Thursday, May 29, 2008

Tips to MT4 2-terminal setup







When trading multiple currency pairs, there are many charts to monitor. Switch between too many charts can be cumbersome, so it is useful to have more than one screen. Most Desktop PC & Laptops support an extra screen. So by adding one more screen, you can have the benefit of 2 screens with minimum cost.

I even find it useful with more than one MT4 accounts running concurrently; each with a different trading strategy. So I set up with 2 screens, one for each account.

Also in MT4, you can sign in from 2 trading terminals for the same account.

1. Set up dual screen is quite simple :
1) plug in the second screen to the VGA port
2) From the Desktop, right click -> select "Graphic Properties" -> Check on "Multiple Display" to complete the configuration. You may also set the extended display to the left or right of your PC/Laptop screen. I suspect procedure for different PC brand may vary; hence get an IT savvy guy to assist if needed.

2. To install another MT4 Trader Platform, run the set up program a second time. Follow the installation wizard as before except for the 2 steps below:

1) After the License Agreement step; the prompt shows:
C:\Program Files\Interbank FX Trader 4

Change to (as example)
C:\Program Files\Interbank FX Demo 2

2) The next setup prompt,
Select program group shows: Interbank FX Trader 4

Again change to
Interbank FX Demo 2

Upon completion of sign up, you will see the new Interbank FX Demo 2 newly installed at:
Start -> All Programs -> Interbank FX Demo 2

3. Sign in with another account:
At the MT4 trading platform; select file -> login
enter login ID & Password

Hope you find the above useful.

Wednesday, May 28, 2008

A Full Circle


















Often in life, things come in full circle.. where am I coming from?

Back to the beginning of this blog - the Pareto Principle, remember the 20/80 rule? (or 80/20 rule whichever way you like)

One interpretation is try to achieve 80% of profits via the 20% of your trades... i.e. be highly selective and go for big kills.

Another perspective is the market don't provide such opportunities most of the times. I recall reading a comment the market moves sideways 70% and trends only 30% of the times. Doesn't matter if the statistics is accurate or not, it merely convince me to adopt the Sniper's Mentality.

May be better put this way: 80% waiting time, 20% productive trading times!

Well, I haven't done before a series of blogs so intense within a short time span. It is like a memory dump for me.. now I can take a breather.

What a sweet feeling I have an open trade right now that hits 105 pips to conclude this article.. good enough, closed it right away!

Develop a Sniper's Mentality














I find this picture capture the essence of the gamesmanship being a trader - Mental Strength & Marksmanship.

We are using a limit resource ($) as our bullets.. every single shot counts! The 1:100 leverage allow us to magnify the size of the kill, but is also a double sided sword that can kill us if not properly handled.

So what's the sniper game? Wait and wait.... for the right moment of execution! Take a good aim before unleashing the shot!

It is a game of patience that pays off.

A Spectator Sport













When I watch live market charts these days, I feel watching the continual tussle between the bull and the bear - moment by moment, fighting round the clock, 5 days a week! Entertaining isn't it?

If we can sit through a football match or movie grip with excitement and suspense, the market does the same. Your choice when to watch or walk away any time; even sample the show once in a while. A complete freedom of choice.

You may switch roles between a player and spectator, join the fray to the winer side to make some profit if right and get a bloody nose when the table turns! Any other game like this?

The institutional players are doing the same too, watching the market from the sidelines most of the time and spring into action when prices hit their trigger levels! Wiser to decode the market signals and follow their coat tails, right? After all they are the ones supported by teams of analysists & strategists in the back room with crystal balls.

Dangers of over trading!
















When you sit at your trading station few hours at a stretch, it is hard just to watch & do nothing, isn't it? (That's why I find blogging a benign distraction.)

One would always to look for opportunity to enter a trade or exit with a profit; harder to take loss, right?

Unwittingly we can easily slide into over trading.

Then you realize your account is dwindling.. and need to do more to recover it. The pressure mounts, you want to hurry too.

So you expose yourself even more, you know the outcome, don't you?

Monday, May 26, 2008

Stochastic Oscillator next, of course!











(N.B. Double click on graph to download & enlarge)

When I first came across the term "Stochastic Oscillator".. it sounds rather abstract & bombastic! Was it related to the study of Stochastic processes as in Statistics?

No, it turns out to be another simple idea.
It has 3 parameters: Stoch(5,3,3) - as default values

If you examine its computational method, again it is a moving window tracking the last few data elements. The first parameter specify the window width, 5 candle bars (as in default setting).

The Stochastic value, named %K, is the ratio of:
((Cp)/(H-L)) x 100%
where:
Cp is (closing price of last candle - L); L being the lowest price of the 5 candles
(H-L) is price range i.e. difference of the highest & lowest of candles prices in the window

Expressed as %, hence its values lies (or normalized) between 0% to 100% always.

What does it tell us?
1) It has a short memory - only 5 candle bars as in default settings.
2) It tracks the short term variation of the price movements.

A simplistic view is the price movement consists of 2 main components, short term price variations (or waves) sits on an underlying price trend (e.g. revealed by MA trend indicators).
The Stochastic indicator attempts to remove the underlying "trend information" showing the short term price cycle, centers at 50%. It's algorithm is more effective in tracing through cyclic variation than simply taking the difference between the data & MA trend lines; as it magnifies small variations and compresses large variations adaptively.

The 2nd parameter is for the MA of the Stochastic line, named %D. Again the filtered signal line, MA(3) of the Stochastic, is introduced to generate crossing signals to indicate trend changes.

The 3rd parameter has a value range of 1 - 3; is said to be for "internal smoothing" of the Stochastic. Value of 1 means fast Stochastic and 3 for a slow Stochastic.

Hope the few reviews help to demystify the inner workings of some key Technical Indicators.

What about MACD?














As it's name implies MACD (Moving Average Convergence & Divergence) is another indicator based on the EMA. It is best to review it in 3 parts:
1) MACD line (blue)
2) Signal line (red)
3) MACD Histogram (the dark vertical bars)

The default MACD has 3 parameters i.e. MACD (12, 26, 9).
The first 2 parameters are for the short (fast) and long (slow) EMAs.

1) What does the MACD line signifies?
It is the difference of the fast EMA and the slow EMA. When positive and increasing, it means the fast EMA Diverges from the slow EMA, it's magnitude shows the price acceleration comparison between the 2 EMAs. When it reaches a peak, price acceleration paused before the reversal and Convergence of the EMAs.

In other words, the gradient of the MACD line signifies the price acceleration. Mathematically, it is equivalent to the 1st derivative of "rate of price change" or the 2nd derivative of (price vs time) function.

2) The signal line is a EMA(9) of MACD line, what does this mean? Remember the filter properties of MA? It is the smoothened MACD line that introduce a lag and reduced peak-peak values. It is a time lag signal to generate crossovers (similar to MA crossings) to indicate change of direction.

3) The MACD histogram is the plot of difference between the MACD & the Signal line. It brings the cross over to the zero line. If the decision criteria is based on the crossovers, then histogram above zero signifies an up trend and histogram below means a down trend.

A more subtle point is it provides a visual indication to price acceleration. Note it always peaks before the MACD line? It's gradient shows the 2nd order (pseudo?) derivative of "rate of price changes" or the 3rd derivative of (price vs time) function. In simple term it reveals the "acceleration within an acceleration".

Hitting the peak is the first sign of 'possible reversal' but do not guarantees it! As it is evident graphically there can be higher subsequent peaks.

'Differences of MA' is used to perform 'derivative' function on time series data equivalent to 'differentiation' operation as in calculus! Clever, isn't it?

Varying the first 2 MACD parameters allow tracking of short or longer term trends. While the 3rd parameter merely add a further delay for trend reversal indication.

With these understandings, one may appreciate its inner workings better & choice of the parameters values used in MACD.

Insights to Moving Averages













The concept of Moving Averages (MA) is very simple. But it is one of the most basic & important tool in Technical Analysis. So a good understanding of it is a definite plus.

I like to visualize it as a moving window of the data elements within. E.g. MA(12) is a window of the last 12 data elements and calculates the average of the numbers within. Simple Moving Average is the simply adding the 12 numbers & divide it by 12.

Exponential MA gives recent data higher weightage. Weightage of each earlier data are decreased according to an exponential function.

It is good to be aware which data the MA is plotting - often the Closing price but can be any of the High, Low, Open, Closed, Median (H+L)/2, Typical (H+L+C)/3 & Weight Closed (H+L+O+C)/4.

MA is often said to 'filter' or 'smooth' the curve. As seen visually above, MA 'smoothens' the minor variations of the data series.

This 'filter' action have the following characteristics:
1) The peak-to-peak values are decreased. Longer MA tend to reduce the Peak-to-peak values even more.
2) MA curves lags behind the data. Longer MA has more lag.
3) Curving MA indicates price acceleration/deceleration.

To illustrate point 3 above. Consider the (hypothetical) case of price increasing at a constant rate, the price graph as well as its MA (regardless of length) is a straight line function with a gradient.

If the price movement accelerates, then it bend upwards from the "reference" straight line. If price movement decelerates, it bend downwards. The shorter MA will bend more than the longer MA. Hence the shorter MA is more "sensitive" and the longer MA is more "sluggish".

So it is convenient to use a pair of MA, one with shorter length, to track the price movement; while the longer MA acts more like a "moving reference".

When the long & short MA inter-twined with each other and moves horizontally, there is no trend & market is moving sideways.

However when the price movements are trending, crossing of the MAs is generally used to signal a change in trend i.e. the shorter MA, being the more sensitive indicator, crossed the longer MA. Only time can reveal the change of trend, that's where lag properties of MA come into play. The price to pay is the price is always 'off peak' when the MA crossed (due to lag again).

Often when watching the formation of MA crossings (on H1 charts) , it may cross and then uncross. That's the situation when there isn't sufficient momentum of price movement to complete the crossing. Also often during such times, the 'gradients' of MAs are not very steep; indicating the price acceleration/deceleration is low.

There are times when a crossing is followed soon with a reversal crossing, giving a 'false' signal of trend reversal. Of course increasing both the length of short & long MA can avoid the situation. But how could we use a variable MA length to cope with all situations? In other words, the MA lengths chosen are suppose to be the 'best fit' for most situations, but can't be the 'one shoe size to fit all'.

MAs are the main tools in trend tracking, with various lengths on different time charts. Many other indicators are MA based in one form or another. If you study the Alligator indicator, you will notice it is based on 3 MAs with modified plotting of a few steps ahead.

Saturday, May 24, 2008

Trading in fast lanes?




















Many times when I saw the way market accelerates/decelerates after major news break or make sudden turns, it makes me feel forex is trading in fast lanes! Forex appears to me as the F1 of trading.

It is true anyone can learn to drive. If a "L" plater drives a fast car, chances one could easily crash. In this regard, follow a structured program is an essential step to learn driving, forex is no different.

While it is not essential to know the engine & transmission system of a car to learn driving. But if one wishes to join the league into the fast lanes, it is a different game - knowledge more than basic function of car becomes essential - e.g. performance limits of the engine, braking system, tires characteristic, electronics etc.

The comparison is we do not need in-depth knowledge of Technical Analysis tools to trade. It is an added advantage to know these tools in greater depth so as to understand their usefulness and limitations.

Most people I know simply apply the rules in good (or blind) faith. I personally think it is rewarding to gain insights to the inner working of these tools - i.e. mill over the formulas of the tools and understands its behavior. That helps to explain when the rules fail, why they fails.

Friday, May 23, 2008

Are women traders the best?














I'm a little cheeky to provoke some controversy here. It has been said women are good traders because they follow the trading rules meticulously & religiously; more so than men in general. I can acknowledge this.

Of course we also heard of Japanese housewives who lost much of family savings through forex tradings. So another paradox here it seems.. (may be most trade ad hoc?)

Well, I dig out an article about these 'ninja women' for your fun read.
http://barista.media2.org/?p=3233

So are we picking the few exceptions to make a general statement?

Next point is "Good do not equate to be the Best"!

I have yet to come across ladies winning in forex trading competitions. Even if I missed out some, are there statistics showing it yet?

Frankly my opinion is: In information age of our times, both gender are on equal footings in the trading game. Neither has significant advantage.

Thursday, May 22, 2008

A feather on cap




















I hardly score a 50 pips run when trading on M1 and M5 charts. Psychologically it is quite impossible to sit it out with the ups & downs + twists & turns of the market for it to exceed a 100 pip run. Yet when you see there are times the market trended for > 200-400 pips, you just wonder how to catch one.

So catching the first 100 pips run in a single trade to me is a milestone.

I manage to score it on the 3rd trade after attending a course. Was it luck? May be part of it; market trend was conducive then. But I attribute it to the change in approach than luck.

It is a fundamental shift of the approach, the mental time frame and the techniques.

In brief it is change of methodology and stringent market entry criterias.

Wednesday, May 21, 2008

Frogs out of well?











The "frog in well" syndrome reminds me of another "frogs out of well" story...

2 frogs got out of their wells wanting to see how the world is different outside.
They met on the way and came upon the idea to see further, there is no need to journey onwards. Just stood up against each other, belly to belly, to look afar.
To their joy, they saw nothing new. It was the same as where they came from. (Frogs have eyes above their heads, got it?)
So they went back to their wells contented.. "SAME, SAME"!

Moral of the story is when you get out of your well, keep an open mind. Otherwise you go back to where you come from without seeing anything new.

Tuesday, May 20, 2008

A Personal Reflection




















I did reflect upon my pre and post forex course experience.

Here's the summary:

1. I did have most of the knowledge pieces of the puzzle through self learning. The program put them into proper perspectives. In other words, I see a clearer picture afterwards.

2. Trading methodology - this is the part I benefit most. Otherwise it will be a long lonely road to come up with a comprehensive trading methodology. In other words, it short cut the learning process to the next level.

3. It widened my horizon to see how other markets (stock & commodity) influences/link to the forex markets. The personalities of currency pairs and insight to institutional game in speculation.

4. Finally, the opportunity to meet new friends with similar interests.

Making a choice?
















Choosing a program from advertisements is a game of chance too!

In my opinion, it is best to be an instructor lead program. Attend the preview and assess the merits of the program first hand. It is best through referral and recommendations of people who went through the program before.

Why do I suggest an instructor lead program?
1st reason is you can assess if he is a trader or simply a trainer.
2nd reason is only seasoned traders has a wealth of experience.
3rd reason is to check for continual mentor ship after the program and his personality.

Nobody can be a successful trader after a few days of training. One needs continual guidance to apply the techniques. The market is a changing landscape everyday! It is still an art when come to application.

Blatant Advertisements






A few days back I saw an advertisement on Options Trading Course that made me chuckle!

It featured a smart looking gentleman named Dr. Clement C.... in suit with confident smile and hands gesture making it sound so easy to make money trading the market!

(Updated 24th June '09) - As I passed through Singapore this time, learned that Dr, C's Ph.D. is from an unaccredited University in U.S. .. Oops, the bean is out of the bag!

The advertisement included a Bear Sterns Chart that dropped like a cliff! Marking on the chart prices dropped from $80 to $3 over the weekend. Buy 3 Put contracts on Fri and sell another 3 Put Contracts following Mon. to make US$7,710 in 1 day only!

How the facts are presented!
Wow, he has an impressive list of academic credentials (B.Eng, MBA, Ph.D + so many professional memberships I can't recognize all!)
Did he lie? No!
Did he make a killing? He didn't say either!
Sounds like talking to 3 year olds or gullible fishes out there!

The SAD truth of Bear Stearns!



















My rule of thumb in sizing up advertisements is read what it claims. Anything that sounds "too easy" are equally likely to be "easily disappointed" and "100% fool proof methods" are for FOOLS!

Oops, can't resist to add another advertisement here! Sound so easy again, right?
Don't wait to save up the Toto betting money to go for this one, cow gone home already!

Frog in our Well




















Who ever we are; however smart we think we may be, our knowledge domain is limited. Like it or not, that's the reality! In other words we are always a frog in our own well.

Where am I coming from in regard to trading?
I started forex through the same way of self learning. There are so much information out there on the internet. Anything you need to know and all you need to know about Technical Analysis. There are web sites to gather news and market analysis reports. Indeed I learn much on my own this way.

After I got through the learning curve, soon I realize I can't cross a certain performance barrier. That's when the signal "being a frog in my own well" came out again.

One obvious way is to learn from the experienced trader or better still a guru. But which guru? There are so many self-professed (or self qualified) gurus around!

Also along the way, there are tons of advertisements on the net that promise lessons to 'easy pips'; what is genuine & what is not? Even self professed market analysts & strategists entice you to subscribe to their trading signals service while they are not traders!

That's the dilemma of learning! Part of it is to filter the real and the CON-sultants. No different from bird nest farming.

The 4 Key Pieces















So what are all the main pieces?

One guru sums it up as the 4 M's:

In order of priority:
1) Mindset - trading psychology
2) Method - the trading system and strategy
3) Money & risk management
4) Mentor

So how does discipline fits in?

My view is: it's the "glue" holding the first 3 pieces together!

The more I learn, the more I don't know?




















The more I learn, the more I don't know?
This is the first paradox of learning I discovered when I was a student!
It can be resolved simply.... during our early years as students, as we were introduced to new topics of maths, science & technology, the boundary of knowledge seem limitless! The more I know, I discovered there are even more I don't know out there!

This paradox came back to mind when I received an email from my best friend CK, a few days ago. Quote:

Since last November after learning FX from you. The first two months were great. I was able to win consistently. However, I believe that was more luck than anything. As I learned more and more I found I loss more often ?? What happened there? Very interesting. Isn't I suppose to win more with more knowledge?

The background was I gave him an introduction to forex via the Meta Trader platform 6 months ago. He liked it immediately. Well, I said, try it out on a demo account and learn how and when you can loose money; and how you can get busted!

So he was on a road of discovery and reach the juncture facing the paradox.

How this paradox can be resolved?
The answer came from a trading psychology book I was reading recently. It cited when new traders begins trading practice, they are generally cautious, neutral and unbiased when starting out.

They may experience a winning streak when trading along the trend. That was the time when "even blind chickens can find corns"! As times goes on, both greed and fear sinks in and affect the trading mentality.

The next phase when one encounter more losses than wins; the normal reaction is the feeling being inadequately equip. So the quest of knowledge in market landscape and technical tools - which I think is correct and good. I had been through exactly the same route before!

One missing piece is to learn about one's trading psychology!
The advice was to regard trading as statistical game, losing is part of it. Take responsibility of the problem inside you. Acknowledge it is the first step towards a paradigm shift to develop a mindset in reducing (if not eliminate) the emotions involved in trading.


Monday, May 12, 2008

The Key to Consistency?












Sometimes, I like to compare forex and golf in terms of the gamesmanship to win.
What is common? Both games are statistical in nature.

I remember the days I went daily to the golf range. What was I after? Consistency in accuracy!
How to achieve it? Discard old habits, learn new techniques and refined it through practice and more practice. No short cut!

In trading, we want the consistency of more wins than losses. I have find that even if you have a winning strategy, its implementation is often obscured by emotions of greed and fear during execution. In other words, the enemy is actually within us - our trading psychology.

One way to remove this element via automated trading, though it is a general believe trading robots can't replace the human mind. But the real personal challenge is to eliminate it by developing a new mindset. Treat losses as part of the statistical game, eliminate the fear that often throw our judgment off balance.

In this regard, the key to consistency is in our trading psychology! So the process is no different from improving your golf game. Develop new mindset and lots of practice to achieve the winning consistency.

Friday, May 9, 2008

The curse of freedom!

I always look upon the eagle as a symbol of freedom; being the top predator of the sky, they soared with free spirit at will without fear.


















We humans have in our innate nature to love freedom. Human ancestors who roamed the jungles as hunter gatherers of pre-civilization days probably had more freedom than us today. As civilizations evolved and develop, rules and laws are imposed inevitably to maintain civil order. So within home, work place and society at large... rules abound!

What does this preamble leads to?
Well, my classmate threw this question at me yesterday.

What do people who trade like most?
The first thought came to mind is profits of course.

No, most like and enjoy the freedom!
One has total freedom to do anything one pleases..
when to trade or not to trade;
when to enter or exit a trade;
with any rules or without rules etc.

But that's also the curse!
Trading offers so much freedom we can't handle properly!
We can easily drift around trading ad hoc ways.
The most probable outcome is loosing money.

Guess what he said make good sense; worth to ponder over.
So it is back to the fundamental of "Disciplined trading" again!
I can't emphasize less!

Thursday, May 8, 2008

Expect the unexpected!














Expect the unexpected - a mindset I used during trading. You'll develop it too after some hard knocks!

Well, it came from a different quarter today. I lunched out with this classmate whenever passing through Singapore. Other than the catch up chat, our common conversation topic centers usually on psychology of trading. He trades in S&P 500 index and options; who also told me of perils in forex before.

It was a surprise when he popped a line, ".. something I like about forex...".
Huh, what? Did I hear him correctly?

As it turn out he attended a talk on forex recently. So what does he like about it?
Prospect of automated trading!

Why?
It takes the emotional element away in trading. If one can implement his successful strategy to trade automatically, it is appealing.

Is it on Meta-4 trader platform?
Yes, he came across it too.

In the course of conversations, I noted his attitude towards forex has shifted to an open one now. I stayed ambivalent without encouraging him but gave some pointers to a demo platform & web link to explore articles on automated trading. How it will get on with him? Time will tell.

This line "expect the unexpected' is also a good axiom in life!

Wednesday, May 7, 2008

Forex game - speculation or gambling?



















I caught up with my brother over lunch some weeks back. The topic of forex crept in after a while. He still sees forex as a form of gambling and I tried to make a distinction between speculation and gambling!








Gambling as I see it is a game one leaves to chance. If you throw a coin thousands of times, we all know each side has equal probability of 1/2. Hence one may win after a few trials with 'luck'.

All casinos games are biased in favor of the dealer with odds stack against you! So we really need LUCK, and lots of it, to win consistently! In this regard, forex is similar. Forex is not a balanced coin! The spread of currency pair is stacked against you. It is only one among many more complex factors. If you trade randomly over time chances you will loose money.














So how does forex differ?
Well, I said, there are technical analysis tools and charts. If one monitors economic and financial news and made a judgment call of the trend, it can be profitable when correct or punishes by the market otherwise! Knowledge and skills in combination are the edge in making good calls.













He then added, "I see the same with many people who lost fortunes gambling and punting in horse racing. They studied the horses with published news, wins statistics and monitor their pre-race physical conditions, doesn't it sound similar too?"

I admits he made a good point. My opinion is in both instances elements of gambling and speculation co-exist. The boundary is Grey if any. One may unwittingly cross from speculation to gambling without realizing when emotions or wins or losses involved.

So the key is "Trade with discipline"... easy said than done - something we heard many times before; but still drift from it often especially after easy wins or pressure of recovering lost positions quickly.

Thursday, May 1, 2008

Trading from different parts of world

One of Forex's appeal to me is the 24hr market, 5 days a week. I won't mind sit up late into the early hours to watch the Euro & US markets. I have often been a nocturnal animal anyway.

With easy internet access in countries with good telecommunications infra-structure, one can practically trade anywhere & anytime! Mobile trading with PDAs & 3G phones are available too, but not my preference due to small screen size and sluggish response when switching graphic screens. But can be useful to monitor and close positions on the road though.

My favorite platform is the Meta Trader 4 offered by many forex brokers. I find its user interface pretty intuitive and easy to use.









There are 2 other features I like in particular:
1) It supports Expert Advisors & Meta4 programming language; which offers the possibility to implement and automate trading. This is one area I would explore - not easy but a challenge.

2) It allows more than one person to trade simultaneously from different parts of the world. One may argue there is security concern here as it is only password protected. However it suits me trading a shared account with my son, based in Melbourne. He would trade the Euro time zone after work. I could trade with him anywhere from Thailand or stopovers in Singapore. We watch each other's positions in real-time, communicate frequently via Skype on strategy and market conditions without call charges; how convenient! I like to share a common interest with him and this is it.