Gaining Even When Losing

A quote from David Sklanksy's The Theory of Poker:
Any time you make a bet with the worst of it, where the odds are in your favor, you have earned something on that bet, whether you actually win or lose the bet. By the same token, when you make a bet with the worst of it, where the odds are not in your favor, you have lost something, whether you actually win or lose the bet.

Today I took a sell trade on the EUR/JPY from the 5 minute chart, before the actual signal arrived; I had to endure the trade all morning long while it just plodded along against me, but not quite hitting my stop. Whether this trade wins or loses, according to the above quote, I've lost something. I lost a little bit of discipline by getting in too early when I knew I should wait a bit longer.

UPDATE: Yes, I could have gotten out of the early-entry trade right away, but it did give the signal not long after, so I would have been in the trade anyway.

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Posted by Rob at 01:36 PM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


$20 Million Dollar Requirement for FDMs?

The business of forex currency trading is going to change dramatically in the next 6 months.

Read this post from Francesc's blog at FXStreet.com.

And here's an excerpt from the president and CEO of the National Futures Association to Congress in September:

Congress should amend Section 2(c) of the Act to require FCMs acting as counterparties to retail forex transactions to maintain minimum capital of at least $20 million.

That means that most forex dealers that you do business with are going to have to put up a significantly bigger amount of money to stay in business. The only pure forex-dealing firms that could survive right now under this requirement would be FXCM, Oanda, and GFT.

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Good Testing Leads to Good Trading

My friend from Europe just finished several weeks of testing, followed by several weeks of demo trading. This friend only traded his demo account during the hours that he would be awake, and for many weeks he traded the practice account with one set strategy across 5-10 currency pairs. He sent me his trade ideas every day, with a chart attached so that I could look over his plans.

He sent an email at the end of every week with a summary of his results. He stayed in touch often and he asked for help and he made his own suggestions about how he thought that I could improve my own trading systems. I feel like he is a partner, and a friend. The most important thing that I have noticed about M.D., this friend, is that he was very disciplined in his approach; he followed a plan and even when he had a losing week, he did not change everything all at once in a mass of frustration.

Last week was his first week live. Here's his email to me, that he sent today:

Dear Rob, Last week was my first real money forex trading week. 5 winner 1 looser biggest winner +122 biggest looser -90 one trade not make (+171, i write a separate mail about it) overall: +257 one trade with 2minilots, 5 with one minilot one open trade stop @ +62

M.D. earned the right to these results because he followed a set plan to test before he traded.

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Posted by Rob at 03:11 AM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


The FXStreet.com International Traders Conference

Today the FXStreet.com International Trader's Conference came to a close. It was a fantastic conference, with a perfect mix of theory (education) and practice (trading). I heard interesting and useful presentations from Nicole Elliott, Joseph Trevisani, Wayne McDonnell, and others.

I am going to do an audio summary of some of the best stuff that I learned while I was here. But you can see a great summary of the conference at this site below:

ITC.png

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Posted by Rob at 12:28 PM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


Podcast with Andrew Horowitz

I did a podcast interview with Andrew Horowitz the other day. We had a good time and talked about currency trading, investing in general, and, as usual, we had a good time.

Click here to listen to the podcast.

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Posted by Rob at 06:51 AM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


How to Blow Up a Hedge Fund

It's crazy, but hedge fund managers still blow up their funds. "It's different this time," isn't the only thing that we read. It seems that risk management is still a concept that all of us could learn more about, including fund managers and traders like you and me too. I don't think it's possible to spend too much time learning about risk management. It's all I talk about when I speak publicly (and has been for a couple of years) because I believe that if you can conquer risk management, you can do amazing things as a trader.

Here's an article from BusinessWeek about the blow up of two Bear Stearns hedge funds.

If you take the time to read this article, here are two questions I invite you to think about:

1. What if Cioffi had staged his entry into the CDOs? What if he had not leveraged himself so badly, but rather staged entries as CDOs went down in price, and instead of risking 100% of his funds, he only risked 5% at most? Okay, I get it that he was paid to make spectacular returns. I'm just asking what would be different. Hint: one thing that would be different is that he would still be in business, he would not be getting sued, and he probably would not be heading to jail.

2. What if Cioffi had taken the big positions that he did (forget about #1 above) but, instead of staying in the positions, he had just gotten out?

3. What if Cioffi had admitted that no one is very good at predicting the market, and just bought way, way out of the money options on CDOs that would make money on HUGE breakouts in either direction? That would have cost money in the short term but not as much as what his eventual strategy cost him.

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Posted by Rob at 12:35 PM | | Comments (1) | TrackBacks (0) ..............................................................................................................................................


Lunch with Francesc

Today Dave and I had lunch with Francesc Riverola, the CEO of FXStreet.com, here in Barcelona. During lunch we had a great conversation about what holds so many traders back from being successful, about brokers, about short and long term trading, about traveling in Europe, and about trading with friends. There were seven of us; from totally diverse backgrounds, but all of us love trading. We didn't solve any quadratic equations, or bring peace to the Middle East, or figure out the magic method of trading.

We just had a good time talking about trading. If you haven't gotten together with fellow traders for a while, do it. If you don't know any traders, jump online and go to the discussion boards and post an entry about getting together with traders in your area. There's something fantastic about sharing time and food with people who are positive, who are working hard to help each other, and who like to laugh.

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Posted by Rob at 03:48 PM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


Most People Won't Do the Work

I received an email from a frustrated student today. Let's call him Mortimer. That's not his name, but I like the name so that's what we're going with.

Mortimer wrote me to say that:

I created a personal web blog at [then he tells me his blog address which he is keeping private] to track my progress. Only you, my wife and Fred [a mutual friend] know it exists. As you can see I stalled out.
His frustration comes from having "stalled out." After a month of posting, and planning, and trading, he feels that he has backtracked, or not made enough forward progress, or that he was doing just fine and things kind of fell apart. He was looking at about 10+ currency pairs, but he's now looking at just 5. He is following the same system every day. he is consistently applying the same rules to the charts. He is doing his best to practice trade in a trade simulator (although this has not appealed to him as much).

My advice to Mortimer is this: you are doing what it takes to become successful. I would strongly encourage/beg you to not give up on the simulated testing. But other than that, you are putting an amazing amount of work into your goal of trading for a living. Most people don't want to do this kind of work. Let's reflect on a quote from Michael Covel's new book "The Complete Turtle Trader":

To cultivate that extra drive [exhibited by successful traders], however, requires deliberate practice. Berkshire Hathaway's Charlie Munger has lived it; he has said, "In my whole life, I have known no wise people over a broad subject matter area that didn't read all the time -- none, zero." Most people do not want the real work that comes with real success.
That quote sums up much of what I feel about unsuccessful traders. It's not about your math skills. It's not about having some innate gift for trading. It's about work and practice.

Mortimer, you're on the right track. Keep yourself on it.

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Posted by Rob at 11:42 AM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


The "Perfect" Trade Doesn't Exist

Alan Farley writes in his book The Master Swing Trader:

The perfect opportunity rarely exists. Learn to trade in shades of gray ... get off the sidelines and act when enough ducks sit in a row.

Perfect patterns carry the greatest risk for failure ... look closely for failure when perfection appears.

It's counterintuitive. But it's true that the most beautiful divergence trade, or the "perfect" moving average crossover, can sometimes just flame out in a brilliant display of the power of the market to destroy your hopes. I sometimes step back when something looks "too good to be true," and ask myself, "am I getting wildly excited about this trade?" The ones that I think can't fail are generally the ones that once again prove that the charts are just a picture. Sometimes a pretty picture can be deceiving.

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Posted by Rob at 10:36 AM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


The Blow-Up Artist

John Cassidy wrote a brilliant piece about Victor Niederhoffer for the New Yorker last week. I quote:
Even by Niederhoffer’s generous standards, going short a billion dollars of stock futures was a large bet, but it worked out well. Not long after the markets reopened on Monday, the bond yield climbed to five per cent, and stocks and stock futures tumbled. On Wednesday, the morning of my visit, shortly after the opening bell sounded on Wall Street, Niederhoffer repurchased the futures he had sold, making more than five million dollars.

Mr. Niederhoffer is, arguably, one of the best traders of all time. He has an intuitive sense of the markets combined with an amazing ability to process quantitative information as well. Everything I've ever read about him and from him has impressed me that he has a unique ability to combine these skills; the processing of math combined with a feeling about what the market is about to do.

The problem is that Mr. Niederhoffer has a tendency to blow up his hedge funds.

It's one thing to be a great trader. It's another thing to be a great money manager. He says of his own trading, and of managing money in general:

“The idea that you can make a lot of wealth in a steady, unspectacular fashion, with no great gyrations, is a canard ... If you are going to try and make forty or fifty per cent a year, tremendous variations are inevitable.”

Read the entire article here. And please don't risk very much on each trade that you take. Please.

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Posted by Rob at 08:53 AM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


The Forex Reviewer

I think this guy is doing the review thing right:

The Forex Reviewer

It seems that the site is just getting up and running in a few areas (the link above will point you to the book review section). But I like the premise, and the tone, and the format -- especially because there are articles and a forum as part of the site.

Continue reading "The Forex Reviewer" »

Posted by Rob at 07:54 PM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


Live Training | Barcelona, Spain

Live Forex Training, Barcelona, Spain

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Posted by Rob at 01:55 PM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


This is How We Test

James Brown, a friend and student, did a round of backtesting today and I just couldn't resist sharing it with you.

jamestesting.gif

James says:

Here is some of the back testing I did last night on the surprise trade as per our discussion yesterday. Interesting how something with a terrible win/loss ratio still makes good profit over time.

It's not just about the win percentage! James did a round of testing on a system that I teach. He wrote down some rules, he followed those rules, and tracked his results. He has more testing to do, but this is a wonderful start; most people never test 1 trade, but James is on his way to becoming a great tester.

Click here to see Mr. Brown's spreadsheet.

Continue reading "This is How We Test" »

Posted by Rob at 01:52 PM | | Comments (0) | TrackBacks (0) ..............................................................................................................................................


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