in your endeavors? Higley's original words are similar to those of the song today but not identical. (For all you “Home, Home on the Range” purists out there) The song was adopted by settlers, cowboys, and others, who spread the catchy little diddy across the

USA

upon their whistling lips in its various forms. It wasn’t until the early 20th century the song received formal arrangement by Texas composer David Guion (1892-1981) who is often credited as the composer. It went on to be officially adopted as the state song of Kansas on June 30^th, 1947 and is commonly regarded as the unofficial anthem of the western United States commonly referred to as the American West.

Not only is “Home, Home on the Range” a well recognized song from those thrilling days of yesteryear, it is also good advice for FX traders everywhere. Since the market spends more time in a range than a trend perhaps it is in the range where we need to feel at home.

It always amuses me when a so-called expert trader makes a statement such as; “the markets we are in now can’t be traded” or “these are the kind of markets where traders get chewed up” or some other form of similar statement equally planted firmly on the foundation of (to borrow from H. Norman Schwarzkopf, jr. General, US Army ret.) bovine scathology also know as B.S.

Here is what chews traders up, pure and simple, trying to pick tops and bottoms inside the previous days range, end of story. What does that look like? Well pull up a chair.

First, why do we want to catch a top or bottom in a move? We want to nail the utmost tick and ride up or down for 300 pips of profit, (oh greed) come back in a few hours and cash out (laziness) and head to the club for some tennis or catch some rays out by the pool. So if that doesn’t work then what? Do we sit glued to our screen day in and day out and try to scalp trade for 5 pips here and 5 pips there, is that the key to success? Probably not. Oh, don’t get me wrong, most of my trades are short term trades (at least in a ranging market) but they never play out as stressful as I just described. And believe me, we can catch the big runs with the right training.

Economics 101. There are three phases to any market. First there is the accumulation phase. In FX, this can be described as the big boys (institutions and hedge funds) buying at low, low fire sale prices. They come in and they overwhelm the sellers and price rises, they pull out when price gets too high and the market fizzles and falls to where or near where they bought before and they buy again. This process repeats over and over again, day after day until the big commercial traders have acquired enough inventory at the price they wanted. This action manifests itself in the market as a ranging environment with strong support. Remember, as we have talked about in the past, support = demand.

Then price breaks to the up side and the trend begins. We enter the second phase of the market, the trend (in this example an up trend) This is where everybody (I mean everybody) is an expert and anybody can make money, from housewives to real estate agents. This is where every system seller is a prophet of profit because the dirty little secret that nobody tells you is everything works in a trend. Take your pick, moving averages, bollinger bands, psar, MACD, stochastics and a myriad of others and combinations thereof.

Why? ....... Because the market is trending and all we are really doing when the smoke and mirrors are taken away is trading pullbacks to support and buying with the trend. Only the stubborn bear traders lose money in this market. W.D. Gann (whom I believe was an excellent chartist) said, “you have to be a bull in a bull market and a bear in a bear market.” After the market goes so long and so far (beware the asset bubble for all good things come to an end) it finds resistance. The little people, the retail traders have fueled so much wealth for the big boys, the economy is showing stress, fundamental stress the commercial traders are adept at reading and the mainstream media is great at ignoring. Trading markets through the eyes of media headlines reminisces of a certain Caesar fiddling while Rome burned.

Now we enter the third phase of markets, called distribution. This is best described as the big boys (institutions and hedge funds) selling at retail prices to a desperate crowd of Christmas shoppers. They unload their wore out wares to a thankful market, all too willing to pay top dollar. This plays out as a ranging market as well, only with strong resistance. Remember, resistance = supply. Institutions sell until buyers run out of dough and with no one to snatch up supply, price falls only to find a new wave of buyers come in and send price up again. This scenario plays out again and again until the big boys are out of inventory and the music stops. (Do wah diddy --- diddy dum --- diddy do --- annnnnd cut!) There stands the retail trader without a chair. With no buyers behind them, the joyride is over. We step back into the trend phase, only this time it’s a downtrend and it’s really ugly. Long covering fuels the ride down and the market gobbles up gains like cupcakes at a bake sale.

Here’s how it looks on a chart of the EurUSD.

“Knowledge comes by eyes always open and working hands; and there is no knowledge that is not power,” says Ralph Waldo Emerson. What I have just demonstrated will save a whole lot of traders starting out from loss, which is my sole purpose of posting these articles at all.

Support and resistance works in all markets and will be the most effective when adjusted to the present phase. As I said, trying to pick tops and bottoms inside the previous days range is what chews traders up and spits them out, broke and broken. S&R style trading is good at finding reversal points only when a trader trades on the edge.

HUH? ...... Every currency has a daily range and it is easy to figure out. Use the indicator (I can’t believe I just said that) ATR (Average True Range) and set it to 10 on a daily chart. This will take the last 10 days highs and lows and average them out to a number. What ever that number is the 10 day average range in pips for that currency pair.

In the EURUSD Chart below we see the current 10 day average true range is 103.

Now you know how far that currency can go in one direction before buying or selling typically becomes exhausted. Now apply that price to the NY close in both directions and you have a top and a bottom extreme price, i.e. the edge, good for the next 24 hours of trading. Here is what it would look like on a EURUSD 1 hour chart.

Price may not get there yet if it does man oh man a reversal is a high probability trade so we look for a key support or resistance area near these levels. Lets look at how the above chart played out on the chart below.

Scrolling through the different time frames we find an OBVIOUS level of support on the 4 hour chart near the Average True Range level at 1.3837. This is a high probability buy. Update: It ended up being a 50 pip trade on the day.

But wait theres more, in addition to this we look at the previous day high and low. If price hits the high of the previous day first in the Asian session we go short, If price hits the low of the previous day first in the Asian session we go long. In ranging market these are high probability trades.

Here is one of many, many examples from the EURUSD.

I say the Asian session because a whole new wave of players come in at the London open. The world moves from it’s lowest trading volume (Asia) to its highest volume (London) at this time. You may ask, “… and ...ah... what if the trade breaks higher or lower in Asia or London?”

Here’s a chart.

In trading as in life we need two plans, one for when things go right and one for when things go wrong. Say we go short because price goes up and tags the previous day high during the Asian session but doggone it all price breaks above and finds support at that level. What to do? Well if we are not right we need to get right so we reverse our position go long, accepting a breakeven to small loss on the first trade.

Coincidentally that is how you use S&R trading in a trend. You buy resistance turned support in an uptrend and you sell support that has become resistance in a downtrend. In other words, we buy and sell the pullback. Heres how it looks in an uptrend.

The really good news is when these markets range like this and you trade this way, it sets you up to be in first when the trend emerges. It is a great place to be. So the next time someone tells you these markets can’t be traded, you can tell them to “stuff it!” because you know better! ;-)

Top down analysis

2009-07-01T13:54:00.000-04:00

It doesn't matter if you want to trade intraday or for extended periods of time, it is essential to be aware of the big picture. Here is a monthly chart of the EURUSD.

For a detailed image Click here

You will first of all see the trendlines drawn to Tom Demark specifications. Second you will see an area of support and resistance (1.4634 - 1.4582) that has been tested from above and below once already. You will also see three yellow dots that high light 3 spike lows (1.4310, 1.4365, 1.4439) at that area of support and resistance. These represent 3 attempts to push price lower through this area and they ALL failed. These are potential areas price could react to if they attempt to push higher from here. Just by looking at this one chart we see there is upside potential but we don't want to get too heavy to the upside unless we want our long covering to be the fuel for the next wave down (not a good plan, ask me how I know).

So often I hear people express their desires to be "in the know" about what banks and hedge funds are doing. Aside from having the actual "deal flow" at any given moment which will absolutely tell you if price will go up or down from here, (and which you will never get unless you work at the dealing desk of an institution or broker) this is it.

This is what bank analysts do. The look at patterns. They draw trendlines and channels. They perform top down analysis. They draw fibonacci and look at retracement levels and extension levels. They look for divergence on oscillators. (the only real value of an oscillator)

In other words, they do what you can do. The difference is thay have been trained how to do it. If they can do it, so can you. Start with the monthly chart and work your way down to the smaller timeframes.

Areas to watch on the GBPUSD

2009-06-29T19:51:00.000-04:00

Click on Chart for detailed image

1.7005-1.7203 on the monthly chart offers a perfect sell zone.(if there is such a thing) Perhaps better to say that history suggests there will be opportunity to sell the Cable in this area. Of course the smaller time frames will offer us better entries when the time comes but this is an example of how a trader plans ahead.

Let’s Roll and Let’s Be Careful Out There!

2009-06-25T22:42:00.000-04:00

One of my favorite TV shows growing up was a serial police drama called Hill Street Blues. Week after week it moved me as few shows did at that time or since for that matter. From the mournful melancholy theme music to the sometimes hilarious, sometimes tragic, always gripping lives of these unique and yet all too human characters, there was a sliver of familiarity to be found for all of us.

My favorite character, played by the late Michael Conrad, was Sgt. Phil Esterhaus. Every morning he briefed the precinct officers and detectives about the latest happenings in anywhere USA (the city where this all transpired was strategically left out) This gentle giant of a man performed his duties with articulate perfection topped off with a dry sense of humor. Although he appeared in at least 43 different TV series and had a memorable role in the 1974 movie, The Longest Yard opposite Burt Reynolds, he is most well remembered for that classic line with which each roll call on the hill concluded, “Lets roll and lets be careful out there.”

Lets roll, lets take care of business, lets do what needs to be done, lets do it to the best of our understanding and abilities. And lets be careful out there, in the performance of our duties let us proceed with wisdom and purpose, with determination and the assuredness that we are in the right place at the right time to do the right thing. In this phrase exists timeless advice that will serve us well, in life, in relationships and in our trading.

I was asked the other day as I have been many times before (not by the same person) about scaling into a position. While many teach a tried and true method of scaling out, (taking profits) I see little in the great expanse that mentions the inverse. To scale out is simple. As price moves in your favor you have a profit target where you close a portion of your lots (usually half) and then move your stop to breakeven (because we always trade with stops, right?) and have a second profit target for the rest. Slight variations of this technique have been taught by many and for good reason, it works.

When it comes to a discussion about scaling into a position what I hear most often from others is, “I was told NEVER to add to a loser.” Ok here is the deal. IF, I said IF you trade emotionally and are changing your trading style (instead of refining it) constantly. If you get in bad trades and hope they work out then you should NEVER, EVER, EVER add to a loser, also referred to as averaging down a loss.

Jim Rogers, who has made billions (with a B) trading stocks, commodities and currencies, refers to himself as the world’s worst trader. He says that he can usually get the direction right but says that he never gets the best entry. So what is the answer?

Now bear in mind as we talk about support and resistance we are never talking about a line at XX (sure there may be a line on a small time frame that we can scalp from for a few pips) rather we mean an area of support or resistance. The bigger the time frame the bigger that area is and in most cases, the bigger the potential reward as well.

Here is a 4 hour EURUSD Chart.

Click on chart for a larger Image

Price tops out in the area we have circled and drops to a previous support area then begins to rally again. As price makes good on its bullish pattern we look for the former resistance to become support, which it does. However beforehand how do we know how far into the “area” of support price will fall when it does arrive (we know that sooner or later it will fall) The short answer is we don’t know. What we do know is we have a high probability buy zone (a buy in this example). One way to capitalize is to put a buy at the nearest possible area or even a bit higher. That way we don’t miss the trade, unfortunately we open ourselves to the largest risk if the trade moves against us and takes out our stop just beyond the “buy zone”. We could put our limit order at the bottom of our buy zone or even a bit outside for the absolute best price and the lowest risk should price get there. The problem is what? Yep, we could miss the trade all together. Ask me how I know.

The question becomes, how do we increase our odds of participating in a high probability trade without the proportionate increase in risk. Let’s say we have 6 mini lots that we can allot for this trade and that represents 1000 pips of margin for our account. Now I can place an order at any place in my “buy zone” with the potential for any of the scenarios listed above to play out or I could do something completely different.

On the above chart I have determined a buy zone from 1.3274 to an extreme of 1.3205.

Below the lowest price listed (1.3205) I really don’t want to be a buyer anymore so I may place a stop near 1.3175 (30 pips below the bottom). What I then do is divide my 6 lots I designated for the trade by 3 or 2 lots each and place 1 limit order for 2 lots at 1.3274, 1 limit order for 2 lots at 1.3205 and one limit order at 1.3243 which was an interim level. Now if price does push to the extreme I have my ideal trade, 6 mini lots with a tight stop. If however price touches lightly I am in at 1/3 of my lots and if it pushes to the middle I am in at 2/3s of my lots. My risk is never greater than it would have been if I had simply put it all at the lower level with the tightest stop. I have however increased my odds of getting something from the market and more often.

We see at point A, we would be in at max lots, at point B we would be in at 2/3 of the lots and at point C & D we would be in at 1/3 of the lots. If you are taking 50 pips from the top of the “buy zone” as a price target then those are all gooooood trades. 50 is a typical target for me but I let resistance areas up higher give me more precise targets. I hope that helps.

As always, I desire only good things for you in trading and in life so “let’s roll and let’s be careful out there!”

Here's a look at Gold

2009-06-22T14:12:00.000-04:00

I like to monitor Gold for a couple reasons, first it is the antithesis of the US Dollar and two it is the true standard of living (I avoided the obvious pun) In other words, what a US dollar bought a hundred years ago, a US dollar CANNOT buy today. What an ounce of Gold bought a hundred years ago, an ounce of Gold CAN still buy today. Some will say our money is no longer backed by gold and technically that is true; however Gold will always be the true measure of wealth in the world.

The next time you have time on your hands pick your favorite index and record it's value at three different intervals along a time line say 5-10 years apart. Then convert that index to Gold at each interval, what you will have is a true value of the index in question or more correct to say the underlying assets at that time. The real disappointment in an exercise like this is you will find that higher points on a chart aren't always reflective of increases in wealth.

Ah but enough about the good times. Whether you are interested in trading gold or just gauging the US dollar on the otherside of trading, here is a chart.

For a detailed Image Click here

We have a temporary top up in the 992 area. We dropped below a good support area around 963. A bounce there could have gave us news highs. When the day comes that price finds support up there then look for that scenario to play out. Right now price is headed (at warp speed) to test a support area that is also a fib level 61.8% retrace of the upmove from 865 to 992 right in the 913.90 to 915.20 area. If it holds then I look for a move back up into the 963 area. A break below would certainly (IMO) send price to retest the lows at 865.

As the Market turns, So are the Days of our Lives

2009-06-12T00:35:00.000-04:00

“He who hesitates is lost.” An ominous quote echoing from the halls of wisdom past, while the idea embodied in these words is undoubtedly older, the present wording as we know it is actually a misquotation (or perhaps an exercise in artistic license borrowing from) Joseph Addison’s play, Cato (1712) “The woman that deliberates is lost.” However, the truth is inescapable. Think about it too long and the opportunity passes. Many have mused looking back, “If only I had [fill in the blank] when I had the chance!” The list is endless stretching from business to love.

It is not so much the presence of courage; more so it is the absence of fear that produces success. We spend so much time concerned about being wrong we don’t afford ourselves the opportunity to be right. What is the solution? How can it produce better trading results? Better trading results come from better traders and better traders come from an applied knowledge of what moves markets. We need to hone our mental skills much the way a golfer or a martial artist or a dancer learns muscle memory. XX action produces YY reaction. (or perhaps in trading it is more appropriate to say proaction.)

Why do we hesitate? Many have said, ”If I just had insight into how the big boys trade, then I could get on the right side of the market.” Here’s a tip. What you want to learn is what 95% of traders do which is lose money, learn how they do it and then do the opposite. When you do you WILL be doing what the big boys do. Successful trading is counter intuitive, which means we zig when we should zag, we buy when we should sell and we hold on when we should let go. It’s no surprise really, we are after all social beings, our “herd” instinct is very strong. To do otherwise would seem unnatural. Would be unnatural.

Ah yes it is true and yet the very nature of the markets we seek to not only survive in but thrive is at the heart a mass market auction. Going with the crowd is not the secret to success, instead we must be rebels WITH a clue.

Further complicating the issue, we hear advice like, “trying to pick a bottom is like trying to catch a falling knife.” Not a nice image. Advice like this has it’s place but often we are clueless where to apply it. W.D. Gann (whom I believe was an excellent chartist) said (I’m paraphrasing) You have to be a bull in a bull market and a bear in a bear market. So we must always be aware of the predominant trend on the larger time frames.

I am asked in chat and by email and private messages in forums as to what timeframe I trade. The answer is all of them. (Of course there is more to it than that.) Day-trading, (time frames lower than 1 hour) by inexperienced traders is (in my opinion) the absolute fastest way to financial ruin. Why? By trading smaller timeframes exclusively, we place no incentive on learning what actually moves the market and we make ourselves easy targets for the big players. I can’t count how many times I have heard a trader say that they entered a trade for a quick 10 pips and instead the market went 40-50 pips against them. Then they were holding on just to get to break even. Sound familiar? We have all been there. The fastest way to a 50K account is to start with a 100K and no plan.

I look for support and resistance levels on the monthly charts and the weekly charts (love the weekly!) and the daily. I look at the 4 hr and 1 hour charts as well. I trade on the 1 hour and I look at the 5 minute and 1 minute charts for detail purposes. The reason I like the 1 hour chart is because I always measure risk in the timeframe I trade in and the 1 hour gives me the risk to reward ratio I personally seek in my trading. If I have a 1 minute chart up it does not mean I trade from it exclusively, it means I am looking for the best entry based on the trend of the larger time frames.

Let’s look at a chart or two or three. First a 1 minute on the EURUSD.

Click on chart for a detailed Image

Here we have a nice steady uptrend that has been chugging along for about 5 hours and has produced over 100 pips of gain so far. What should we do? Join the herd?

Now lets take a look at the same price action on the one hour time frame.

Click on Chart for a detailed Image

We now see price spike into an area of daily resistance, where sellers have shown up in the past.

And now the daily chart of that day's move.

Click on chart for a detailed Image

What appears to be a trend on a smaller time frame is often a mere re-tracement on a larger timeframe. Trend following gets us to the party fashionably late. Just about the time the long term trend retraces into a cluster of support (demand, buyers) or resistance (supply, sellers) we show up and enter the market so happy to be with the “trend” just as the market turns! (along with our stomachs) Your contributions to the upwardly mobile and trading elite are greatly appreciated though I doubt it was the desired outcome.

From 1990 through 1995 the real estate market was flat in much of the country, by 1998 many homes saw an appreciation of 30 to 40% from their lows. From 2001 to 2006 prices easily increased 20% a year and much more in some areas. Investors who bought in the spring of 2006 lost their shirts (among other things). Smart investors who purchased property back in the early 90’s were cashed out by 2001 (and many by 1998) with a nice low risk high yield return on their initial investment because they understood supply and demand and they catered to it. Everyone else made their plans on rumor and speculation and on what the guy across the street was doing at the time. Some made money, many stayed too long and lost it all.

The reason that market buy goes against us is because all the buyers have gone home and there are only sellers now. We were the last in line at the buying bonanza. The only think that motivates a seller is lower prices. The opposite is true when we sell and it goes against us.

The “trick” is to be early to the party, to lead the move so you will have a market to unload your wares. Entering the market at proven areas of support and resistance enables us to do that very thing!

What Timeframes do I like?

2009-06-11T05:51:00.000-04:00

I am asked this question alot and I suppose the short answer is all of them though for different reasons. I certainly look at the the monthly chart for support and resistance levels, even though the trades can be months and weeks apart one of them may be today!

I love the weekly for the same reason with just abit more detail.

I watch the daily too for trend. Always looking for those narrow channels where buyers and sellers agreed for a period of time. I mostly trade from the 1 hour chart, it is the chart I use to measure risk and determine price targets. I also will look at the 5 minute and 1 minute charts to find a good entry. So if I have a 1 minute chart up I am not trading from it exclusively, I am observing detail of the overall trend that I determined on the greater timeframes. June 9th on the EurUsd the hourly was forming hammers (indicating support)

and the 1 minute chart formed a triple bottom at the same time. (also indicating support)

After this price rallied. Confirmation on mutiple timeframes give great trade enties. But make no mistake, the big picture is key!

I actually had a guy (supposedly a trader) tell me he trades off the 1 minute chart exclusively, because it is faster. Hmmm. Now let me see, if price is XX on the 1 minute chart, what is price on the monthly chart? Well it’s the same right. I think of it much like the story about the guy who ordered a pizza and when the pizza was brought out, the server asked him if he wanted it cut into 6 slices or 8? He replied, "better make it 6, I don't think I'm hungry enough to eat 8."

Never forget what moves the markets. People do, yesterday, today and forever!

The 5 Fingers of Destiny

2009-06-05T01:42:00.001-04:00

The 5 Fingers of Destiny

Did you know, we work our fingers by remote control. (Not, we work the remote control with our fingers) Of course, in one sense, we work all of our moving body parts by remote control, the control center is our brain. However, the fingers are special, because there are no muscles inside the fingers. The muscles which bend the finger joints are located in the palm and up in the mid forearm, and are connected to the finger bones by tendons, which pull on and move the fingers like the strings of a marionette.

Just as the hand has five appendages (four of which are socially acceptable to display in public in single digit fashion) I will submit to you that there are five and only five possible outcomes to a trade that has been closed. (Here again, only four should be deemed acceptable to any serious trader.) I list them here and the possible responses to each event.

1) Win big ------------------------------Response: Buy a corvette (preferably vintage 1963)
2) Win small ---------------------------Response: Buy a used VW Beetle
3) Breakeven-------------------------- Response: Have a friend buy you lunch
4) Lose small --------------------------Response: Don’t tell anyone
5) Lose big ----------------------------Response: Find a tall building with roof access

The five fingers of destiny for the forex trader, five possible paths available at anytime. While the responses may be a bit sarcastic, the emotional undertones captured are very real. When we win BIG, we feel like celebrating. When we win small does size really matter? Don’t we still feel really good? Breakeven on a trade and… well as the song says,”the sun will come out tomorrow…” Now to lose small is to allow a little shame to creep in and to lose big is no doubt a path to full blown depression.

Now let me emphatically state, I am not a clinical psychologist, I don’t even play one on TV and yet would it be fair to say that these are all normal emotional responses to the given situations? In my humble opinion, yes.

Well, here is some good news to keep life on an even keel. Suppression of one’s emotions is not a requirement to trade forex, control would be more the operative technique. Of the five outcomes to a trade, only eliminate one and the forex trader will learn to be successful over time.

When my sister tried her hand at forex trading, she deposited 2K USD with a broker and over a 3 month period with no formal education in financial markets, averaged a win/loss ratio of 50/50. She came to me one day very upset because she had margined out her account. I reviewed her trading statements, looked at her over my reading glasses and I asked,”Do you realize your win/loss ratio is 50/50?” “Really?” she beamed, then a frown crept over her face, “but I blew my account.” “Yep, ya did.”

Five outcomes, five possible pathways, five fingers of destiny, we only have to eliminate one.

If we could somehow keep losses small, never lose big again, and then a 50/50 win loss ratio is suddenly a good place to start, a foundation on which to build future successful trading activities. We can see how just this one modification to our trading would yield a breakeven to small profits at results of a 50/50 win/loss ratio. That is indeed a good place to start and we can improve from there.

It all sounds good for a blackjack strategy but what does that look like when I sit down to trade the forex markets?

First, we need to control our emotions, fear, hope and greed that ugly 3-headed monster known to swallow up accounts in a single sitting. I keep a picture on my blog (the typical trader) as a reminder of this very thing. What is our fear? Losing money. What is our hope? No matter how we trade, the event will somehow turn out profitable. What about greed, is it not the heartbeat of capitalism? Maybe it is and far too often, we let greed keep us in a trade too long until our profits disappear like fans at a Milli Vanilli concert.

We control our emotions by replacing them with rules, and we tweak those rules until they pay dividends. Here are some rules to consider.

I “state your name”, will N-E-V-E-R place a trade without a stoploss and I, being of sound mind and body, will A-L-W-A-Y-S set a limit order where I want to take profit.

“But wait, if I have a stoploss I know what will happen, the market will take me out and then go my way.” Yep fear is in the house.

“You know what else, if I set a limit to take profit at 30 pips or 50 pips or "fill in the blank" pips, then the market will run another 200 pips and I will miss out.” Yep, all hail greed the crown champion of trading. Have you ever heard the story about the little boy standing on the street corner crying? A man walks up to him and asks, "Son, why are you crying?" Between the sniffles the little boy manages, "I dropped my only quarter down a storm drain and now it's gone!" The man feeling great sympathy for the lad reaches into his pocket, fishes out a quarter and hands it to the child. "Here is a new quarter, son." The boy accepts the quarter and then after a moment begins to cry even harder, the man, perplexed, scrathes his head and asks,"What's the matter now?" The little boy responds, "If I hadn't lost my other quarter I would have two now!" Greed, forget about it.

Here is what I know to be true, if in 20 trades the stoploss order is hit each time then the stoploss or the entry or both needs to be evaluated. If in 20 trades it is hit 3-5 times, you might need some minor tweaking but overall I would feel good about your future as a trader. Another thing to consider is moving your stop to breakeven after the trade as moved in your favor by XX. Thus allowing another finger of destiny to come into play, the breakeven trade. Traders will be well served to consider the breakeven trade as a winner. Trust me, it is!

Also I look to have a slightly better than 1:1 risk to reward. So if I were targeting say 80 pips I would look to have a stop loss order that is less than the target. These are the type of things a trader must track and review in their trading log to determine where to place these orders for
optimum return while reducing risk as much as possible.

There is an old saying among traders and it goes like this, “No one ever went broke taking a profit.” Now print that out and tape it to your computer monitor. To quote the esteemed Govenor of California, "Do it, do it nawoghh!"

We further address these concerns by looking for areas of support and resistance in a chart, areas of supply and demand, where buyers and sellers agree, places where our stops can be tighter than 1:1. Let us take a look at a 1 hour chart of the EURUSD.

You can see on the left of the chart how buyers and sellers agreed on price late Friday. With a strong trend up in our favor, so I set price alerts and I look for price to return to this area and I buy. So far this week it has hit three times. (Which is usually the limit before price moves to new levels higher or lower) A, B and C are where I entered the market. The red line is where I placed my stop and the blue line is where I took profit.

So what if a level fails? That’s what the stop loss is for and since we have rules we just simply say, “Next.” Here is an example. This chart is a day newer than the last one. (I usually spend several days on an article like this, since it is all in my spare time.)
Just like the previous line I have a buy entry in the area of A, the blue line represents the profit target and the red line is the stoploss order. The target and the stoploss is a bit bigger because it is the cable and it fluctuates more being a weaker currency than the Euro. We go long again when price revisits this area and our stop is taken out at B. So the sellers have now overcome the buyers in this area of equilibrium. The next time price comes back to that area we look to sell. Why because the market told us to, the market gave us a high probability area for the trade to work in our favor. A friend of mine and fellow trader would call this a "no brainer!"

This is what I personally look for approximately 50 pip moves in the market with 30 pip (again, approximately) of stoploss. (more like 80 and 50 on the cable.) No Greed, no hope, no fear, just rules based trading, the slow and steady, no stress path to wealth.

I certainly have my opinions but I hold them with an open hand. For instance, I believe we are in the first leg of a bull market, which means we are due for a correction downward for the euro and then a larger move to the upside. Am I right? Ask me in 5 years. In the meantime I proceed with that thought but I let the market lead me to profits. In trading the four fingered man is king!

The Secret of Magic

2009-06-01T22:04:00.001-04:00

Watch Closely… nothing up my sleeve…. PRESTO!

In the secret world of magic there is a word for revealing its coveted secrets beyond the inner circle of history’s great artisans and disciples. It is called exposure and it is generally frowned upon in those groups. To reveal the secret of the trick is to be the spoiler, if you reveal it to the outside world.
In the 1970s James Randi received criticism as well as support in exposing the methods of alleged psychic Uri Geller. Geller insists that his stunts, such as spoon bending are supernatural and not magic tricks. Consequently, Randi feels it is important to expose that type of trickery. While Randi has refused to reveal some of his in depth theories on Geller, he has explained simple methods of trickery that Geller uses. Most famously, Randi explored some of Geller's deception in the 1982 book The Magic of Uri Geller (later renamed The Truth about Uri Geller). In the book he devoted a chapter titled "The Magician's Attitude and How It Changed" about the initial criticism he received in exposing Geller's methods. Randi noted years after the publication he received apologies from many of the magicians who criticized him. In 1974 magician Sam Dalal wrote a letter in support of Randi to The Magigram, explaining:
"I perform the "spirit slates" trick, but I wouldn't charge 5 pounds to produce a message from someone's dead mother! And I charge for deceit, but not for the deceit itself, only the ENTERTAINMENT I provide through it. The day I start selling something I can't deliver . . . like "psychic healing" and the messages from “Little Green Men" . . . and hope to be taken in earnest all the time -- I hope somewhere there will be HOUDINI, a RANDI, or a BONGO with the moral courage and decency to stop me!”
But as often is the case in the real world, the secret to success is not so much a secret of insiders as it is a proclamation hidden among the obvious. The moral dilemma does not exist in should it be kept a secret but rather will the world be a better place with the knowledge out there.

Maybe you have heard the analogy of the person who goes to the ocean to scoop out some water. Does it matter if they come with a teaspoon or a bucket? Or for that matter a tanker truck? When they leave with their cache of water has the ocean been effected? No, of course not!

So what moves the currency markets? If I tell you, have I doomed the economic system to catastrophic crash? If you could somehow profit from the knowledge would central banks and hedge funds that were otherwise solvent suddenly topple? I will go out on the proverbial limb and say no.

“Enough already”, you say, “What is the answer?”

Let us take a look at an economic example near and dear to all our hearts…..the real estate market. If there are more people who want to sell their homes than there are people who are willing, able and ready to buy those homes what happens in the market?

Ultimately, prices fall until they reach a level where qualified buyers are interested.

Now suppose the reverse is true. If there are less people who want to sell their homes than there are people who are willing, able and ready to buy those homes what happens in the market?

Ultimately, prices rise until they reach a level where qualified buyers are no longer interested.

A third scenario exists and that is when buyers and sellers agree for periods of time and prices neither rise or fall.

What you have just read is a simplified version of economics 101, Supply and Demand.

If there is more supply (excess inventory, i.e. more sellers) than demand (ready, willing and able buyers) price falls. If there is less supply (scarcity of inventory, i.e less sellers) than demand (buyers) then prices will rise. Of course the converse is true as well, the sellers could stay the same and the buyers could increase or decrease but the point is an imbalance between supply and demand is what moves the markets.

So how does that play out in the currency markets? How does that translate into profitable trading? These are excellent questions. Let us look at it like this; an excess of sellers (or a lack of buyers) keeps the market from rising. In other words too much supply. That action manifests itself on a chart as resistance. Too many sellers = too much inventory= mall sale= a drop in price. There is no other possible outcome to this scenario.

For prices to rise the opposite has to happen, a shortage of sellers (or an increase in buyers) keeps the market from falling. In other words, too much demand. That action manifests itself on a chart as support. Too many buyers= not enough inventory= inflation=a rise in price. There is no other possible outcome to this scenario.

The third component to is when buyers and sellers agree and prices tend to exist inside a range. Equilibrium. Now that we know this, we only have to learn where these areas are to trade profitably. It sounds easy, right. Like anything in life, it requires practice and dedication to become proficient.

Lets look at a chart.

On this chart will exist three levels and they are ever changing. They exist in all timeframes. The larger the timeframe the larger the move and the less frequent the entry. The smaller the timeframe the smaller the move and the more frequent the entry.

We are looking for three things on our chart, Where are there more sellers than buyers because this will determine our resistance area. Where are there more buyers than sellers because this will determine our support areas and where did buyers and sellers agree because these are the arrows to future levels.

At point A we have an area where buyers and sellers agree initially for about 4 days. Then for whatever reason more sellers come into the market than buyers and price inexorably falls. That action establishes this area as resistance in the future as demonstrated at point B and C. Notice at point B how there appeared to be a break out of the top but the daily candle formed a spinning top. The spinning top by itself is not the best signal but when used to confirm supply and demand in the market it is gold!

This chart gave you two trades, one in December and one in January. The market tends to be a bit more thin in December and you can see how that played out with price pushing to the upper limits of that resistance area but it still held. The first trade yielded a maximum of about 1100 pips and the second was about 1800 pips. Who says you can’t get by on one trade a month!

As the January sell ran out of steam, there is another area where buyers and sellers agree. Then for whatever reason the buyers arrived. This area now becomes support. Set your watch for the next time price comes back to this area, which was March. Whether a trader bought in the support area, waited for price to find support above the area or better yet, scaled into the position it is plain to see there were many pips to be made. There is certainly more to say about this subject but that is the heart of the matter.

Indicators are the Devil

2009-06-01T04:42:00.000-04:00

If I have picked on a few people as I have walked the roads and valleys of cyberspace forums (and I have) who have indicators everywhere on their charts it's only because I too went down that road. How on earth am I supposed to spot support and resistance under a pile of indicators that look like James Dean’s car wreck?
There are funds out there that make a ton of money using automated systems based on indicators, some common and some proprietary. But they all have inherent weaknesses. (And I promise you they endure their share of losses too) The advantage that you and I have as retail traders is the ability to think, to judge situations. We also are not under the pressure to trade as professional money managers are. If I don’t like what I see, I reserve the right to shut off my computer and call it a day.

What I believe in is simplicity in trading, a system that doesn’t require the intellect of an Albert Einstein or a John Nash to understand. If you can't easily get your mind around the methodology then that casts a shadow of discrepancy on the whole strategy. I limit my analysis to horizontal S&R levels for the most part and when I show you some chart examples you will see why I do. It really is that simple and when we add indicators we only handicap ourselves. There has even been several indicators pop up on the internet and in forums and chats that tote the name “zero lag” indicators. Guess what? They still lag.
My philosophy in trading matches my philosophy in life. I have two plans available to me at all times, one plan for when things go right (entries and limits) and one plan for when things go wrong. (stoploss) No system is perfect, including S/R trading but the guidelines are simple and easy to follow and with patience and discipline yield a pretty good equity curve.

I have used just about every indicator out there and what I have learned is that (and here's a dirty little secret from the vaults of trading history that the Guru's won't tell you) everything works in a trend. Bull and bear markets are very forgiving. What's drawdown really mean if you are with the trend? That statement carries the assumption that you didn't over leverage yourself when you entered the trade. But no system selling forex guru could sell a system or a monthly subscription based on just S&R levels. Their “followers” would outgrow them in a few weeks to a few months. So they cover up the simple truth that the market speaks with a bunch of squiggly lines that is always subject to interpretation so you will always need them. (for at least as long as their “Satisfaction Guarantee” lasts.)

Indicators may not be the spawn of Satan but they can certainly cloud the issue. One indicator leads to another which leads to another and to another. Why? Because of the subjectivity we are constantly trying to filter out better results from the last indicator by adding the next one. It’s a downward spiral that does nothing to improve us as traders. Imagine offering someone a plate of cookies where only a small amount of dog poop fell in the mix before baking. It probably cooked out and I doubt you would taste it at all. So who would like a cookie? Better yet, put the dough in a box, shrink wrap it and sell it on the internet.

“Winner, Winner, Chicken Dinner!”

2009-06-01T04:35:00.000-04:00

“Winner, Winner, Chicken Dinner!” is a familiar phrase to devoted blackjack players around the world. It has also been made popular by the movie “21” which was based on a true story about a group of math students from MIT in the 70’s that took Las Vegas by storm and relieved the “house” of millions of beloved dollars in a short period of time. It was not a glorification of gambling at all, it was in fact testimony to how lucrative a deliberate system can be. It was not easy. They had to practice intensely and refine their skills. In the end, they did very well.

So, I am quick to say Forex trading is NOT gambling! Well….. it could easily be gambling without the proper study and preparation. It is the preparation that turns the tide of risk to our favor. For me preparation is support and resistance. Why S&R? Why not Bollinger Bands or MACD or RSI or Moving Averages or Stochastics or ……………………………..AAAAAAAAAHHH!!!!!!!!! Well in a word, “subjectivity.”

New traders (much like new blackjack players) have an extreme disadvantage when it comes to trading FX. For a couple of reasons, 1) they don’t really understand what moves the market and 2) they are not sure how to react when it does move. It has been my experience that simple wins out over complicated once you except a few basic facts.

Fact # 1 Your broker has not conspired to rig global markets to milk away your small account. (Don’t be offended, unless you are trading billions with a B then your account is small. My account is so small that Warren Buffet couldn’t find it with a GPS)

Fact # 2 Retail traders (you and I) do not (let me say that again) DO NOT move the market. I don’t care if we all synchronize our watches and all go long the Euro next Tuesday on the Asian open. It will not move a multi-Trillion (with a T) dollar market.

Fact # 3 He who has the cash, controls the cash. (Banks that is)

S&R trading done right eliminates subjectivity.