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"The Logical Trader." Newbies, ask your questions here

  • #1
  • First Post: Mar 19, 2011 11:28am Mar 19, 2011 11:28am
I have set up this thread so that newbie traders can ask questions they cannot ask in the thread.

Do so without fear of scorn or derision. Somebody will answer you supportively; that person might not be me.

  • #2
  • Mar 23, 2011 3:56pm Mar 23, 2011 3:56pm
2 question.

1) how to determine the suitable value for indicators like ema , sma , blah blah blah.. . Is it by guessing, exp, inspection and observation ?

I mean why using 21 sma instead of 20 or 20,50,100 sma for indication, whats the reason behind it?

2) without considering news, market seems to move randomly from my view.
technical analysis based on indicators and every indicator is determined by past move of the market right? its like counting 1,2,3,4,5,6,5 and predict whats going to be the next number or the next few numbers, I could say it probably be something around or more than 5 since the trend is up but in reality the answer might be 1 or 8 .

From what i understand, we record these patterns and betting on probability of occurrence from these patterns during the past correct? and so indicator is just a factor of probability that help we decide with more confident if a signal/trend is strong ? if yes then we newbies should spend lots of time watching how market move in various patterns lol.
  • #3
  • Mar 24, 2011 7:51am Mar 24, 2011 7:51am
Hi Steve-

Thank you for taking the time to put this information in our hands!
  • #4
  • Mar 31, 2011 8:36am Mar 31, 2011 8:36am
This is my first foray into Forex. I know almost nothing about it. In the past I have studied trading techniques probably more than the average person would have. I have traded equities with never much success. I'm not looking to get rich in Forex. I have a decent job that I'll keep working at for some time. I am a computer programmer. In the past I have tried to write technical analysis programs to help me understand how mechanical trading programs worked. I never had much success with these but if you are curious on what I have done, I'll gladly share it with you. Most of my work revolved around trying to identify trends in stocks and I programmed in VB.Net. I opened up a small account at one of the large $9.99 brokerages and my account went up and then went down. My account is 30% below what its starting value was but I've had the account for over 5 years. I had a friend who had 20,000 in an account and I watched him trade it all the way down to $500 dollars over a 1 year period. When I was doing my trading with stocks I usually over traded. When I saw all the loses my friend had, I stuck my money in one stock (AAPL) and let it ride. That helped preserve my capital. I'm not looking to Forex to make me rich or retire. I would just like to learn more about it. I have some money that I would be ok parting with if I lost it all.

So now, my question. I read the sticky at the top of this forum about how you should start out very small with a micro account with at least 400:1 leverage and also a demo account until you had 2 to 3 months straight profitability in the demo account. I started to read about brokerages that offer such leverage and there are a bunch of them. Then I also read about people who have run into bad brokers and have had problems with them such as getting their money back. Where can I find a decent brokerage that lets you start out very small and trade micro lots with low minimum balances?

A second follow up question to that is, what's the smallest amount of money you can play with in the market? Can you be profitable with a small amount of money? If I made a profit consistently, I would put larger amounts of money behind myself. But at this point, my 401k and other investment do a better job than I can do. So that's where I send the majority of my money.

Thanks for your help in advance. I'm glad to be part of this discussion group. It seems like a very good place. I'm happy to trade any knowledge that I have if it helps out the group here.
  • #5
  • Mar 31, 2011 6:52pm Mar 31, 2011 6:52pm
Quoting jp1900
This is my first foray into Forex. I know almost nothing about it. In the past I have studied trading techniques probably more than the average person would have. I have traded equities with never much success. I'm not looking to get rich in Forex. I have a decent job that I'll keep working at for some time. I am a computer programmer. In the past I have tried to write technical analysis programs to help me understand how mechanical trading programs worked. I never had much success with these but if you are curious on what I have done, I'll gladly...
Try IBFX. Nano accounts 1c/pip and regulated, been around a long time.
  • #6
  • Edited 5:39am Apr 1, 2011 3:38am | Edited 5:39am
Quoting qazx
2 question.

1) how to determine the suitable value for indicators like ema , sma , blah blah blah.. . Is it by guessing, exp, inspection and observation ?

I mean why using 21 sma instead of 20 or 20,50,100 sma for indication, whats the reason behind it?
A lot of the standard indicators were developed for the futures markets back in the 1970's. Back then, traders worked on a 28 day cycle - they may still do, for all I know. Half of that cycle was the most useful period to them, and so 14 is the default period for most of the indicators. Welles Wilder developed most of them; you can learn a lot by Googling hime.

Quote
2) without considering news, market seems to move randomly from my view.
technical analysis based on indicators and every indicator is determined by past move of the market right? its like counting 1,2,3,4,5,6,5...
You should indeed spend lots of time watching how markets move. Lots and lots and lots and lots.

To us retail Forex traders, support and resistance is everything. Look at any chart on any time frame. Every time the candles have been rising, this is because more people are buying than are selling. Every time the rising candles turn into falling candles, the buyers have taken their profits and the sellers have moved in; often those profi-taking buyers have turned into sellers. The market price has met so much resistance that it has stalled and reversed. Then the whole process begins again; this time, we call the stalling and reverse point support.

Then zoom the chart out so that you can see a much longer time frame. With your eyes, you can see the s/r points; use the mt4 line drawing features to draw lines on the charts and study the movement.

One of the things you will notice is that the market moves in waves. I am not going to discuss this further here. Go to http://www.forexfactory.com/showthread.php?t=263253 (you need to be there anyhow - fantastic things are happening) and download the user guide. Go to the section for newbies at the end of the pdf; I have explained much that will benefit you.

Indicators present a tough problem for new traders. It is hard to get your head around the fact that every indicator is a lagging thingy; not only do they show what happened in the past, but often are only a distillation of said past.

Take my favourite, RSI - Relative Strength Indicator. This uses some fancy maths that I do not even begin to understand, to show when a pair has been moving in one direction and has become overbought or oversold.

Because the markets move in waves, and overbought pair is going to retrace at some point; a rising pair is going to pause for breath, then fall a bit before rising again - this is what is called a 'retrace'. RSI gives us an idea when the market is going to retrace.

So, all we need to do is wait until RSI shows, say, overbought (default value is 70) and we can sell, right?

Wrong. Markets can go overbought and remain there for yonks. I have coded ea's for systems that require RSI to hit 95 before taking a sell trade yet the system has failed and the ea has been dumped.

So, why do I use RSI? Because a 20 period D1 RSI is a brilliant trend indicator. >55 means the trend is rising. <45 means it is falling. In between means it is fanging.

How do I know? Because a professional floor trader who contributes occasionally to my threads (scooby-doo) told me.

Why do I use it? Because my account size means I have to trade off sub D1 charts - the bigger the pocket, the higher the tf we can trade - and higher tf trends always trump lower ones. You are here because you have read my Logical thread and know that I am trying to develop my own manual trading system. At the mo, I am using the D1 RSI(20) to guide the direction of my trades when there is a good A trigger.

Why am I trying to do this? Why not simply adopt one of the many systems posted here at FF? 2 reasons:

 

  1. Market conditions change. Many systems rely on a lot of pretty-coloured thingies to line up before a trade is triggered. By the time the system developer has developed and traded his system successfully for a while, market conditions are about to change and render the system useless.
  2. This is actually the most important one. You will not truly understand the system because you did not devise it. There is no successful trader in the world who does not use experience, expertise and instinct to guide his use of the system. This cannot be quantified and described. You need to 'own' any system you trade, either by devising it your self or tweaking it to suit yourself in such a way that you fully understand it.

Newbies, you could do a lot worse than starting a demo with H4 charts and trading with your eyes. When a pair has moved a decent distance in one direction, take an opposite direction trade. This will not work every time and you will end up with drawdown, but you will learn a lot.

Bit of a long post. Sorry. I am trying to help. Good luck. Learn. Be patient. Develop balls of steel; you will need them.

  • #7
  • Apr 1, 2011 11:56am Apr 1, 2011 11:56am
I really think i need some clarification on NFP and how it relates to price action. US NFP was released today with better then expected results, as far as I know that is showing strength in the dollar so I would expect EUR/USD or GBP/USD to decline , instead they rallied.

what am I missing here?
  • #8
  • Apr 1, 2011 4:36pm Apr 1, 2011 4:36pm
Quoting gimmie3pips
I really think i need some clarification on NFP and how it relates to price action. US NFP was released today with better then expected results, as far as I know that is showing strength in the dollar so I would expect EUR/USD or GBP/USD to decline , instead they rallied.

what am I missing here?
The markets are not moved by us little players. They are moved by:

 

  1. governments intervening in their own currencies on behalf of their own country
  2. the big banks and financial institutions
  3. individual big players such as George Soros

These people know, or have a pretty good idea about, the impending release a long time before the rest of us and factor this into their trading. The markets have often moved in response to the news release hours or days before it actually happens.

The news release then brings about a 'correction' as these people take their profits.

The institutions/people I describe above have gazillions of dollars to play with. When they decide that it is time to move a market in one direction, they simply trade it in that direction. Because they have enough financial clout to move the markets, the markets move.

Go to this thread at http://www.forexfactory.com/showthre...85#post3199485 to read about how the Bank of Japan controls the strength of the Yen. This is but one example of many.

  • #9
  • Apr 2, 2011 3:29pm Apr 2, 2011 3:29pm
to jp1900 I really like Interbankfx @ibfx.com I traded with 100$ on mini lots @100:1 but they recently lowered their margin to 50:1.

Quick question
If the EURUSD is raising at a rate of A and the USDJPY is raising at a rate of B shouldn't the EURJPY then rise at a rate of A+B? I trade all 3 however I only trade the EURJPY when both the USDJPY and EURUSD are trending in the same direction because of the larger spread and my relative unfamiliarity with the EURJPY.
  • #10
  • Edited 4:54pm Jul 15, 2011 4:28pm | Edited 4:54pm
  •  Frv
  • | Joined Dec 2010 | Status: Keep working and you will get there | 77 Posts
Hi Steve ...
Your reputation as a coder brought me here ... If you can help me with this indicator, depending on the results and, perhaps, I have found something very important, we can start something and go deeply. Ok, lets go ... I need an indicator that can give me the average of a certain period of time in the past. Where I might know the average from x candle to y candle. Moving averages do that at the current price, I need to know the average of a certain space of time in the past (to perform the backtest.) Ex: let's say that today is 07/15/2011, but I want to know the average price between 07/01/2011 - 2:00 ------------07/03/2011 - 11:00?
I think you understood. I would greatly appreciate your help. After making the backtest, and if all goes well, we can create something relevant.
Tks again for your attention!!
" Keep walking and you will get there "
  • #11
  • Jul 15, 2011 5:00pm Jul 15, 2011 5:00pm
  •  Frv
  • | Joined Dec 2010 | Status: Keep working and you will get there | 77 Posts
I'm still Junior here on FF....This was the only way to get in touch with you .....
" Keep walking and you will get there "
  • #12
  • Jul 27, 2011 4:00am Jul 27, 2011 4:00am
Thanks for this thread! There is some really helpful information.
  • #13
  • Aug 16, 2011 2:48pm Aug 16, 2011 2:48pm
Quoting SteveHopwood
RSI gives us an idea when the market is going to retrace.

So, all we need to do is wait until RSI shows, say, overbought (default value is 70) and we can sell, right?


Here is my question on RSI.

So anything above 70 means overbought conditions. I hear some say that you should go short as soon as it rises above that level. At the same time I hear just as many others say to wait, do not take a short until it falls back below 70.

Does anybody have opinions on this?
  • #14
  • Aug 16, 2011 4:59pm Aug 16, 2011 4:59pm
Quoting QweeQwa
Here is my question on RSI.

So anything above 70 means overbought conditions. I hear some say that you should go short as soon as it rises above that level. At the same time I hear just as many others say to wait, do not take a short until it falls back below 70.

Does anybody have opinions on this?
This is a common mis-conception and one that cost me a lot of wasted hours.

If RSI is overbought/sold, it is likely to remain so for long periods of time; it becomes overxxx when there is a strong move in the direction that causes overxxxx.

Therefore, use overbought as an additional Buy trade confirmation, and oversold as an additional Sell trade confirmation. Do not use it as your sold trade trigger.

  • #15
  • Aug 16, 2011 7:59pm Aug 16, 2011 7:59pm
Quoting SteveHopwood

Therefore, use overbought as an additional Buy trade confirmation, and oversold as an additional Sell trade confirmation. Do not use it as your sold trade trigger.

First of all, Thank You for you response.

I never have made a trade on this or any other indicator alone. To me when I see it go above 70 or below 30 a mental alarm goes off. I then go back to my charts to see if I missed something. Sometimes it will coincide with a good S/R level and then that gives more reason to make a trade.

I like this indicator as well. It is about the only one I still pay attention to and it seems like we are in agreement on using this as additional information and not as an inductor solely to base a trade on.

If you do not mind can I ask you a purely hypothetical question?

In a make believe trading environment where you could only enter a trade based on the RSI and nothing else; would you go long as soon as it passed below 30 or wait until it went back above 30 before entering the trade? These are the only two choices we have in this hypothetical environment.

Anyway, thanks again for your response, I appreciate it.

  • #16
  • Aug 19, 2011 4:13am Aug 19, 2011 4:13am
Hello i am new to forex trading, my first moves were to 'book smart up' on the things that seemed the most important, read up on price action, some technical, fib, and some money managment and stratergy. I read on this website about lot size, leverage and margin.... I opened a practice account on OANDA and i am enjoying the process of thinking through my trades planning them out and placing them.

HOOOOOOOOWEVER.... once a trade is placed i am becoming confused with the on screen figures and the mathematics behind them.

for example..

% profit never seems to correlate with unrealized p&l
% profit and unrealized p&l do not seem to correlate a pip to lot size formula.... i suppose i am not working leverage into my equations.

so the questions.

1) How do %profit and unrealized p&l correlate
2) What forula do i use to work out ' money in' * 'y pips' = potential profit?


thank you
  • #17
  • Aug 19, 2011 1:15pm Aug 19, 2011 1:15pm
Quoting qazx
2 question.

1) how to determine the suitable value for indicators like ema , sma , blah blah blah.. . Is it by guessing, exp, inspection and observation ?

I mean why using 21 sma instead of 20 or 20,50,100 sma for indication, whats the reason behind it?
On the daily charts, the 20 period moving average (MA) corresponds roughly to the 20 trading days of the month, so it is a popular number.

The other well known moving average is the 200 period MA. This number represents about a year of daily bars (200 trading days in a year).

In between you can also add the 50 period MA, another widely used number.

In other words use these popular numbers because there is a lot of value in knowing what the other traders are seeing on their screen, regardless of the time frame that you use.
  • #18
  • Aug 19, 2011 2:45pm Aug 19, 2011 2:45pm
oh, BURRRRRN!!! lol.
Congratulations ScalaFX for coming out of the closet!
  • #19
  • Aug 19, 2011 2:59pm Aug 19, 2011 2:59pm
Quoting QweeQwa
First of all, Thank You for you response.

I never have made a trade on this or any other indicator alone. To me when I see it go above 70 or below 30 a mental alarm goes off. I then go back to my charts to see if I missed something. Sometimes it will coincide with a good S/R level and then that gives more reason to make a trade.

I like this indicator as well. It is about the only one I still pay attention to and it seems like we are in agreement on using this as additional information and not as an inductor solely to base a trade on.

If you...
Neither. In such an environment RSI would be useless. I need it to be over 70 before buying and below 30 before selling.

  • #20
  • Aug 19, 2011 3:07pm Aug 19, 2011 3:07pm
Quoting Magix
Wrong and yet again, another worthless post.

Statistically speaking, there are 5 trading days per week, in that there are an average 4.2 weeks per month, so in actuality, the number would be 21.

From 21 trading days per month, there are 12 months in the year, giving a number of 252. If we exclude the 2 days per year that market is closed, Christmas and New Years, that gives us a number of 250.

If you are going to try and give people the impression that you know WTF you are talking about, at least try to make sense...
Hehe. Magix, I neither know nor care whom you are. I can say this; you are not allowed to abuse someone offering a simple explanation to a newbie asking for help. I note you did not offer your own explanation.

You are barred from further participation in any of my threads. To my knowledge, this is the only time you have participated in any of them, so this should not be a hardship.

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