Are You “Trading” or “Gambling”


Recently I received a question from a perspective FXCoaching.com customer after he saw the forex signals track record with four consecutive losses of 70, 90, 42 and 99 pips.

His question went like this: “Hello Steven, your overall trade results look good but, for example on week of August 16th 2010, you had four consecutive losses of 70, 90, 42, and 99 pips. Won’t that trigger a margin call or nearly wipe out my account?”

My reply: Whoa! Slow down. I am sorry, but what you’re doing does not even come close to resemble actual trading.  Please forgive me, but I’m going to be a little harsh here.

If what you are suggesting is true, then you are definitely gambling. If losses of 70, 90, 42, 99 pips can wipe out your account, you are using WAY TO MUCH leverage.

Stop it now and take this business seriously!

If you want to gamble, then go to Las Vegas and get it out your system.  Come back to forex trading when you are ready to make reasonable returns of 60-100% per year.   Not 60-100% weekly because it ain’t gonna happen!

Keep in mind that the best professional traders, those that are the cream-of-the-crop, the very best-of-the-best, the most elite traders in the world are accomplishing 3-8% per month, so why are you aiming for 3-8% per day? Are you a better trader then these seasoned hotshots? No way Jośe!

Yes, you may hit an occasional home-run by swinging for the fences and those winners will feel like you just hit the jackpot, but that is not trading man.  Let’s take trading seriously.

The first order of business is capital preservation. You must protect your trading account. Your trading account is the life-blood of your career. It is what keeps you in business. Respect your account like no other.  Structure your leverage and trade size so that if you had losses of 70, 92, 42, 99 pips, your account draw-down would not exceed 3-4%… maximum! Yes, that’s right. I am saying that a loss of 303 pips should only make a slight dent in your Forex trading account that should never exceed 4% of your account balance.

I have been a professional trader for many years.   What I am saying to you is critical to your trading career.  It is important that you understand exactly what I am saying here.  Do you want to make a living from your trading, or do you want to gamble occasionally and continuously fund your account each time you blow it up?

The choice is yours, but I can only help you at FXCoaching if you are serious about improving your trading career.  My forex trading signals and education can benefit you, but only if you are ready to trade like a professional.

Let’s recap: If drawdowns of 300 pips are scaring you, what about 1000+ pips that we may possibly see at with the FXCoaching forex signals service?  Nobody likes these draw-downs.  I hate them. You hate them, but they happen to even the best of traders. Trading is streaky like that.

Even at a 1000 pip drawdown, your account should drop only 9-11%%. Absolutely no more than 12%!  Here is a rule of thumb: 1% for every 100 pips in either direction. For example, if we lose 500pips, then you have a 5% draw-down.  If we make 500 pips, you are up 5% in your trading account.

The FXCoaching forex trading signals promises to deliver 600-2000 pips per month and if you are trading with proper leverage, you can expect 6-20% returns each month. And keep in mind that those are world-class returns that any professional trader would salivate over.

I always willing to help, especially putting a trader on track for success, but you must learn to trade with reason and stay away from those “loser” leverages which most retail brokerages offer. They are the quickest way to killing your account… period!

Best of trading success to you!


Is there an indicator to predict choppy versus trending markets?


Steve,
Hope all is well.  Been struggling with something in my trading and thought I’d send you a quick email to see if you had an indicator that could help me out.  I’ve been using TW, your ashi’s, etc to take some great trades, but I’ve been giving a good portion of my profits back in periods of consolidation or when the market is sideways.  I’ve used Bollinger Bands inside Keltner Channels in the past of a means of staying out of these time periods with mixed results.  Do you have anything you’ve used in the past to stay out of the chop?

Thanks,
Dustin

Hello Dustin,
There’s not an indicator in the world which accurately predicts trendy and choppy markets. If there was, we would all be rich as we would trade bounces off bollinger bands during choppy times and trade breakouts during trendy moves. The best thing to do is use a strategy that is best for each market condition. If you are seeing lots of chop, then trade a chop strategy. If your true aim is to get the trendy moves, then make sure you start trading only when the markets are already in vertical directional moves, and you are trading during hours which are most conducive to trendy moves. For example, don’t trade the Asian session looking for trendy moves. If I am specifically targeting trendy moves, I will trade the London session and first three hours of NY only. Any trades outside of these hours looking for trendy moves is asking for trouble. Best bet is wait for a trendy move to already be started, wait for a pull back, then jump in. Don’t expect trendy moves from choppy markets. Hope this helps.

regards,
Steven Michael Matrix


Exceeded the Trade Limit, do I enter the Trade? Price is Past the Entry Price – Do I Enter the Trade Now?


Hello Steve-
Am I correct in thinking normally I would place a buy limit trade at 60.59, however if the limit has been exceeded and is currently say 60.66 do I enter the trade immediately at that level?
Thanks
John

John,
With limit orders, price should come down to the exact specified price before you get filled.  If price is currently trading 60.66, you will get filled when price drops down to 60.59 if you place a limit order at that price.  In our order, price was trading 60.66, so we place a limit order to buy at 60.59. We only get into the forex trade if we can get 60.59 or else we don’t trade enter this trade.  If you place a market order, you will get filled immediately wherever price is currently trading.  A limit order is an exact price.


The Proper Lot Size to Trade


The Proper Lot Size to Trade

Question from Subscriber:

Hi Steve. My name is Everett Gregory and I’m a member of your FXcoaching service. I have never traded Forex before and need help. My broker is Interactive Brokers. They do not trade contracts, you have to enter the amount you want to trade. I’m having trouble figuring this out. I have attached an excel worksheet where I have tried to create the formulas to determine the proper lot size to trade. I’m not doing something right. The pairs like GBP.JPY are really off on size. Could you please help. Maybe you have a list or spreadsheet I could use. I have a $50,000 account and want to start out trading $2 / per pip, until I get the hang of this.

Thanks,

Everett.

 


Hello Everett,

Thanks for writing. I am glad to see that you are thinking correctly with the amount of leverage and risk you want to utilize. All too often, newer Forex traders will utilize too much leverage and are thus gambling. As a general rule of thumb, think $1 per pip for each $10,000 in base currency you are trading forex. Some currency pairs are more, some are slightly less. Therefore, if you want to gain/risk $2 per pip, then you want to trade $20,000 of base currency. With most Forex brokers, you have a choice of trading a Mini Lot or Regular size lot. The mini lot is $10,000 of base currency ($1/pip), and the regular lot is $100,000 of base currency ($10) per pip. I think it is pretty cool that IB allows you to choose your own trade size and not force you to trade their predetermine lot size. It’s always easier to adjust your trade size when you have so much flexibility. Thanks again for your questions.

At current prices, these are the pip values for each $10k traded:

USD/JPY, AUD/JPY, GBP/JPY, CHF/JPY, EUR/JPY, NZD/JPY: $1.23

GBP/USD, NZD/USD, AUD/USD, EUR/USD: $1.00

USD/CHF, GBP/CHF, EUR/CHF: $1.02

USD/CAD, EUR/CAD, AUD/CAD, NZD/CAD: $ .98

EUR/GBP: $1.57

EUR/AUD, GBP/AUD, CAD/AUD: $ .99


More SuperTrend Information


Hello Steve,

I am interested in subscribing to your live alerts where you call trades for SuperADX and Supertrend. In this regard could you please answer my following questions:

1- For the SuperADX system, I have seen the system is offered with all indicators and instructional pdf, do you teach me the exact same system you use to call the live trades, most importantly how do you call set targets and exit trades, the most important aspect is the exit so do you teach how to set targets and exit trades.

2- For the super trend system, does it use a combination of existing indicators, do you teach this system as well or offer it for sale, I could not find it on any page on your site.

Best Regards,
M

 

Hello M-

Thank you for your email and interests in our FXCoaching alert service where we call trades based on SuperADX and the new Supertrend systems.  My answers to your questions are below:

1)  Yes, when I send a trade alert, I give the basis of the trade.  I tell you what timeframe and which indicator triggered the trade alert.  Occasionally, but not all, I give the reasons along with a chart image showing how I figured the stop loss and target.  I always use our Fibonacci Progression Bands to figure the stop loss and target.  These bands are the best way to locate unique levels of Support and Resistance which we use to set targets and stop orders.  We do not yet sell the Fib Bands, but many customers have asked for them recently, so we will prepare them for sale soon.

2)  The Supertrend system was just developed in December 2010 in response to a difficult month in November 2010 after an 18% drawdown.  We make it a rule to keep drawdowns under 15%, so you can understand that 18% was far beyond our comfort level.  We developed the Supertrend system as a way to balance risk with the SuperADX system.  It’s not a total hedge against the SuperADX, but it uses a different methodology that should compliment the trading style of SuperADX during difficult trading times.  As the name implies, the Supertrend system does well in trendy markets whereas the counter-trend signals of the SuperADX system will suffer the most.

In fact, the idea for the Supertrend system has been with us for the past couple years.  After extensive back-testing during the last half of December and first week of January, we were convinced the system should move ahead in forward testing, thus the mini-lot trading during January.  I am not a huge fan in the reliability of back-testing as I have never seen a system perform the same with back AND forward testing.  During the last three weeks of January, the system netted +186pips, which is not fantastic, but it gave us the confidence to continue testing and increase the lot size to a full standard lot.  The rest is history.  In February, the system made +261pips.  In March +341pips.  Like I said, the Supertrend system nicely enhances the SuperADX system, however, we have yet to have a losing month on SuperADX to see how well the Supertrend performs.  This should be interesting when it does happen.

We are continuing to build confidence with the Supertrend system and now starting to explore trade copier services based on many customer requests.  The majority of Supertrend signals are triggered during the London session when the lessor hard-core U.S. based customer is sleeping which is making it difficult for these customers to follow our trades.

After a couple more months of Supertrend trading and we are convinced the mature track record has merit for long term trading, we will begin to develop indicators and write the code necessary so that customers can run the system on their computers with the smallest amount of subjectivity as possible.

I hope my reply has been sufficient for you.  Please feel free to write again or call if you have further questions.  Thanks again.

Kind regards,
Steven Micheal Matrix