As my virtual mentor regularly states, being a profitable trader is not about how often you win or how often you lose, but how much you make when you win and how much you make when you lose.
What does he mean by this.
He is talking about two things:
– Risk Management – Only risking a tiny % per trade (e.g. 0.5%) so when you lose it does not adversely affect you trading account
– Risk : Reward Ratios – For any trade your reward has to be multiples of your risk (e.g. at least 3 : 1).
So for example, say you have a $100,000 account and risk 1% per trade (I am using whole numbers to keep things simple, but personally in the current political climate I wouldn’t risk more than 0.5% per trade), if you make 10 trades with a R:R of 3:1 and you are right 50% of the time:
Losses = 5 x $1,000
Gains = 5 x $3,000
Profit = $10,000
Say you lose 7 of the 10 trades
Losses = 7 x $1,000
Gains = 3 x $3,000
Profit = $2,000
So I know to become consistently profitable I just need to get much better at being patient and trading only high probability setups to get my win ratio consistently above 30%, as I already only pick trades with a target of at least 3 : 1.
Wow, I made that sound really simple to do which of course it is not. But it is possible and I won’t stop trying until I am successful.
In this video I review the Fotis Trading Academy membership site. This is the main way I am learning to become a better Forex trader, through seeing what a professional trader is doing week in week out, including how he does his macro economic analysis to decide which markets to trade, and then how he uses technicals to then decide the entry and exit points of those markets.
For everyone who wants to improve their Forex trading results, I really recommend you join the Fotis Trading Academy and try it for yourself.
This site has been key for me to developing as a Forex trader. I have been a member less than a year, and although I am not making money every month I have gone from losing money every month to having profitable months, my best so far has been making 7.9%, and this is a year when it is hard to trade because of lack of direction from central banks. Hedge funds have been closing.
The first time I tried to learn how to trade Forex a few ago I spent hours learning new systems or developing my own, and after two years of trying I had lost my whole account and had given up, thinking Forex trading is a game just for professionals. I was trading purely technically.
At the end of 2015 I joined Fotis Trading Academy (I can’t even remember how I found it now as I was no longer interested in Forex trading). This got me interested in Forex trading again because this allowed me to see how professional Forex traders were making their money, and the key thing, it made me believe that it is possible for a non-professional to learn.
I am a firm believer of if you want to become successful at anything, learn from people who are already successful at it.
The site consists of training courses, for example how to use Options (not binary options), and technical analysis, and some exact systems you can use e.g. the M2 method.
There is also a Forum to share ideas and get advice.
The key part of Fotis Trading Academy for me though is the webinars three times a week (all of which are recorded so you don’t have to attend live) where you get to see a professional trading doing his macro-economic analysis for the week ahead to decide which markets he is interested in, and then how he is using technicals to decide his entry and exit points. Don’t be put off if this sounds complicated, he makes it very simple to understand.
I am really grateful for them creating this site as I doubt I could ever become reliably successful on my own.
I recommend you try Fotis Trading Academy for yourself.
I wish you all the best on your Forex trading journey.
15 trades, 8 losing, 5 break even, so only two winning trades.
So a terrible win rate (13%). This is what I need to focus on, i.e. stop taking trades unless I understand why they are high probability trades.
This is a great example of the importance of risk management and as my virtual mentors are always saying “it is not important how often you are right or wrong, what is important is how much money you make when you are right and how much you lose when you are wrong”. If I had had another single win I would have made money.
My two wins were from shorting Deutsche bank (totalling 3.8%), one of the many European banks that almost 10 years on from the last crisis are still over leveraged and under capitalised. With the European Central Banks massive QE programme having little effect on creating growth and inflation in the Euro Zone, as the world goes into it’s next recession (not if, but when) it is hard to see what else the ECB can do.
I took the trade because:
Daily Chart showing downward channel.
I took my first trade on the 14/09/2016, and also placed a limit order in case the trade went against me (without stopping me out) so I could increase my position. My limit order was hit the next day.
4 Hour Chart – First Entry
4 Hour Chart Showing Limit Order Which Was Hit on 15/09
I took my profits when price got to the lows seen at the beginning of August and started to rebound. As shown by the chart the price subsequently dived further until a dramatic retracement.
When placing a trade using the Metatrader 4 platform, as well as specifying my Stop Loss, I also need to specify the Volume which will determine how much I am risking (and how much I will make if the market goes my way).
For Forex trades I use an online calculator, for example https://alpari.com/en/trading/calculator/
In this example I want to be long (Buy) the EUR JPY:
Entry Price: 112.97 (which I put in “Opening Price”)
Stop: 112.58 (which I put in “Closing Price”)
With this volume, it is stating my risk (“Profit”) is $19.20 which is what I want ($4000 account, I want to risk 0.5% which is $20).
If the risk is not what I want it to be, I simply change the volume and re-calculate until I know the volume I want.
But I have an issue.
When I want to trade other markets (Gold, the Dow, Caterpillar, etc), how do I calculate the volume as I haven’t been able to find an equivalent online calculator to the Forex calculator I use above.
In Metatrader 4 you can right click a market in the Market Watch window and select “Specification”
This will give you all the specs for the market, e.g. for Deutsche Bank bank
Contract Size * Tick Value * Tick Risk * Volume Step
1 * 0.01 * 6 * 1
Tick Size = 0.01, hence risking 21 ticks
I want to risk $20, so calculation is
Volume = Risk Amount / (Contract Size * Tick Value * Tick Risk * Volume Step)
Volume = 20 / (1 * 0.01 * 21 * 1) = 95 (rounded)
Tick Size = 0.01 hence risking 892 ticks
Volume = Risk Amount / (Contract Size * Tick Value * Tick Risk * Volume Step)
= 20 / (100 * 1 * 892 * 0.01) = 0.02 (rounded).
Also note the “Minimal Volume” = 0.01 so I am good trading with a volume of 0.02.
Please note that the above examples do not factor in the bid / offer spread which for the major markets is small hence is makes very little difference to my volume calculation. But where the bid / offer spread is significant, simply add it to the size of your stop (i.e. if you have a 20 pip stop and bid / offer spread is 10 pips, you are effectively risking 30 pips so your volume calculation should reflect this).
As my virtual mentors are always stating, I need to stay aware of anything that affects three things:
– Interest Rates
These three things are what drives Forex prices. That’s it.
One way to track what interest rate expectations are is to watch the bond market. For instance after recent bad economic data in the US (Aug 2006 retail sales and NFP etc), plus dovish comments from Fed members, an interest rate hike before December has become increasingly unlikely, and so bond prices have fallen (bond yields have gone up).
How is this useful information? Within bond yields rising, this should have an inverse correlation to the USD, hence you either want to be shorting it, or at least become very wary of being long the USD.
The following is a great article on bond prices and central bank policy. This talk about a future great opportunity, equities falling if the central banks stop driving down long term bonds, hence the those bond yields will increase, so people/institutions desperate from some sort of return may then move their money out of high risk over valued equities (earning growth has been falling, yet equity prices are high driven by corporate buy backs using cheap money).
Source: CNBC: why everyone needs to pay attention to the bond market
Author: Patti Dom
Date: 16th September 2016
Home mortgages and corporate borrowing just got a little more expensive this week, courtesy of central banks in Europe and Japan.
While Wall Street is focused on whether the Federal Reserve will raise interest rates or not, rising yields in the long end of the U.S. bond market in recent sessions have been directly related to the negative yield and bond-buying policies of both the European Central Bank and the Bank of Japan.
Neither institution has taken any new action, but that is the point. This is a bond market that has become fairly complacent that new and bigger central bank easing programs will keep supplying the world with easy money at super-low rates.
Now, yields have risen suddenly to levels last seen in June, and investors are concerned that holding securities at still very low yields, and super-high prices, makes them vulnerable when central banks take their foot off the quantitative easing pedal. Quantitative easing, used by central banks around the world, is the purchase of securities in an effort to drive investors into other riskier securities and keep rates low.
European Central Bank President Mario Draghi sparked a ramp up in global interest rates last week, when he neither extended the ECB’s quantitative easing, or bond-buying program, nor added new securities to it, as expected in the markets. The selling picked up when news reports appeared this week suggesting the Bank of Japan will no longer buy long-dated securities in its QE program.
“I think there’s a rethinking going on about the benefits and costs of bringing long-term rates as low as they did,” said Robert Sinche, chief global strategist at Amherst Pierpont Securities. Some of the concerns have been that central banks crowded out other buyers of long-term debt, and that has particularly hurt pensions, insurance companies and other financial institutions, who need to hold long-dated securities.
The U.S. 30-year yield rose to a high of 2.50 percent on Thursday, the highest level since June 24. The 10-year yield climbed in the last several days to a high of 1.75 percent, a level last seen before the British vote to leave the European Union in June. Both the BOJ and ECB have instituted negative yields but yields at the long end have been moving higher. The yield on the German 10-year, for instance is no longer negative, and the negative-yielding Japanese 10-year has been rising toward zero.
U.S. home mortgages are tied to the 10-year Treasury yield, and the 30-year conventional mortgage rate has ticked up slightly by about an eighth of a point to roughly 3.5 percent.
So far, these moves aren’t enough to jolt the stock market, but if the easing programs were curbed or rates rose dramatically higher, they could.
“In many respects, the European Central Bank and the Bank of Japan have a greater influence over our market than the Fed does. You’re seeing somewhat of a pause in European Central Bank and Bank of Japan policy and that’s impacting the global bond market,” said Jack Ablin, CIO of BMO Private Bank. “If you get any kind of pullback. … The European Central Bank program ends in March 2017. If there’s any indication that’s not going to be extended, that will impact the stock market.”
Ablin said low European rates have made it possible for U.S. companies to not only issue cheaper debt at home but also in Europe.
Sinche said the idea of negative yields is also under scrutiny. “There was a belief that would somehow generate this resurgence of investment, and there’s absolutely no sign of it. The negatives of very low long-term rates has been showing up in things like excessive risk appetite,” he said. Sinche also said it seems to be increasing the savings rate rather than decreasing it, as investors look for a bigger capital base on which to make returns.
Selling in the bond market could continue, as the BOJ meets next week and now there’s more speculations about its potential actions than those of the Fed. Both central banks meet Tuesday and Wednesday. While the Fed is not seen raising rates, there’s speculation the BOJ could tweak its easing program and reveal findings of its review of its own policies.
“There’s talk that even if the BOJ continues to purchase 80 trillion [yen] a year that they’re really going to bias that toward the short end of the yield curve, and I think there’s also some sense coming out of the European markets. The Europeans have a bigger problem. They can’t buy debt with yields less than the deposit rate, which is minus 40 basis points,” said Sinche. He said that means the ECB can’t buy much of the debt of Germany, the biggest economy in Europe, with a duration of less than six years.
“The last two years especially, the markets have been operating on the nuances coming out of the overseas market, more than anything locally driven,” said George Goncalves, head of rate strategy at Nomura. “It worked in one direction in terms of driving rates to super-low levels, back in July and it works in the opposite direction as well.”
The ripples in the bond market could continue, but they are not seen yet as the start of a violent shakeout that slams stocks. Bond yields fell sharply and stayed low for weeks after central banks signaled they would make sure the U.K. vote to leave the EU would not harm the economy.
“I think it could have gotten violent if the Fed hikes in September. That would now come as a great surprise given the data,” said Sinche. August nonfarm payrolls were weaker than expected but so are other data, like Thursday’s August retail sales, down 0.3 percent.
Goncalves said the central banks are not stepping away from their programs, they are tweaking them. “You have almost $200 billion a month and a captive buyer. That hasn’t changed. So what’s new is just that we’re not learning they want to do more,” he said.
“It shows in the first place that bonds were overvalued and disconnected from fundamentals,” he said.
Sinche said the market is just moving toward a more normal rate. The 10-year was at 1.70 Thursday, but it had reached a high of 1.98 percent earlier this year and averaged 1.83 percent in the months between March and May.
“The problem is the market is accustomed to seeing bold easing programs,” said Goncalves. “Basically we’re kind of toward the end of the line when it comes to central banks being able to move the broader risk markets and it’s going to come back to fundamentals.”
Goncalves does not expect the current sell-off to get out of hand though it could continue, and central banks will continue to rein in the short end of the curve.
It would become problematic, “if they were to stop and their economies aren’t strong enough and even if they are, who knows. This is not the beginning of a taper tantrum yet, because they’re still buying bonds, but if they were ever going to stop buying bonds it’s going to reprice. This isn’t what we’re seeing now. There’s uncertainty in the air, the ECB didn’t do anything last week. There’s questions about what the Bank of Japan could do next week,” he said. But as for the current move up in yields, “it’s healthy.”
For August 2016 I am up 1.8%, this being my first profitable month since March.
I made 7 trades, 2 winners (long USD PLN still being open), 2 break even, and 3 losers.
I have been away for half the month on holiday, hence this may be a factor in stopping me over trading this month.
Forex trading fundamentals are proving to be hard to rely on over recent months due to sentiment changing so frequently, hence I am trying hard to pick support / resistance points to base my entries and exits on where I think I have a strong edge. So discipline and patience are key to stop me making stupid trades following no decent setups for days.
When switching to a smaller time frame on the Metatrader 4 platform to analyze what happened to price during a specific event, this video explains how to go to that date and time immediately instead of simply scrolling left or right.
This is a great video showing why we have economic cycles, and also showing the difference between a recession and a deleveraging(which is happening now).
Ray Dalio runs one of the worlds largest hedge funds, with an amazing track record of consistent high returns.
A great Forex trade I almost did in June 2016. I had shorted the AUD NZD on 8th June as the price bounced off the top of the downward channel it was in, and before the NZD bank rate statement.
The trade worked perfectly, but I messed it up by making my stops really tight closer to the bank rate statement and I got stopped out.
One thing I need to do to improve my trading results is to close my positions before my target is hit when appropriate based on price action.
This video by Stephen Bigalow explains the 12 candlestick patterns he recommends to use which provide reliable and relatively frequent signals of trend reversal. He researched 60 known patterns to establish this list of 12.