Welcome…

ScottWelcome to The Capitalist Trader, where I discuss markets, money, and math, while promoting reason and liberty. I’m Scott, better known around the interwebz as Capitalist, and I’ll be your host.

If this is your first time at The Capitalist Trader, you may want to read about the site and maybe even a little about me and my mission.  Have a question or a comment? Head over to the Contact tab.

I’ve traded several different markets including equities, fixed income, and options since the 1980’s (yep, I’m old).  Since 2004 however, I’ve concentrated on the foreign exchange, or Forex, markets. Many of the trading resources you’ll find on the site relate specifically to Forex.

So come on in, make yourself comfortable and…keep pipping up!

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Weekly Update – 8/12/2017

Greetings!

The account was up 11.82% this week to a new all time of high of 160% of inception value. I’m fully implementing the risk management and trade management rules that I wrote about in my series on trading tactics, so the volatility of the account should abate over the next few weeks.

To get more details on how I trade, take a look at the Trading Profitably page.

Until next time…keep pipping up!

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

 

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Trade Management – trailing & scaling

Greetings, and welcome to the last post in my series on trading tactics!

Trade management is what you do between the time you decide on a position to the point at which you exit the position. It includes the issues of where to get in, whether to go all in at once or to scale in gradually, where to get out, and whether to scale out or not. Since trade management involves position sizing and exit strategies, it actually includes the idea of risk management, as well as “profit management.”

Below, I’ll go over my own principles of trade management and provide some examples of how I manage a position from start to finish. As always, these techniques may not be suitable for every trader, so construct your own trade management strategy according to what works best for you.

Entries vs. exits

A common question among traders on many discussion forums is whether entries or exits are more important to success. In my view, there’s really no essential distinction between the two. Take a look at the diagram on the left. See the symmetry there? An entry into a long or short position is simply an exit from a flat position, and an exit from a long or short is just an entry into a flat position.

“But wait,” I hear you protest. “They aren’t the same with respect to risk! An entry involves taking on more risk, while an exit involves reducing risk. So there, smarty-pants!”

Well, let’s see. Reducing risk sounds a lot better than increasing risk, so why don’t we do that all the time? In other words, why don’t all traders just close all their trades, and eliminate risk altogether? Because by doing so, they’d be foregoing any possibility of future profits, that’s why. In effect, they’d be increasing their risk of missing out. Looking at it in this larger context, we see that going flat involves risk just like entering a long or short position does.

So again, there’s essentially no real difference between entries and exits. They’re equally important, and the same strategies and techniques can be applied equally to each. That’s in theory of course. In practice, there’s at least one exception that I’ll discuss below when we get to the subject of scaling in and out of a position.

 

Trailing orders

“Cut losses short and let profits run.” Next to “The trend is your friend” this is probably the most often quoted piece of common trading wisdom out there. But many traders manage their positions by setting both a stop and a take-profit (TP) point right at the outset. This addresses the part about cutting losses short, but how does this let your profits run, exactly?

The answer is that it doesn’t. This is why I don’t use TP points to manage positions. The way to let profits run is to trail your stop behind the price as it moves further into profitable territory. This gives you an open-ended profit potential on every trade. While most will just get stopped out with average profits or losses, a few will bring you more pips than you ever thought possible when you first entered the position. These are the trades that make your month or year worthwhile.

In the last section I made the point that there is usually no distinction between entries and exits. One of my “aha moments” in trading came when I realized that if trailing orders made sense for exits (as in the case of stops) then they make perfect sense for entries too. Take a look at the chart of EUR/JPY below.

Here, I’m trailing a short entry order behind the price as it drifts upwards. As I continue to trail my entry order, I’m ensuring myself a better and better price at which to sell when price finally turns down and triggers my order. This is how I always make my initial entry into a position. I never just buy or sell at the market.

 

Scaling in and out

Most traders don’t delude themselves into thinking that they can always (or ever) pick the best entry price. That’s the point of scaling into a trade. By entering only a portion of your ultimate position size at first, you can then see how the trade develops and decide whether to put on the rest of the trade or not.

As I described in the last section, I trail an entry order behind the price if it’s not moving in my direction. The initial order size is a function of my Kelly criterion value and the distance to my (very) wide stop. You can review these calculations in my last post on risk management. I size my subsequent entries, using the same Kelly value, rounded to the nearest 10%. For instance, if my Kelly value is currently 53%, I would increase my position size by 50% with each subsequent entry.

I place each subsequent order beyond a technical support or resistance level in the profitable direction. So if I’m long, for example, I would identify a resistance point above my initial entry, and place my next entry above that point. This way, I’m generally adding to my position as it moves further into profit. However, if price turns against me, I would continue to trail the order behind the price (even into losing territory) in order to get a more advantageous price. Take a look below at my long trade in AUD/CAD for an example of adding to a winning position.

But what about scaling out? Since I claim that there is little or no distinction between entries and exits, I should treat them the same, right? Which would mean that logically, I should scale out of my trades too. However, here’s where the exception comes in that I mentioned in that section. The reason that I don’t scale out of trades is that it creates a practical accounting issue in determining the profit or loss on the position.

Entering a position doesn’t have any effect on the cash balance in my account, so I can break my entry up into separate pieces. However, exiting a trade causes the cash balance to change by the profit or loss of the exit. In order for me to easily see the profit or loss from my entire position, I need to close it out all at once. That way I can just compare my cash balance before the exit to the balance after the closing trade to find the profit or loss. Closing the trade out in pieces would require me to keep track of the profit or loss of each individual exit, which would be quite a pain. So that’s why I don’t scale out, only in.

 

Averaging up vs. down

Another piece of common wisdom among traders is that you should never average down; only up. So according to this, you should only add to winning trades, and never add to losers.

I have a different view of this. The market doesn’t know where you entered the trade, and doesn’t care if you’re profitable or not. So this shouldn’t be the determining factor in whether you make a trade. For me, my analysis is king. If my indicators say that the pair I’m trading is bearish, then I’m a seller. It doesn’t matter to me if price is above or below my initial entry.

Remember the chart of EUR/JPY above, where I was trailing a short entry order behind the price as it drifted higher? Let’s look at the zoomed-out version of that trade below.

What?! Hey, that trade’s a loser! That’s right. My initial entry area for that trade was way down around 124, while the price is now in the 130 area. But my weekly analysis still shows a bearish outlook for this pair, so I’m still a seller. That’s why I continue to trail a sell order behind the rising price. If price turns downward and fills the order, my average entry price will rise, and the pair will be heading back in its direction.

In order to reduce risk in situations like this, I reduce my subsequent entries to only about 1/4 of the current Kelly percentage (again, rounded to the nearest 10% for practicality). So in this case, since my Kelly value is 53%, I’m not adding 50% to the position with these averaging down trades; I’m only adding about 10% on each subsequent entry.

So what happens if my analysis changes next week, and EUR/JPY is no longer showing a bearish outlook? In every case in which that happens, regardless of whether the position is in profit or loss, I always do the same thing. I tighten up the wide stop order, and trail it aggressively behind the price. In many cases, I’ve seen the pair continue to move in my original direction even after the analysis changes. That’s because the analysis tends to lead price by several weeks. So even in cases where the analysis changes before my position is in profit, I still often find myself trailing the stop into profitable territory.

Trade management summary

So here’s my basic procedure for managing a trade.

  1. Determine the initial position size. I detailed this process in my last post on risk management.
  2. Trail the initial entry order. If the analysis changes before it fills, then I just cancel it.
  3. Pick the next entry point. Once the initial order fills, I pick a spot further in the profitable direction for the next entry. This is generally behind some technical support or resistance point. If it’s in profitable territory, I use my current Kelly value as the percentage to add. If not, I use 1/4 the Kelly value. If price advances and fills the order, then I just repeat the process. If price goes against me, then I just trail the entry order behind the price until price turns around and fills it.
  4. Wash, rinse, repeat. I continue in this way until my weekly analysis of the pair changes. At that point, I tighten the stop order and trail it behind the price until it’s hit.

Well, that finishes off this series. Now, in order to implement all this in your own trading, check out the CapTraderPro dashboard.

I’ll see you there, and as always…keep pipping up!

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

 

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Weekly Update – 8/5/2017

Greetings!

The account was up 10.88% this week to 143% of inception value.

I’ll be writing the final post in my series on trading tactics this week, a discussion of how I manage a single trade from initial entry through closure. That’s the final piece of the Trading Profitably section of the site (yay!). So after that I can plan the actual launch of the site and the CapTraderPro service. I’ll also be able to start posting more interesting current content each week.

So stay tuned for that, and as always…keep pipping up!

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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Risk Management – stops and position sizing

Greetings!

In the last two posts of this series on trading tactics, I discussed overall money management; the allocation of funds among various accounts, financial instruments, and strategies. That was the big picture. Now it’s time to zoom in and concentrate on just a single account and its individual positions. Specifically, we’ll be looking at ways to manage stop loss orders and position sizes in order to control risk within a forex account.

I’ll be using my own methods as an example. However, that doesn’t mean that my way is the only way to control risk. It’s just the method that makes the most sense to me, and lets me sleep at night. You may want to tweak, modify, overhaul, or completely ignore this method in favor of your own risk control strategy. That’s ok. The examples I give here will just serve as a starting point. They also serve as a guide to those members of CapTraderPro that want more insight into how I’m sizing my initial positions each week.

Obviously, before applying risk control measures to a position, we need to decide what position(s) to take in the first place. That’s the subject of having a directional edge, which I discuss in the “Trading Profitably” section of the site. So check that out if you haven’t already.

 

The classic approach

Anyway, once you’ve decided on a position, you need to decide two things related to risk control. The first is where to place your stop loss order, and the second is your position size.

The order of these is important! A common mistake made by many new traders is to pick a position size first. Then, based on how much they’re willing to lose on the trade, they decide where to place their stop. This is backwards! The market doesn’t care how many pips you can lose on a trade. Your stop needs to be placed at a technical level that makes sense based on the market’s behavior, not based on what’s in your account.

So let’s start by looking at what I’ll call the “classic” approach to position sizing (not the method I use, by the way). This consists of a rule regarding what percentage of your account value you’re willing to lose on a single trade, picking a stop point based on technical analysis, and using those two factors to determine your position size. Here’s an example of how that works.

Common figures thrown around by traders for the acceptable loss on a single trade typically range from about 1% to 5% of total account equity. I’d guess that the most common one I’ve seen is 2% of the account’s value. So let’s say you have an account value of $1000. That means that you’d be willing to risk losing $20 on a single trade.

Now suppose that you want to go long EUR/USD at the current price of 1.2000. You look for a convenient level below that for your stop, and find an area of heavy consolidation between 1.1850 and 1.1900. You decide to place your stop below that at 1.1800. So based on your likely entry price of 1.2000 and the stop loss price of 1.1800, you’re facing the possibility of losing 200 pips on the trade. So you need to size your position so that 200 pips equals about $20.

Most forex trading platforms will have a built-in calculator that allows you to see the risk of a potential trade based on your entry and stop loss points. So in practice, you can just adjust your position size until your risk amount is correct, and then place the order. But just for completeness, let’s do the math here.

If you buy a single euro for $1.20 and sell it at a loss for $1.18, your risk is 2 cents per euro. So if you want to risk $20, you’d need $20/$.02 = 1000 euros. That’s your position size for the trade.

Let me stop here for a moment to touch on something I haven’t mentioned yet; your account leverage. This is simply the factor by which you multiply your account value to find your maximum allowable trading size. But this isn’t as important a topic as many traders think it is. If you manage your position risk using this classical approach, you’ll rarely (if ever) approach the limits of your account leverage. It’s just a non-issue.

But now let’s turn to a real issue with the classical approach. The problem with sizing positions this way is that, if you have a good directional edge, it’s too timid. It leaves far too much money on the table, and is thus an inefficient use of your leveraged resources. So what’s the solution to this?

 

The Kelly Solution

A logical way of trying to optimize position sizes is to base them on the profitability of your trading strategy. Basically, the better your trading strategy is, the higher your position size should be. The Kelly Criterion provides a way to quantify this. Here’s a basic explanation from Investopedia.

Another way of remembering the Kelly formula is that it’s simply “edge/odds.” Your trading edge, or expectancy is:

[(win %) x (avg win) – (loss %) x (avg loss)] / (avg loss)

This is a way of saying that for every trade, you risk your average loss amount, and you either lose it or you win some percentage of it.

Your “odds” is just your average gain divided by your average loss. This “edge/odds” formula is equivalent (after a little algebra) to the formula given in the Investopedia article.

For example, as of this writing, after nearly 50 trades using my current edge, my win rate is about 66%, so my loss rate is about 34%. My average win is 2.66% of my account value, while my average loss is 0.98% of my account value. So my edge is:

[(66%) x (2.66%) – (34%) x (0.98%)] / (0.98%) = 1.45.

In other words, for every dollar I risk, I expect to get it back with an additional 45 cents to boot. My “odds” value is just (2.66)/(0.98) = 2.71. So my Kelly criterion value is 1.45/2.71 = 53%.

As an exercise, you may want to confirm that the formula in the Investopedia article gives the same answer.

Ok, great! So I’ll just go ahead and risk 53% of my account on every…wait, what??!! Are you nuts? I’m not doing that!

This brings us to the next problem. The Kelly criterion recommends unreasonably high position sizes, especially in the case of a pretty good historical trading edge like mine. So next, I’ll describe my own solution.

 

My method

First of all, I turn the concept of diversification discussed in that Investopedia article on its head. The article uses the Kelly value to determine the number of positions in the account. The example they use is that if your Kelly criterion value is 5% then you should have 1/(5%) or about 20 positions in the account. So with my Kelly value of 53%, should I only have 2 positions in my account?

The answer is no, because I have a known value for the maximum number of positions in my account. It’s four. That’s because I only trade the eight major currencies, currencies trade in pairs, and I try not to have the same currency in more than one position. So for example, right now I have postitions in GBP/USD, EUR/JPY, NZD/CHF, and AUD/CAD. Eight currencies, four positions, no currency in more than one position.

What I do instead is use the Kelly value for the total risk in my account, not for single position sizing as described in the article. Since I can have up to four positions in the account, I’m only willing to risk 1/4 of the Kelly value on any given position. So instead of risking 53%, I’m only willing to risk about 13% on a position.

That still sounds like a lot, but there’s one more risk reduction step. Remember that position size is inversely proportional to the distance to the stop loss point. So the wider the stop, the smaller the position. Thus I use extremely wide stops. I look at a weekly bar chart of the pair over a period of 3-4 years (that’s about the maximum zoom of my trading platform). I then simply use the high or low extreme over that period as the stop. If the pair is at one of the extremes, I just use the price range of the period as the stop distance. When I say extremely wide stops, I mean it.

Does this still sound risky? Well it would be if I managed the trade in the classic way; that is, waiting for it to either hit a profit target or the stop. But that’s not how I trade. The stop is there only to manage the risk of an extreme “black swan” type event. The lifetime of my trades is not based on the stop (and I don’t even use profit targets at all). I open and close trades based on my directional analysis of the pair as I describe in the “Trading Profitably” section.

When I’m in a position, and my weekly analysis no longer supports the direction of the position, I do two things. First, I tighten up the stop by moving it from the far reaches of the galaxy to a much more conventional nearby technical level. Then, if price happens to still be going in my direction, I trail the stop agrgressively behind the price, using moving averages and/or local highs or lows.

So for example, suppose I wanted to enter a long EUR/USD position at 1.2000 as in the “classic approach” example above. If my account value were $1000 as in that example, and my Kelly criterion value were 53%, I would first divide that by 4 to get about 13% or $130 total risk for the position. Looking at a long-term weekly chart, I see that the low for EUR/USD was about 1.0300, so to make the math easy I put my stop at 1.000.

I’m (very improbably) “risking” 2000 pips on the trade, which should translate to $130. If I buy one euro at $1.20 and sell at a loss for $1.00, then I’m risking 20 cents per euro. Thus, my position size should be $130/$0.20) = 650 euros.

Notice that this is actually smaller than the position size in the “classical approach” example. But notice also that my probability of being stopped out is extremely small, since the stop is so far away. This is a smaller trade, but it has a lot of room to breath. Since my directional edge is pretty good, the trade has a high likelihood of either going my way or at least not going too far in the wrong direction before my analysis changes and I tighten up the stop.

Often what happens is that my analysis changes at some point, I tighten the stop, and begin trailing it behind the price. Then the pair continues to move in my original direction (because my analysis generally leads price by a matter of weeks), and I continue to trail the stop well into profitable territory before the trade finally gets stopped out.

But all of this talk about trailing stops and so forth is really more suited for a discussion of trade management. And that’s what I’ll cover in the next post. So until then, be sure to control your risk and…keep pipping up!

 

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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Weekly Update – 7/29/2017

Greetings!

The account was down 14.68% this week to 129% of inception equity.  Looks like a classic case of “can the market stay irrational longer than you can stay solvent?” The specific falling knife that I’ve tried to catch over the past week was the Swiss franc.  Have I used enough trading tropes in this paragraph yet?

Time to write my planned post on risk management, which turns out to be a timely subject for this week. Anyway, stay tuned for that, and…keep pipping up!

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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Money Management – allocation by strategy

Greetings!

In the previous post on money management, I discussed the overall allocation of assets across various trading and investment accounts and vehicles. Here, I’d like to drill down a bit and concentrate on money management within a single vehicle. Whether the vehicle is stocks, bonds, currencies, options or whatever, it still may be necessary to allocate funds among various strategies within that one vehicle.

For example, equity traders and investors may want to earmark some funds to value investing and others to momentum investing. Fixed income investors may allocate assets among issuers, durations, and/or credit quality and return. Option strategies abound, so option traders may divide their funds among such strategies as selling covered calls, spreads, straddles, and pure directional speculation.

I’ll use my own forex account as another example. I used to have my account divided into three sub-accounts; one for carry trading, one for pure fundamentally based long-term positions, and one for shorter-term tick density trades.

What this allocation by strategy allows you to do is compare the efficacy of pure strategies with each other. Then, you can decide which to keep using, which to drop, and how much to allocate to each active strategy. For example, when it was clear that my carry trading strategy wasn’t working well, I suspended that strategy, emptied that sub-account, and re-allocated the funds to other more profitable strategies.

More recently, after determining that my other strategies were working well on their own, I combined the sub-accounts and strategies into the combined one that I use today in my day to day trading operations. But when I develop additional strategies, you can be sure that I’ll be trying them out in their own separate sub-accounts first, with their own allocated funds.

So I just wanted to add that little addendum to the Money Management part of my series on trading tactics. As I mentioned before, next week’s post will concentrate on position sizing and risk control within a forex account.

Stay tuned for that, and…keep pipping up!

 

 

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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Money Management – the strategic triad

Greetings!

This is the first of three planned posts on the subject of trading tactics. I’ll be covering money management this week, followed by risk management and trade management over the upcoming two weeks.

The boundaries between these three subjects are somewhat fuzzy and open to individual interpretation. For our purposes, I’m defining money management as the movement and allocation of financial resources across your entire set of investment and trading accounts. Think of it as how many eggs you have, how many baskets you have, and how you distribute those eggs among those baskets. If all your eggs are gravitating towards one basket, that’s a signal to redistribute!

You’ll have to develop your own money management strategy and rules based on your own situation and goals. Here, I’ll just be describing my own overall strategy as an example. So I’m not recommending that you allocate your funds the way I do. I just want to illustrate why you should think about an overall strategy. In the next two posts I’ll get to the nuts and bolts of specific trading tactics within a forex account.

Any strategy has to start with a goal, so here’s mine: I want to to live well on a stable income from passive investments. This will allow me to spend time doing things that are more important to me than just chasing money and trying to survive. In the words of the villian in “Die Hard,” I plan to one day be “sitting on a beach making 20%.”

Again, your goals may be different, so your strategy will differ too. While I make a distinction between my trading and investing accounts, you may only be interested in one or the other. While forex trading is only one of several different trading activities for me, it may be the only thing you do. Keep that in mind as I describe my own plan below.

Overall strategy

Take a look at the diagram below. My overall money management strategy is based on a triad consisting of employment / business income, trading, and income investing.

In this post on the realities of trading, I stressed the importance of not quitting your day job to pursue a life of trading. Having the relative security of an income that isn’t dependent on your trading prowess helps to avoid those emotional mistakes that plague many traders. When your next meal depends on your next trade, that’s a recipe for disaster.

Notice that in my strategy diagram, everything flows from my employment and/or business income. Obviously this is how I pay my living expenses, but it’s also how I add more funds to my trading and investment accounts. I allocate any surplus funds to these accounts based on (among other things) how profitable they’ve been. Winning strategies get more funding while losers get cut off.

In my case, I have some scheduling flexibility in my job, so as I generate more income from my passive investment accounts, I’m able to reduce my employment hours accordingly. My overall goal is to eventually be generating all of my income from passive investments instead of from employment.

Note also that I’m not planning to draw from my trading accounts to live. For me, the trading accounts are intermediaries between my employment/business income and my passive investment accounts. While some might find the idea of trading for a living exciting, it’s a bit too exciting for me. I don’t want to constantly be chasing the next trade in order to pay the rent. So instead, I use the profits generated from my trading activities to fund my passive investments. It’s those investments that will eventually pay the rent.

Finally, did you find where my forex trading fits into the overall plan? Yep, for me, it’s just one of several different trading activites. This illustrates the advantage of having an overall money management strategy. By not keeping all of my eggs in one basket, I can jostle each basket a little harder, even at the risk of breaking a few eggs. In other words, I can take somewhat greater risks in my forex account in order to generate higher returns. That’s because it’s not my only trading vehicle, and a large loss in the account won’t destabilize my entire financial plan. Neither will a sudden regulatory change that restricts retail forex trading, etc.

For the curious, I’ll describe my various trading and investment vehicles in more detail below.

 

Investments

My ultimate financial goal is to build a portfolio of stable, conservative income assets.

In my retirement brokerage accounts, this would consist of taxable instruments like high grade corporate bonds and bond funds. Income equity funds would go into these accounts as well. The reason we put taxable instruments in retirement accounts is because while their nominal yields are higher than tax-preferred instruments, that yield is shielded by the tax advantages of the account.

In non-retirement accounts would go the tax-preferred instruments like government bonds, municipal securities, and Master Limited Partnerships (MLP’s). Oil and gas MLP’s are one of my favorite investments, and I often wrote about them for the Motley Fool. Again, the reason we put tax-preferred instruments in non-retirement accounts is that they have lower nominal yields, so their tax advantages would be wasted in a retirement account.

 

Trading

I allocate funds to several different trading activities based on factors like how profitable the activity is, how time consuming it is, how risky it is, etc. Here’s a rundown of the trading vehicles that I’m currently using, have used in the past, or plan to use at some point.

Equity indices: Over the past few hundred years, the stock markets of the U.S. and other nations have risen steadily, notwithstanding the various famous crashes and panics. So it makes sense to me to have constant positions in securities that track the major indices like the DJIA, Nasdaq, S&P, etc. These can be Exchange Traded Funds (ETF’s) like the diamonds (DIA), the cubes (QQQQ), and the spyders (SPY). Index funds are another alternative, especially if they have low or no trading commissions. This is because I don’t just buy and hold such securities. Instead, I use variants of Robert Lichello’s Automatic Investment Management strategy to trade around core positions in these instruments.

Equities: I trade individual stocks using William O’neill’s CANSLIM method. I’ve found this to be the most consistently successful approach to picking stocks, and recommend the Investor’s Business Daily website to anyone who’s interested in this market.

Options: I’ve traded both equity and index options in the past, but haven’t done it for several years. I consider this more of a complimentary technique than a standalone trading vehicle.

Forex: Since most of the e-books, discussions, and trading tools on the site are dedicated to currency trading, I don’t think I need to elaborate on this here.

Binary options: I haven’t tried trading these yet, but I like the concept a lot. At some point I’ll open an account with Nadex and try it out.

Crypto-currencies: This is BitCoin and other variations on the idea of a blockchain based currency. I’ve had an account at Coinbase for quite some time, which I can use to trade BitCoin, Etherium, and LiteCoin. Because of the volatility of these instruments, they’re perfect for Lichello’s AIM technique.

VirWOX currencies: These are currencies used in on-line virtual worlds such as Second Life. The Virtual World On-line Exchange (VirWOX) facilitates trading in these currencies, all of which can be exchanged for real-world currencies like the U.S. dollar and the euro. I opened an account with a small amount of cash as a fun experiment, and have nearly tripled my money in a little over a year. That’s because this is a very obscure and inefficient market niche. I’m frequently able to take advantage of very wide spreads in certain markets here, just as a market maker would. In fact, I’m often “the whale” in some of these markets. However, there’s limited liquidity in these currencies, so there’s probably a low upper limit to how much money I can make in a given period of time. Also, I haven’t tried making a withdrawal yet, so all may be for naught if VirWox turns out to be sketchy. I’ll probably do a more detailed post on all this at some point.

As I mentioned above, forex trading is only a part of a much wider overall money management strategy. Because of that, I can seek higher risk/reward opportunities in my forex account without jeopardizing my entire financial strategy. In next week’s post, I’ll concentrate exclusively on my forex trading; specifically on the subjects of risk control and position sizing.

Until then…keep pipping up!

 

 

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

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Weekly update – 7/22/2017

Greetings!

The account was up 1.18% this week, bringing the equity to 151% of inception value.  I’ll be starting my series of posts on trading tactics this week, so the first post should be up shortly!  Nothing else to report, so…keep pipping up!

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

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Weekly Update – 7/15/2017

Greetings!

The account was down 4.23% this week to 149% of inception value.  Last week I mentioned my concern about the volatility in the account due to an issue with my money/risk management rules.  The problem was that my initial entry sizes were based on my maximum allowable risk, but I then continued to add to those positions in later weeks.  This obviously causes position sizes to be much too high.

My fix for that will be to size my initial entry for 1/2 my maximum risk on the position.  I’ll then size subsequent entries to bring that risk up to 3/4, 7/8, and so on.  I’ll provide more detail on this in upcoming posts on trading tactics.

Speaking of upcoming posts, here’s where we stand on site development.   I’ve finished my 3 planned e-books and the “Getting started in Forex” page.  I’ve also finished most of the “Trading Profitably” page, with the exception of the last section on trading tactics.  That section will consist of links to the series of posts that I’m going to write next.  Now that just about everything else is done, I can finally concentrate on writing more substantive posts each week along with these lame updates!

So stay tuned for that and…keep pipping up!

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

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Weekly Update – 7/8/2017

Greetings!

The account was up a whopping 15.06% this week, bringing the equity to another all-time high of 156% of inception value.  I’m a bit concerned about the volatility in the account over the past couple of weeks however; you may recall that I had a single week loss of 15% two weeks ago.  This has to do with my money management and risk management rules, a topic that I’ll be writing about in the near future as I build out the educational section of the site.

Speaking of that, I’ve finished the draft and editing of the “Getting started in Forex” guide, but I won’t be publishing it until the other guide, “Trading Profitably” is ready to go as well.  The two guides link to each other, so I want to avoid publishing one without the other.  My goal was to get both up this weekend, but I’m running a bit behind, so we’ll see.

At any rate (fast or slow, like me)…keep pipping up!

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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