Forex Analyzing Losses

I was searching for a books on money management some days ago on Google and I found this e-book called "Money Management Report" written by Van Tharp. I read through some of the pages but unable to read them all because there quite a lot for me to read them all.

However I managed to find a piece of information from the book which I think is very important. It is outlined in a table how much percentage of losses you should afford to lose in a trade in order to be able recover them quickly.

As you can see the able Excel table which I have reconstructed based on the Van Tharp book. According to the table you should be losing more than 25% of your account in a single trade otherwise it takes so much pain to recover them back. As you can see on the table if losing 40 percent or more you will have to suffer more. Losing at 90% of the account is almost impossible to recover back as it takes around 900 percent gain in order to breakeven again. I have little idea how he calculates the percentage but this is already well presented information as a good guides.

Plan your forex trades

Here is some idea where you can start your trading day with a confidence decision.

Daily Trade Planning

1. Look into the big picture – Monthly & Weekly time frames
   
2. Look into detail – 5 minutes to daily time frames
   
3. Check support/resistance level – Bollinger Bands & Price History
   
4. Check fundamental factors (Economic Calendar) – To avoid unnecessary volatile movement that defies the technical analysis i.e. non-farm payrolls, interest rates, CPI, etc.
   
5. Dividing 24 hours time into 6 sections using the 4 hourly charts – Avoid rollover fees and make sure one day trade must end in one day.
   
6. Be patience – setup at the right position
   
7. Use little of your instinct and confidence based on the technical indicators situation
   
8. Decide your trade.
   

Forex Avoiding Rollover Fees

Do you always hang on your open position until the next day of trade and suffer from the rollover fees? I am afraid that most of the novice who is just starting to trade in the longer time frame I.e. 4 hourly or daily might be trapped into this situation very frequently. This can situation can be more frustrating when the carry over trade is in losing position day after day and keep adding up with the rollover fees. As a result in the end you will more money than you are willing to lose during that one week trade.

Therefore today I am going to discuss how you can avoid that carry over trade and willing to accept losses or whatever profits in each day of trade. In order to do that we are going to analyze the low and high volatility of the market and also managing the 24 hours precious period with care. As you can see on the diagram below I have created spreadsheet table containing the data we needed for this. I am going to discuss this using my Malaysian local time which is +8 GMT.

The low volatility period ranging from 1 A.M. in the morning until 1 P.M. in the afternoon this is the Asian market session. However please note that the lowest actual volatility period is around 1 A.M. to 5 A.M. in the morning because all market are already closed during that 24 hours period and the Asian market will open around 9 A.M. in the morning where volatility will slightly increase. Then within the range of 2 P.M. and 9 P.M. the European market session will open which indicate the highest volatility in the market. This will follow by the US market session open around 10 P.M. where the market will reduce to moderate volatility.

Dividing the 24 precious hours by 4 hourly time frames we get 6 candlesticks for the whole day trading from the 4 hourly points of view. Out of all these 6 candlesticks maybe 2 or 3 of them will produce the highest volumes indicated by the length of the candlestick body. And this probably occurs mostly during the European market session which is 2 P.M. until 9 P.M.

In conclusion by planning and managing the time limit for the day you can avoid the trade to carry over into the next day and take whatever profit and losses you made during that one day. However if you are willing to bear the cost of the rollover fees because you are in profits then this discussion is irrelevant to your trade.

EUR-USD post analysis

Today i am going to discuss the candlestick counting method once again to prove that this is one of the most reliable systems out there. OK let's take a look back at the end of May when i was predicting that the EUR-USD pair will form a white candle at the end of June. This is my second analysis on candlestick counting as you can read here....

Even though in the early days of the months the market is struggling ups and downs but it never break the resistance level of 1.5286. And after the month of April and May both is producing black candlesticks it is time for the white to form again as you can see below.

Now i leave it to you to integrate all the relevant indicators that i have discussed here and also remember to sharpen your instinct by practicing to compare the market movement and the indicators behavior.

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Train your mind following the crowds

Simply relying on the technical indicators itself to do the job will not make you a good trader. It is because most often those indicators fail at certain point especially when fundamental factors i.e. economic data release shake the market into volatility. As a result you will fail it during this time even the professional traders will have to accept the losses.

Therefore in order for you to be able surviving the vigorous volatility your instinct become very important. Guided by technical indicators you will have the confidence and you must utilize that confidence to produce results by the help of your instinct.



This will takes sometimes for you to learn in integrating those indicators and instinct into one. I have taken more than a year to have in place on my mind firmly first by studying closely all the relevant indicators such as stochastic, MACD, and Bollinger Bands while at the same time training my mindset to follow the market. You can do this by observing the behavior of the market prior to the indicators movement and also use the candlestick counting as guide.

Training your mind to follow the market is like the concept of water which change shape wherever it is put in. You will become one with the market if your mind can see what others are doing on the market. Keep train yourself i am sure you will be good next time.

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Time Frames Limit

Even though frequently i have been discussing using extended time frame up to monthly time frame but what matters the most for daily traders is actually up to daily time frames only. Why so? it is simply because we want to trade within that one day period only and tomorrow will be another matter. Unless you are willing to suffer on the rollover charges for at least one week period then it is ok just to leave your open positions to float within a week period.

However i believe nobody want to have that kind of losses especially for rollover charges which we know it deliberately. Therefore our job should be trying to avoid that to happens strictly by whatever means and by doing that our concerns of time frame trading is starting from 5 minutes up to daily only. Anything more than just a guide for us to look at the big picture of the market so that we know the overall directions.

I hope this will becomes a reminder for every traders especially novice out there not too obsess with the weekly and monthly time frames. It is because practically within daily trading it is not applicable at all. This will keep your focus within the range of 5 minutes up to daily time frames in order to get a sharper perspective on the daily market movement.

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Systematic Technical Analysis

Today i want to show you how to develop systematic technical analysis using the Moving Average Convergence/Divergence (MACD), Slow Stochastic, and the Bollinger Bands manually. As you can see below you can use all the three indicators to determine your setup points and target profits in multiple time frames.

The idea of using multiple time frames is because the currency market is so dynamic and volatile. Each of the volatility occur differently in each of the time frame therefore it is very important analyze each of them.

Waking up everyday before you start trading create this kind of analysis to look at the overall market structure. And of course the first to look at is the highest time frame which is the monthly period. This is to figure out the overall market structure throughout the whole month. After that move down into small time frame to look into details and any particular opportunities that arise during that day.

Hopefully this method will provide you the basic foundation how you can develop your own technical analysis system on daily basis to help you make better decision in forex trading. Happy trading!!!


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GBP-USD statistical pips volume record per day

I was thinking of an idea to calculate the average volumes statistic of the GBP-USD pair in a single day movement. Surprisingly the record shows a very consistent data that one single day most highest volume pips is around 273 on average. And anything that go higher than that for example to 300 pips or more will trigger significant amount of reversal.

You can study this further on yourself on other pairs using the candlestick you will see the high and low points and minus them see to get the difference. This is a piece of useful data that can help you in technical analysis to estimate the overall movement on daily basis. Then you can use it to measure the likelihood of reversal or continuation on the next day of trading.

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Earning 50 million a year

Talking about technical analysis i would like to share some amazing successful story about forex career. I read this article from Woodiepedia forum talking a guy name Paul Rotter one of the biggest and most successful traders that has been trading for more than 10 years. He trades around 3 million a month and made 50 million profits a year for himself.

Paul Rotter is famously known as the flipper and is the single largest and most successful trader on the planet. Read more about him at Woodiepedia. This is an amazing story of inspiration how a guy can make that much in forex.

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Candlestick Common Sense Strategy

Do you know that it any methods in the forex trading is possible. And it is a matter of how good you can master the strategy. Today i am going to discuss about scalping with common sense by just using the simple candlestick.

I have made some success in the past when i was really a real beginner. It was because of fear of losing i have come to think of an idea how can i make sure there will be no substantial losses.

So i set my target profit around 5 to 10 pips and put the limit to allow automatic close when it reaches those points. And set your stop losses around 4 pips or a little more. I have made a good statistic records from this trade.

Even though you may think that this system is like a zero sum game keep practice it and you will the results whether you make more or less.

Unlike lottery where your chances is very low forex has 50:50 or more chances of winning. Small losses of 4 pips mostly can be overcome easily. Try a demo account and track your statistic you might notice something interesting. This is one of the way professional who are playing million of dollars playing the forex. They use common sense and expecting to earn 4 to 5 pips because the amount is so large.

Use smaller pip spread pairs like EUR-USD.

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Path of the unknown

Even though the combination of MACD, Slow Stochastic, Bollinger Bands combination is very powerful still there is limited where they will unable to trace the path of the unknown. As they rely on the time frames historical records these combination will not be able to trace any record beyond monthly time frame since there are no trading platform that provide the data. Therefore we have to rely on our instinct to analyze the market movement.

To illustrate this problem we can see it on GBP-JPY monthly time frame where stochastic is moving up while MACD is still moving down. At this point we will not know how far the market is following stochastic direction. There are two possibilities which is the middle of weekly time frame or further more to the middle of monthly time frame as shown below. Now that the weekly time frame seem to be broken it is possible that the market might continue moving upside to its upper band or making a sudden reversal. Beware of sudden reversal!!! Because it will have little stopping when it happens. This is very dangerous position to trade because of the unknown situation.

Although we know that eventually the market will go down because of the MACD still moving downwards. But that is only to be confirmed when stochastic is moving inline with the MACD moving downwards again.