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Tuesday, July 12, 2011

Forex Trading !

So I'm taking a look at developing some sort of coherent Forex trading approach. I've already opened a demo Forex account with Oanda, and adjusted the "demo" account to $300.00. I'm not sure if I'll keep this 'model' account at $300.00, or perhaps move it down to $50.00. I'll have to wait and see how my side Forex project plays out ...

Methodology:
I know a few profitable Forex traders, and the thing they keep repeating to me is that ...
  • Forex trading is all about figuring out how to ride a trend.
  • Get commodity futures trading out of my head when I go to trade the Forex market. There is no 'zing and zip' as the behavior is such that I might need to pull out from my usual time frames, and look to larger time frames. Again, the theme of 'trend' is repeated.
The sheer number of times I've heard the above statements repeated to me, it seems to me at least at this point, that larger time frame trend alone is the implied bias, probability or 'edge'.

Usually, for commodity futures, I look at the daily chart, the one hour chart, and the ten minute chart. With Forex, I am watching the monthly chart, the weekly, the daily and the four hour chart. I'm entering any trades based on the 30 minute chart.

In commodity futures, when I am dealing with an account over $35,000.00, I 'shred' off multiple contracts as the position becomes more profitable. I will attempt to do the same thing with Forex trading; the main difference is that I will be able to implement this strategy right away.

Contract Lot Sizes
So I worked with the math, and at this point, it seems safer to be using 0.01 lot (1,000) or 0.005 (500) lot sizes for now, which is $0.10 per pip, and $0.05 per pip respectively.

In Practice:
I've already had one practice trade. I was watching the EUR/USD rally on July 7th, and then begin to lose momentum. I went short from 1.43577 on July 7th ...

EUR/USD Last Week
(Can be Enlarged)

The market quickly went flat. And stayed flat until the next session when it began to lose steam and resumed the trend lower. I exited around 1.42669 for a profit of around 99 pips. If we consider a $50.00 account on a .005 lot, then that'd be what ... around $4.95 or a 9.9% rise. The reason I don't like that scenario, is that it means I would have been leveraged 10:1. On a $300.00 account, then I'd still be leveraged, only it would be 1.67:1, which is much more reasonable, and a 1.65% gain. A much more reasonable expectation and gain that would be in line with money management principles.

I also noticed how profitable it would have been to implement a 'shredding off' strategy as far as the size of the position as the trend progressed.

So at this point, I'm getting a feel for leverage, and how I want to customize the lot size for the account itself.

As I was in the trend, I was discussing it with some folks I know, one of which is a pretty active Forex trader.

I've also been looking at a USD/MXN trade on a minor pair. At this point, I'm just watching and observing. I was thinking of trying to find a way to enter on a short. As the market continues to move higher ... I just watch it through the lens of multiple time frames.

Edit: 8:45 AM est - as a matter of fact, I just went short 500 USD/MXN at 1.7902/8. We'll see how it goes.

Edit: 10:14 AM est - And this is why we demo trade, even if we have a ton of other trading experience.

I wanted to shred off 60% of the position around 11.7792/2 - and then let much of the rest ride exactly at 10:00 am est. I was trying to figure out how to do it, and put out some feelers to folks asking questions ... and the market bumped up.

It's no biggie really ... I still like the trade. But I think that highlights the importance of Forex demo trading before you jump into it.

Edit: 11:05 AM est - I held on throught that bump, and sold off 60% of the position when that rally fell apart ... somwhere around 11.7812/1 ... still watching trade, so dont have exact number ...

Edit: 4:00 PM est - By 4:00 pm, I had completely shred off all of the position, bit by bit.

I know I have pre-established skills as a trader, but is it this easy to get the hang of Forex?

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Note: The above statements should not be construed as an investment or trading recommendation. Airelon's Investing and Trading Journal is a blog that allows subscribers to look 'over my shoulder' as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change.. Any trades or investments that I discuss within this blog are simply my own thoughts regarding my own investing and trading outlook. Remember that entering any market is an individual decision. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this blog; as larger accounts may require a different strategy as the ones presented here. This blog simply contains my trading and investing thoughts for the next week. I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. I personally only enter any market after watching and reading the tape and I trade using money management principles. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. I do have 15 years of experience in trading and investing in these markets. Airelon's Challenge Chronicles are demo accounts,with all of the inherent problems therein, which are used within this blog in an attempt to track the results of my own thought processes., and is run as a model. Traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this blog are believed to be public domain. Any charts that displayed using the ThinkorSwim platform, or any other charting software are believed to be public domain. Any other pictures were obtained through Wikipedia's public domain policy. As a reminder, any trades discussed for "Airelon's Challenge Chronicles" would only be 'day trades' according to the parameters discussed for Airelon's Challenge Chronicles, at this stage of the game in order to escape the risk of over-leveraged gap opens in the commodity futures markets. As a 'trading sister' would have grown to the $30,000 level, I would have graduated the account into 'swing trading'. In addition, it is understood that readers have read my YouTube methodology series. It is also understood that the writer of this blog has repeatedly warned against the dangers of shadowing any other traders thoughts. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk

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