Ramblings of a Forex Junkie

[quote=billytt;6384815]
You are right that you can use historical charts to design a method for trading. It is definately helpful to go through historical charts to see what important news and outside factors have caused the markets to do. I think the decision for the trader is are we going to be fundamental traders or technical traders. I am discussing a purely technical method of trading. It is a method that is cut and dried. There is none of the ambiguity of fundamental trading. You bring up weather and oil. A weather forecast that might make the price of oil rise based on today's supply and demand picture might make the price drop with another set of supply demand variables. The fundamental trader in my estimation must be very adept at guaging the market's sentiment with respect to all possible outside variables. Again one piece of news might make the price rise today while the same piece of news might make it go down in a different situation. The method I suggest is simple and direct, no interpretation needed. I trade lines on a chart (prices) I don't care what the fundamental factors are. If I am wrong in my trade the market will tell me and I will reverse.

I know that some are very successful with fundamental trading methods. I am not that smart. It has to be simple for me to do it. To each his own.

[quote=billytt;6384815] My real point with respect to backtesting, and the last thing I will say on it is that you can only know if your method really works if you can SUCCESSFULLY trade it in real time with real money. I don't know how I can say it differently. Its not that I don't go back and look at charts to develop and validate ideas. I simply don't really trust a method until it has made real cash. Adjusting a method to backtesting results is dangerous and can result in faulty assumptions about forward success.

An interesting thing I learned from Cloggie years ago is that the US market typically likes to print the high or low of the day for EU and GU. If you scroll back you will see that he was correct. So far today this has not happened. I will be interested to see if they correct that in the afternoon session.

EU seems to be stuck in a wedge, hopefully whatever Draghi says will push it down and make that new low

[quote=Seneca pilot;6384880][quote=billytt;6384815]

My real point with respect to backtesting, and the last thing I will say on it is that you can only know if your method really works if you can SUCCESSFULLY trade it in real time with real money. I don't know how I can say it differently.

i agree with you 100%, i am rambling but hopefully trying to get across to others. fundamentals are good if it goes in the opposite direction, technicals have merit sometimes, its horses for courses as the saying goes. and yes as you say put the money where your mouth is (another saying). I would love to see some of FF gurus stick £30 k on a trade, not talk the talk in here (other thread) be good

There is a long standing disagreement over what makes the best trading style. There are those who say that discretionary traders are the only ones who are long term successful. There are those who say that mechanical trading is the only way to long term success. It is a diffucult question to answer because there are practitioners of both styles who are successful. I think I can end this arguement forever; who is better at trading. Who makes the better trader a discretionary or a mechanical. The answer is yes.

Discretionary traders boast that they are flexible. They boast that they are not constricted by hard and fast rules that often result in unnecessary losses. These traders say they are able to follow the flow of the market getting in and out at will. They boast that they are able to exit losers sooner because they don't have to wait for an arbitrary stop to be hit that they can exit when they feel the trade is not going to work out because of intuition developed over many years of experience. Discretionary traders boast they are able to avoid entering trades that are not likely to work out because of that same finely honed intuition.

Mechanical traders however counter that their method works precisely because it allows them to enter into trades that they maybe don't have the fullest confidence in. Mechanical traders counter that they are not flexible. They counter that they are in fact successful because the have hard rules and don't let their feelings about a particular trade enter into their plan. Mechanical traders boast that they are not influenced by the day to day ebb and flow of the markets and only enter and exit by a strict set of rules. Mechanical traders say that they have stops and targets for a reason and that that is the only efficient way to trade.

So which group of traders is right? Who makes the most money, discretionary traders or mechanical system traders?

Neither, and both.

So why such an ambiguous answer? I think that the best traders are a mixture. A hybrid of both schools of thought. Good discretionary traders seem to have a finely tuned sense of the market and its moves. This sense is certainly not accidental. These traders develop this sense over many years and thousands of trades. The mechanical traders have a good arguement too. Some of the most successful traders in history were mechanical traders. Perhaps the most famous being the turtles and Richard Dennis.

Many mechanical traders though will say that they have two main rules. Rule one, always follow the rules. Rule two, know when to break the rules. Therein lies the answer. The best traders trade by some set of rules to which they adhere but they know when to deviate from those rules. The only way to have developed the sixth sense needed to know when to do this is through many thousands of hours of experience and many trades.

So, the truth:

Mechanical methods can be successful. Discretionary methods can be successful. If your method can be built using a combination of both types of trading I believe that this gives the best chance for success.

I have found that the benefit to maintaining this thread is not worth the time commitment (there is really no benefit). It seems that there are very few questions and little discussion. I don't have anything to offer but hard work so I guess not many are interested. I will check by and answer questions if there are any and I may post from time to time if I have a thought to add.

Seneca Pilot,

Your advice and teachings have been very helpful. You made a difference in the way I think about my trading approach, so for that I tank you.

I can imagine it takes a lot of time to maintain a thread, so I won't ask you to continue actively posting, but please feel free to post something similar like you've been doing when the thought arises. Don't think it's a waste of time just because the thread is not that active. I've absorbed what you said and is applying it to my trading. It will take a bit of time to practice and ask questions.

Once again, thank you for the time you offered up to help others. This is really one of the most useful threads I've read on FF. If only I could, you would definitely receive my vouch.

All the best with your trading.

PiptheRipper

I agree whole-heartedly with Pip. Thank you Seneca. The things you have taught on this thread have helped me refine my plan immensely. I'm sorry that I never had more time to post on the thread, but work keeps me extremely busy during the day, and the evenings aren't much easier of late as I'm currently replacing the video card in my computer after giving my mom my old one.

Everything you said on here was gold to me, and I have made a document with all your posts so that I can re-read through it and highlight everything that I think is important when I get the time. Again, sorry that I did not get the chance to post more. I feel bad that you didn't get from this what you were hoping.

You are right about something though. You said "I don't have anything to offer but hard work"... It takes hard work to achieve dreams, desires, and to learn this trading thing. Not many people are willing to give what is needed to get back what they want.

If you gave a class around the area that I live in, I would gladly pay good sums of money to learn more hands on :-)

Best of luck to you all!

Regards,
Atreides

Hi SP,
personally I'm still digesting all the really useful info you've posted and there seem to be a fair few readers here so about now might be a good time to give interested parties a bit of time to work on what you've provided already and no doubt there will be questions coming along in due course. I'll be condensing some of your posts and printing them out for my own underlining pleasure soon.

Your detailed timings post has added another piece to a jigsaw and helps a lot with for example thinking about how to find levels that could work for each trader depending on where in the world they are located.

Completely go along with the idea above of 'discretionary mechanical' trading as that's what I now attempt to do. The couple of indis on my chart (stoch/double cci) give plenty signals and I started out by taking every trade only to eventually discover some signals are not valid or to be trusted, often for good reasons. A simple example would be R above price which is currently trending obviously can potentially represent a barrier where price will reject or stall. But your strength indi may be showing price nicely trending north and your entry signal indi may show price has just experienced a nice pull back so gives you a signal to buy. Obviously your indis have no awareness whatsoever of this R above and therin lies one problem with mechanical/ea systems - they can't see the bigger picture. If your indis measure trend all well and good but it's then up to the user to examine levels where that trend may fail to develop further or other considerations. I'm coming to realise that the failings of mech systems can be mitigated somewhat by fully understanding what your indis are telling you about the TF you are looking at, plus by zooming out to longer TF's to see where the pa that is happening on 15/5/1M charts may fail. We all see a 2 dimensional chart when we flick open mt or whatever but really the market is multi-dimensional and you need to hold those other dimensions, that you've detailed so well in this thread, in your consciousness to try to get a complete picture.

A simple analogy on entry signals might be useful here? So you can see this a bit like sitting at a a red traffic signal at a cross roads. You are patiently waiting for green, aware that other traffic is presently enjoying freedom of movement with their own green light and that to move off into a red light would be not only foolish but also incredibly damaging. The flow of traffic subsides and bingo you have a green light - now the question is 'am I safe to go?'. Or is there a question atall? Do I just go on auto pilot while I'm boogying along to the ABBA song on the radio? Your traffic light says go, all the others are at red, but crucially does that make it safe to go ahead? Well no, you could proceed and get ploughed into by a truck driver who hasn't seen his red light, or has defective breaks and can't stop in time, or a drunk driver. Or you could get hit by an ambulance or fire-engine that you can't hear because of Waterloo at full blast. So the safest way to tackle this is to wait for the signal, then move off after a quick check ahead and remember to constantly be aware of your surroundings and any potential dangers as you cross the junction. For some reason Hill Street Blues is coming to mind - be careful out there.

Oh no I'm thinking about the ubiquitous multi-vehical crash scene at the beginning of CHiPs now.

Sorry there's no question there. Maybe you would get more out of mentoring directly rather than in a forum like this? You are quite a demanding teacher which is great but for a lot of people this is a part time afair and there is a day job to attend to so pupils here may seem unresponsive but maybe they are just slow learners because of outside pressures. Or maybe you right and they are looking out of the window thinking about the big car they aspire to posses. Also perhaps the thread title has kept more serious minded readers away? 'Detailed Strategic Approaches from an Experienced Trader' may have been better.

Have a good trading day.

Thank you for the thoughts. It isn't that I am upset or anything like that. I have more thoughts to put down I just don't think I will post as often. Again, if you have any questions ask them here I will keep a check on the thread.

I guess I am just concerned for the readers. Yesterday two different posters came here and posted trade calls on GU which did not adhere to the concepts in this thread. I am concerned that people could follow others calls and lose money. I don't want the thread to degenerate to the same BS you read here every day. If I had an indicator it would be the FFbad traderV2.1.

You are correct, it is hard work to win at trading. Most people want the easy quick fix so when a thread pops up that has actual trading advice most people tune out. Most sadly just want someone to point them to the indicator that will tell them when to trade.

I am trading now but later I will post today's Euro chart with a detailed markup explaining how I traded it. Then I will answer any questions you guys might have. Then back to big picture concepts. (I feel badly for anyone trying to make money with indicators the last three days).

Take care seneca pilot, the thing is you just said you going to post a chart and why you traded it, i thought we wasnt doing that in here. i did mention trading gu yesterday and i would happily of explained why.The original question you posted was something like Fundamental versus technical and yes Fundies are a good indicator of a countries economic condition and technicals show past prices/volume/indies and patterns but i personally would not hope on either one of them to make a living. Use both of them to work in harmony could happen but its difficult. There is nothing else to say really, be good

I subscribed to this thread about a week ago after finding out about it. I've never posted on this thread, but I just wanted to thank you, Seneca pilot. I believe that the wisdom you (and other traders) have shared is more important than any system or method. Thanks for everything, I hope this thread doesn't get abandoned.

Hey Seneca pilot,

I wouldn't take it personally, anybody around these forums for even a short period of time will come to realize that most of the people here buy high and sell low almost all the time. Some of them will feel the pain, realize something is wrong, and eventually come to learn about the concepts in threads like this that make more sense and actually work. That said, I don't necessarily think a lack of intense discussion means that there is no interest - many of us who are keeping track of the thread simply have little to add about the methodology. It's very straightforward and you've done an excellent job of recording your thoughts for myself and others to learn from. My style of trading is a little different but I believe the concepts are very much similar. I do agree that there's little in terms of reward for posting your thoughts though, and perhaps that's why many successful traders simply don't bother. It's a selfless act and is something of a rarity.

Kanzler

First, I am not going away. I am simply going to cut down the frequency of posts. I have a new house, twin seven month old boys, and I trade London while living on the east coast of the US. My day is busy.

Now about the chart I am posting. This is a one time thing. Hopefully this will answer most questions about trading. Showing the thought process is better in so many ways than discussing it. I thought hard about this because many traders will not give away their methods. The belief is that it will degrade the performance. What I do is different. The levels I trade are no secret. They have been traded by professionals for years. Most professional methods are built on price. Opening range breakouts, pivot traders, fib traders, etc. are all price based methods. The market really does not change. If a trader says the market changed and their method no longer works they are simply saying that they had a gimick that lasted for a while but the market caught on. If you are trading a gimick beware.

Ok the chart:

The three green lines are labeled.

Red is weekly open (I use 19:00GMT 00:00 Eastern) if you think there is a better time by all means test it and use it.

Purple is Previous week close. (17:00 Eastern Friday)

Point one. The market traded down from the open price and created some separation. I require at least two full 15 minute bars that do not touch the line before I will trade it. Price retraced to the line and I entered short. This is the first trade. Notice we are not forecasting and have no bias. Had the price gone up first we would have traded long. Price goes back down to the lows and cannot go lower. When price comes back to the line fast at point two we exit. I lost two pips here.

Point two: We had a nice strong close between the Purple and the daily open. Had the price closed above the purple I would have longed there but since it closed between I waited for the retrace and longed at point two. This was the bread and butter trade. I need about 35 pips to get 2/1 RR and I got it here. If I had any plans later in the day I would have gone to sleep at this time. So why not short at the weekly lines. Partly feel, partly because I don't want to short above the daily open. (more about that later) Mostly because the short trade at point one failed which sort of signals me to look long until things change.

Point three: Retest of the weekly prices. This is where I am trying to get a runner for the rest of the week. I will target the top green line with half of the position and hold the rest hopefully. As you know this didn't work. When price stalled in the blue box (this is a quasimodo for BRV fans) I took off half and stopped the other half at breakeven. A note about point three, I didn't try longing again the next time price crossed the weekly lines. Why? Because it had already been support on this day and the price failed to go higher in the quasimodo formation. I want to short it now.

Point four: Another nice trade. Got 2/1 here pretty easily. So why the long? after all I said not to long below or short above the daily open right? Well the only exception to that is the previous day high and low. I ALWAYS trade these prices. Those of you who were watching the price move today know it was screaming down when I bought this level. This level is very strong though and after a few minutes of bounce it took off upward and targeted the daily open. I love it when the high or low is the first price hit for the day because it usually means a short day and 3/1 RR.

As you may see on the chart I am shorting the weekly prices for a shot at a runner south. I have opened a small position (less than 1/2 normal) at the daily open just in case but I think I will get an entry at the weekly numbers. But wait this is averaging down and I said not to do that. No it isn't. I am planning this because I could never be sure price will get above the daily open and I want a piece if that happenes. (I got the entry I wanted as I type). This is averaging in as it is planned and it is a smaller position which can have a stop at the normal place without losing more than my usual percentage. Averaging down is using a larger position beyond the entry level trying to get even and that is for losers.

Ok so there it is my thought process for the day. Four trades. Two winners and two breakevenish.

I could have added more lines. I could have had the rolls but it was a pip away from the red line so why bother? I could have had London close on there but I find that it works best for the GBP pairs. These details are the thing. If you have a line on the chart based on the wrong times for your pair you won't succeed. It takes time and study to determine which lines to place on which chart. I have given some clues on that and I will answer specifics when asked.

This was an average type day. A couple of good trades and a couple of not so good ones.

Hope it helps.

EDIT: ha ha forgot the chart

ramble time, thats what pro traders do unless they are already in the trade, its basically following the trend but if you mean the trend is about to turn that is a different story. be good

Couldn't agree more. Bad traders love to buy big green bars and sell big red bars. The money will always flow from their accounts into the accounts of the few who get it.

I made a big error earlier when I listed the traders I respect. I left out Gleneagles. If any of you think I am full of BS spend some time learning what he does. Warning though its a version of the same thing.

For your enjoyment.

A very good video. A little in here about liquidity and trading. You get a screen shot or two of the trader's computers. Its old but trading never changes.