I have 4 golden rules that I use to determine if a trading method is good for me:

1. It must be a complete method, with setup conditions, entry rules, initial stop rules, and exit strategy rules, leaving no decision to chance.
2. It must include specific risk management, money management, and portfolio management guidelines.
3. It must be based on technical analysis, but it must not be a 100% mechanical system.
4. It must take less than 20 minutes a day to apply after learning how to trade with it.

Impressed so far? Would you continue reading the remainder of the copy?

Well I’d be impressed… I’d be a little niggly on the last two points as I wouldn’t care if a method took 20 minutes or 2 hours (obviously I’d prefer the lesser time), and so what if the system is 100% mechanical, wouldn’t that be a good thing? Sure, all systems break down, we all know that the only thing guaranteed in life is change so you not only need to have a method that works, but you need to have a process where you can adapt to changing conditions (i.e. how do you know a system no longer works? how do you then tweak it?).

But I found there was one even more important element that this person missed from their golden rules. Did you pick it up?

To see if the element I thought they missed in the opening pitch was going to be in the remainder of the copy I continued to read it… and sure enough it wasn’t there! (Okay, so there was one testimonial where one customer claimed to have had 8 winners in a row – they could’ve all been 1 pip profits, or 1000 pip profits, we aren’t told.)

So what was the missing element?

EVIDENCE

Talk is cheap dear friends we all know that – and it’s even cheaper on the internet! The only evidence this copy provided was the web site statistics on how many people viewed their site, and the expense at creating the high class videos that were used to create the DVD course. Both of which I have no doubt on.

But so what!

Sure, your method may use non-technical methods, you may be counting how many pigeons poop on your Porsche every morning to determine whether to go long or short the Euro, but what has been that method’s results? And can they be verified by an independent third party?

Sure, past performance is not indicative of future returns, but they’re a good guide aren’t they? I mean, would you prefer to place money into an asset that loses money 20-30% every year? No? But past performance is not indicative of future returns, next year the asset might make money?? True, but something would need to change for this asset to make money because the probabilities from its previous history indicate otherwise.

And we know you don’t need a 100% mechanical system to be profitable. That’s what demo accounts are for. You can be at the other end of the spectrum and have a 100% discretionary system, that’s fine. Run a demo account for a few months trading your plan (which is written down, yes?) and see how the results go. As you’re trading write down things that you notice with why a trade was profitable or not (did you trade the method exactly? did you notice anything unusual prior to entry? did you notice anything unusual about where your initial stop was? did something unusual happen during the trade? how was your exit?) – by doing this after your testing period you may begin to see a pattern develop with certain trades and find that when your method is tweaked to compensate for this pattern your method improves immensely!

If you have no plan you have no method.

And if you have results but no plan you have no idea on what works and what doesn’t!? So if your trading a demo account but have no plan – STOP!

Then start by doing the following:
1. Formulate a method. Find what indicators/fundamentals resonate with you, or look at some charts and see what patterns you notice. We’re all different here. I’m not a big fan of Elliott Wave, Gann, counting Uranus’ rings, or counting pigeon poop on my car, but for some of you those things will work the best (hopefully not the pigeon poop!). The best system for you is in you. All you need is time and experience to find it.
2. Test your method. If you can get some historical data, and can write computer code then mechanically test it, if you can’t that’s fine, be sure to write your method down and demo trade it.
3. Stick to your method for a set period of time/trades (at least 20 trades, but if you’re doing more than a trade a day I’d recommend trading for at least a month). To stay disciplined I recommend you exercise regularly or perhaps clean your house regularly (trust me your partner will love you for it – even if you don’t make money), because if you cannot stay disciplined in one small area of your life what makes you think you can do it in the hectic world of forex trading? Oh wait a minute you’re a “special case” and these rules don’t apply to you… rrrright.

You don’t need a special top secret course to tell you what you already know on how to be profitable in the forex market. You just need to get off your lazy glutes and do the work yourself.

If success were easy everyone would have it – and what would special about it then?

So if you’re buying this course then I believe you do so on faith. Nothing indicates to me that the method even works, which means clients may be very disappointed at the actual results when they come to trade it. I have no doubt that this organization will offer tremendous support, or help educate the customer on what the forex market is, but can’t all this be done for free from a popular forex forum??

Tags: Forex Course, Forex Trading, Forex Trading Courses

One such forex course that came across my desk not too long ago stated in their copy that users COULD make US$300 per day trading their method, with only 20-30 minutes day of work.

What shocked me though, as I read through the copy, was that the claim was backed on mere hearsay.

That’s right there was no substantive evidence confirming that a user could make US$300/day – just someone’s opinion!

Yet this course sold for US$2,000 and many bought into the hype.

When I asked how such claims were derived (i.e. from hypothetical backtesting, or from actual trading – whether it be from the person selling the course or from a customer) no such response was given (which didn’t surprise me).

In this internet age things such as this will become more prominent.

Forex trading is a skill. There’s nothing wrong with purchasing ebooks or courses if you believe purchasing the course will enhance your forex trading skills, but try to remain objective whenever you come across such emotive sales copy that has been written by a trained copywriter who is expert in exaggerating claims and enhacing the course without stretching the truth too much.

You may even want to employ tactics that I use before I purchase a product (I’m going to assume that the product being pucrhased here is an informational product, you wouldn’t likely be able to use these tactics if purchasing a signal service, or something more tangible such as forex data):

First thing I do is look for claims in the sales copy of what this product will give me and I try to reverse engineer from the sales copy! What I try to look for are bullet points as these usually contain small snippets of information about what the product will provide. What I do with each bullet point is to try and figure out for myself what each bullet point’s answer is – it will be test of your own knowledge and also your creativity. As an example a sales copy might say:

• Know which direction a currency is likely to trend in the short-term AND medium-term in TEN SECONDS.

Now if you had to think of what this could be what answers would you come up with? Stop, think about it for a minute. Try it for a few seconds and see what you’d come up with.

If I had to have a guess on copy that said something like that I’d probably guess that the course would be either peddling some sort of trending technical indicator (such as moving averages, trend lines… etc) and employing them on different time frames to gauge short and medium-term trend, or perhaps looking at carry trades by assessing which pair has the higher interest rate (for medium-term direction), or perhaps looking at announcements to see whether an economic report will be favorable or not to a currencies short-term direction.

Sometimes brainstorming like this has produced new ideas… all thanks to a product I never bought!

If I come across a bullet point that I cannot answer I write it down and come back to it when I’ve gone through the copy. When I’m done I then go back to all the bullets and determine whether the bullet point will indeed enhance my forex trading. For those bullet points that I believe MAY enhance my forex trading skills I look at the price of the product and make one last final determination on whether the price fits the value (that I deem) for me to increase my forex skills.

Sometimes I’ll even search on the internet to see if I can try and find the answer to it before buying the product, because you never know if the seller may have pinched it from somewhere else!

So, one of your main priorities when purchasing any forex product should be: will it enhance my forex trading skills. If it doesn’t don’t be afraid to say no and move on – spending money on forex material is an EXPENSE and will affect your overall profit and loss at the end of the financial year.

Signal vendors come and go, methods have their season, but if you have purchased products that have enhanced your forex trading skills then you’ve got something that will last you a lifetime.

Tags: Forex Systems, Forex Trading, Forex Trading Courses

As an example, if we were testing a simple moving average crossover system on closing prices we would test which moving average periods would be the best to use – these moving average periods are what I term as variables.

Unfortunately most new forex traders test every number known to mankind and proceed to test all of these numbers over their entire historical data. Once the computer has churned out a database of results the trader looks at which variables produce the best Net Profit and then trades those “best” variables.

And the money just comes rolling in by the bucket loads, doesn’t it?

Hardly.

I wonder what the trader would’ve been using had they ran their optimization last month? Or maybe 3 months ago? Would the variables have been the same?

What then does the importance of NOW have over one month ago? Or three months ago?

The only real difference between now and back in the past is more historical data to test over, but what of the future? What if one week from today the best variable(s) to use are different? How often should one change their system’s variables? Every time? Even during a trade?

As you can see optimizing can be very detrimental to your forex system – just when you thought you were safe in finding the best variable a whole bunch of new ones enter!

So what do we do?

One solution is to conduct a walk-forward optimization (WFO).

A what?

In its simplest form WFO allows users to test their system by allowing the computer to automatically test the variables used and, according to the system’s results over the testing period, use the best variable(s) for a predetermined period before re-testing again.

As an example, if we have a WFO on our moving average crossover system, we would test a whole different bunch of numbers for the moving averages over a period of say 3 years (if we’re using end-of-day data) and we instruct the computer to use the best variables that returned the highest Net Profit over the sample period to use over the out-of-sample period being the next 3 months. In 3 month’s time we then repeat the process again: test the system over the last 3 years, locate the best variable(s) that produced the highest Net Profit, use those variables to trade over the next 3 months.

Okay so now the money should start rolling in, right?

Well, the great thing about WFO is that it tests your system’s foundation – as too many people place far too much emphasis on finding the right “magic” number rather than putting in that effort on the method used.

But WFO does have its problems and if you ever do use WFO on a system you’ll more than likely find your systems results rather dismal.

There are several reasons for this with the most obvious being that the system needs 1 in-sample period where no trades will be conducted. Depending upon how large your in-sample testing period is as compared to your overall historical sample you could find that 20-30% could be lost. As an example, if you have a large in-sample testing period, of say three years, and the entire historical sample of your data is 4 years in length then 75% of your data will not be traded, therefore your results will be reduced by 75% than an otherwise simple optimization over the ENTIRE period would make!

Another not-so-obvious reason is that WFO’s (such as those created in Wealth-Lab Developer) only allow one constraint. This means that if we tell the WFO to use the best variables for our trading period those that produce the highest Net Profit (or whatever constraint we use) during the testing period if there just so happens to be a variable that produces one trade yet luckily enough ends up producing the highest Net Profit the WFO will use those variable(s) for the trading period.

“But who cares?” you might say, “it produced the highest net profit.”

Well would you really want to trade a system that had ONLY 1 trade??

Of course not!

So why should your WFO tests be any different?

And this is where WFO testing falls down – it’s lack of additional constraints.

Unless you can tailor a WFO to contain constraints that you personally use when selecting whether a system is feasible or not I’d be very wary of using it.

Tags: Forex Systems, Forex Trading

While the concert was something that I’ll never forget, but one odd memorable moment of the weekend was spent in the Crown Casino.

After wandering through the casino and seeing the multitudes of pokie machines and playing tables we sat down for a coffee.

As the conversation talked about our immediate surroundings it soon turned to what I did.

“Ryan, you say that forex trading is different from gambling, how so?”

“Well let’s have a look,” I answered, “and compare both.”

We looked out at the old ladies pushing the flashing buttons and began.

“We both need money to play, right?”

One friend nodded.

“We both have an element of risk. For a forex trader this can either be their stop loss for each trade or their entire account. For the pokie player whatever they put in they are prepared to lose.”

“Yep,” they all agreed.

“We both have an uncertain element of reward. Even if a forex trader uses limit exits they don’t know whether that will ever be hit. Same for the gambler.”

“Mm-hmm.”

“Not even having a system differentiates between both: I’ve seen systems sold by people to make money from Lotto, or on the tables, or horses.”

“So you’re a gambler then?” they all asked.

“Well there is one thing that differentiates us.”

“What’s that?”

I knew they wouldn’t understand the terminology I was going to use as the answer so I used a simple illustration.

“Let’s say that I find a game at the Crown that allows me to make $1 if I can call the flip correctly, but I’ll lose $1 if I call it incorrectly.”

I stopped making sure they understood – they did.

“Now let’s say that I flip away all night and end up tossing the coin 1,000 times. On average, how much do you think I would make at the end of the night?”

“Well,” spoke up one hoping to impress his woman, “you’ll have roughly a 50% chance of calling the correct face each time. Therefore you’ll win about 500 times out of the 1,000 and you’ll lose on the other 500 times.”

“Yep, that’s right, so how much have I made or lost?”

“Well… if you’ve won 500 times that means you’ll win $1 each time, therefore making $500, but you’ve lost 500 times and you’re going to lose $1 each time, meaning you’ve lost $500, resulting in making nothing… and losing nothing.”

“Good!” I was impressed, so I decided to modify the illustration slightly, “Let’s say you find the same type of game but it pays $1.10 on a correct flip, and $1 on an incorrect call. What’s likely to happen after 1,000 flips, now?”

Again the same friend decided to take the new challenge.

“Ok, you’ve won 500 times and you’ve made $1.10 each time, therefore you’ve made $550. The losses are the same as last time, being $500, therefore you’d profit $50.”

“Well done!”

“But I still don’t see the point between forex trading and gambling,” said another frustrated that he wasn’t quick enough to answer yet annoyed that I hadn’t answered the question.

“How many times would you play that first game?” I asked.

No one wanted to play the first game.

“How many times would you want to play the second game?” I asked.

A couple jided on how crap the returns were, but all agreed that they’d play it.

“What you’ve just done is proven that you’re not a gambler. You’ve just calculated your expectancy for both games. In essence expectancy is just the probability of winning multiplied by the amount of your win less the probability of losing multipled by the amount of your loss.”

A joke was made, and the conversation turned to a little less technical matter.

“Yep, he’s a gambler,” they all laughed.

Unfortunately what my friends failed to understand was that all games in the casino have a negative expectancy. You might win at the start, but the more you play the greater your chance of giving it all back and losing it all – which is why the casino does as much as it can to keep you playing.

So, do you know your expectancy?

Tags: Forex Trading

If you think that you’ll achieve long-term forex trading success within a year I think you’re going to be sorely disappointed – the forex market is one of the fastest markets in the world and what might work for you now, may not work in 3 months time – it’s a constantly moving target. And it’s why I endorse having the mechanisms in place that help you monitor when these changes are happening to your trading model (by doing things such as the self-audit process).

Anyway, I think the article will prove to be quite insightful, perhaps print it out for future reference.

Enjoy.

CNN Money Article

Tags: Forex Trading, Trading Psychology

(If you haven’t already done so you may want to read my previous review on Forex Simulator.)

Allow me to start by saying that Forex Tester is a much more refined package than Forex Simulator. In fact, user of MetaTrader will recognise the interface almost immediately.

So in what ways is Forex Tester different besides cosmetically?

Here’s a list of things I like about the Forex Tester platform:

• Stop and limit entry orders (as well as market orders) – also applies to exit orders
• You can program a dll using their API library and employ your own strategies
• You can import your own csv, txt or MetaTrader 4 (hst) forex history files – I like it how they use free forex data from sites such as Forexite and Alpari
• You’re not restricted to just forex data you can test anything – even stocks or indices!
• You can exit positions partially
• You can have multiple charts on multiple time frames
• You can take screen shots of your trades
• You can export your account trading history so that you can analyse your trades in Excel
• They provide a chart on the equity curve of your trades
• You can add comments to each trade so that you can analyse your performance better
• They have support by way of a public forum
• The ability to import data and append it to already existing data
• And they allow you to test their platform for free for 14-days

The enhancements that I’d personally like to see in the Forex Tester software, which are also enhancements I’d like to see in Forex Simulator, would be:

• Including economic announcement alerts
• When placing an order slow the speed of the chart down to, at most, the time event of each tick that is plotted on the chart (i.e. 1 minute)
• Automatically take snapshots of each trade entry and exit
• Randomly select an entry time to trade and preferably hide the X-axis

How much does it cost?

The Forex Tester is sold at a good price program selling for only US$135.

In summary the Forex Tester is a better program than it’s competitor Forex Simulator. I wouldn’t hesitate in recommending this product to anyone who is seeking to “train” their mind and better their forex trading.

Test their platform for free and see whether it fits in with your trading requirements.

Tags: Forex Simulator, Forex Simulator Trading, Forex Tester, Forex Trading, Forex Trading Simulator

I particularly enjoyed Rob’s seminar and there will be several things I’ll be expounding upon in the coming weeks that I learnt from his talk with the remainder of this post being the most prominent feature I learnt from him, and that is: being focussed.

Having being a trader for some 8 years I’ve pretty much done it all: I’ve had the “privilege” of wiping out a couple of accounts, reading a gazillion trading books, attending hundreds of seminars, purchasing hundreds of systems and subscribing to hundreds of signal vendors… etc etc. I suppose if I added up the amount of time and money spent it would easily be in the hundreds of thousands of dollars!

And do you know at what point I began becoming consistently profitable?

When I traded a system that I created from what *I* observed.

My profitability then increased further when I acquired a skill that allowed me to backtest my observations through programming, and increased yet again when I tweaked the system I had chosen to trade.

And this, I think, is at the heart of becoming successful as a trader: focus.

I remember the days when I would create a system, backtest it, like its results, trade it, encounter a string of losses (like… 2 in a row), panic, and then throw the system away.

How stupid was I?

Everything my mind had logged, trading that system, had now been erased. If the system was breaking down I could’ve gone back to the drawing board and thought about what common characteristics were prominent on trades that were losers. And this is when the penny dropped.

I stopped chasing the elusive holy grail and simply concentrated on what I liked using and what worked for me.

I then audited my trades on a consisent basis knowing that the markets are always changing and the precious experience my mind had acquired watching charts I could crystallise into an improved method for extracting profits out of the market.

After watching Rob’s presentation I began to realise that the real element of my success was the focus I put in on that ONE system. Without that focus I would’ve continued chasing my tail using a new system every month.

If that’s you, come in close, reeaaal close I need to tell you something very very important…

STOP!

Rob puts it best… “If we were to lock you in a room for six months and gave you historical data on ONE currency on ONE time frame with ONE indicator could you develop a PROFITABLE system?”

If you’re not profitable trading the forex market then why aren’t you doing that?

Focus.

Grab your favourite currency, plot it on your favourite time frame, use your favourite indicator and then stay focussed on creating your holy grail.

And this is what Jack Schwager’s FXCM presentation should have impressed upon you: there’s no ONE way of extracting profits out of the markets.

I know profitable forex traders who use only a MACD (or the Macdizzle as Rob put it!), traders who trade announcements (such as Felix), traders who trade bank opens, carry traders, CCI trades (such as Woodie)… etc etc.

It’s no hocus pocus… just focus.

Tags: FXCM Expo, Forex Trading

One particular video I enjoyed was Jack Schwager’s. If you’re familiar with Jack Schwager’s books Market Wizards and his second work New Market Wizards then you’ll be familiar with his presentation as he highlights some of the common elements of the successful traders.

Be quick dear friends to take advantage of FXCM’s free videos as I don’t know how long they’ll be keeping such good content for free for too long.

The video on Jack should take about an hour, but my connection was a little funny and it took about twice that time, I asked FXCM if they could offer some sort of facility where the video can be paused while it downloads, but I never heard back from them.

If anyone views the video and notices any pause button let me know, I’d like to watch the Jack Schwager video again without it stopping every 5 seconds.

There’s also a good video by famous forex trader Rob Booker too.

FXCM Expo has their next event is in December 2006 in Las Vegas.

Tags: FXCM Expo, Forex Events, Forex Trading, Forex Video

As an example, if you were trading on Oanda you’d notice that the NZD/JPY pair isn’t offered.

Why worry about the NZD/JPY? I hear you ask.

Oh, nothing much, just that Oanda pays long NZD positions 7% per year, and charges 0.32% on short JPY positions – and according to my calculations that’s a nice difference: just buy NZD and short JPY, only problem is NZD/JPY isn’t offered in Oanda.

So what do we do?

Here’s how…

(All interest rate charges and payments are taken from Oanda’s Interest Rate section)

Let’s first of all look a more popular carry trade example: GBP/JPY to illustrate what I’m talking about by the huge difference in interest rates between the NZD & JPY and taking advantage of this.

The GBPJPY cross is quite a popular currency as Oanda pays LONG GBP positions 4.35% per annum, and charges 0.32% per annum on Yen positions. If we were to go long the GBPJPY (which in effect is buying/investing Pounds and selling/borrowing Yen) then we’d receive interest on a daily basis, as the interest received is greater than the interest paid. To illustrate this through an example…

If the GBP/JPY’s asking price was 215.08, and we went long 100,000 Pounds, we have now gone short 21,508,000 Yen (100,000 x 215.08). If we held these positions for a year and the interest rates of these countries were to stay the same we’d receive and be charged the following…

100,000 x 4.35% = GBP 4,350
-21,508,000 x 0.32% = (YEN 68,825.60)

If we convert the YEN back to GBP by assuming that the currency hadn’t moved in a year we’d be paying…

(68,825.60) / 215.08 = (GBP 320)

Our net interest received would then be… 4,350 – 320 = GBP 4,030

If we convert this to the currency of our account, being USD, (and we assume the GBP/USD is at 1.8000 in a year’s time) we would receive US$7,254.

Still with me?

It’s quite a simple process calculating interest rates, but as it is with riding a bicycle it takes going over a few times.

So now that we know how to do this on a direct cross, what happens when we want to do some carry trading on a synthetic pair such as the NZD/JPY?

Well, just as with our GBP/JPY example the net result needs to be: LONG the NZD, and SHORT the JPY. So whatever steps we take we need this as the end result.

One way of achieving this is by going LONG the NZD/USD (we’ll use the asking price of 0.6175), and then LONG the USD/JPY (we’ll use the asking price 115.88).

Here’s the math (and as we want to compare the difference to the GBP/JPY cross we will keep the quantity of YEN the same, being 21,508,000… and with that we’ll start with the USD/JPY trade)…

If we are going to SELL 21,508,000 YEN at 115.88 this means we are in effect going LONG US$185,606 (21,508,000 / 115.88).

As we only want to be LONG NZD we need to neutralise the LONG USD position by offsetting it against a SHORT USD of equal size, therefore we will…

SELL US$185,606 on the NZD/USD pair, which means that we will be LONG NZ$300,576 (185,606 / 0.6175).

So here’s how the sums look…

-21,508,000 YEN
+185,606 USD
-185,606 USD
+300,576 NZD

Which in effect means that we are short 21,508,000 YEN and LONG 300,576 NZD (the USD’s cancel each other out) – we have achieved our intended result!

But what would be the NET carry result in a year’s time (assuming interest rates stay the same)?

-21,508,000 x 0.32% = (YEN 68,825.60)
+185,606 x 4.825% = USD 8,955.50
-185,606 x 5.375% = (USD 9,976.30)
+300,576 x 7.0% = NZD 21,040.30

We would now need to convert the USD and JPY amounts to NZD (we’ll again assume the currency prices haven’t moved for a year!)…

(YEN 68,825.60) => -68,825.60 / (115.88 x 0.6175) = (NZD 961.80)
USD 8,955.50 => 8,955 / 0.6175 = NZD 14,502.00
(USD 9,976) => -9,976 / 0.6175 = (NZD 16,155.50)

Which would now leave us with a net result of…

(NZD 961.80)
NZD 14,502
(NZD 16,155.50)
NZD 21,040.30
NZD 18,425.00

Or, converting that back to our USD balance… 18,425 x 0.6175 = USD 11,377.45 (nearly a 60% increase above our direct currency cross of the GBP/JPY!).

Okay, so what are the disadvantages of synthetic positions?

Probably the most prominent is the fact that you don’t have a direct chart to look at and see where support, resistance, or whatever indicators you enjoy plotting are. If you have a charting package and forex data you could probably work around this restriction by creating code and plotting such a chart – as I’ve done here for NZDJPY in WLD code.

Or, if you don’t have WLD, you could use a free charting service such as Trading Charts and simply enter the synthetic currency into the box underneath the table – i.e. NZDJPY. You can then play with the resulting bar chart according to Trading Charts’ selections.

By looking at a chart you are able to gauge how much you’ll need in reserve to hold the positions for margin requirements.

So, hopefully with this short article on synthetic positions it has helped widen your scope on what is tradable in the forex market, and opened up new opportunities for you. With interest rates on the rise in certain countries carry trading like this should further your interest over the coming months and years – I especially like it because you don’t need to do too much!

Tags: Forex Trading

Although the book doesn’t touch on forex trading there are some important aspects to it that I think is pertinent to ANY trader no matter what they trade.

In fact, the compelling part of the book was Nicolas’ evolution as a profitable trader. For those that have read the book you will know that he became a better trader by being pragmatic about the situation.

He would often look at his results and SEE if what he was doing was making money, if it didn’t he would set about CHANGING his approach.

In many ways I saw the OLIAD Principle that I discussed several months ago with you all.

Initially Nicolas Observed the stock market through an employer that wanted to pay him his wage through stock instead of cash. From there he was hooked, and set about Learning how to make money from the stock market. From the knowledge he acquired he then put it to the test by Interacting with his new found knowledge. Luckily for Nicolas he Analysed his results often and then sought about Learning from a different angle (he went from receiving tips from friends/family, to receiving professional advice, to learning fundamentals, to learning technicals).

Eventually he got to the stage where he knew enough about the stock market that his conscience created his own Holy Grail – a system that was compatible with his personality and his goals. After a time he created his own unqiue system and then began tweaking it through time.

This created his success.

Now, even though this story has absolutely nothing to do with the forex market, it still can offer great insight into helping you becoming a successful trader and I highly recommend it.

Although I purchased the book you can read Nicolas’ book for free online from this web site: Nicolas Darvas

Tags: Forex Trading, Trading Psychology

Things have changed since the last time I downloaded MetaTrader many years ago.

After attempting to program for myself a connection between Wealth-Lab and CMS’s API (which proved unsuccessful) a friend continued to berate on me to download MT4.

Initially I wasn’t enthused.

I mean, I had tried the platform many years ago and it was too MetaStock-like (and I wasn’t a big fan of MetaStock – mainly due to the limitations of its coding).

But earlier this week I caved in to peer pressure and downloaded it.

Wow!

A lot has changed since whatever version of MetaTrader I used before.

Some of the things that I liked about it was its C-like Expert Advisor programming capabilities (where users can program a system and have it automatically trade), it’s large array of historical data (daily data since 1978 for some currencies!!) and its ease of use.

While there are only a small handful of brokers that support autotrading from MT4 a couple of the ones I would likely open an account with would be: Interbank FX and FXDD, with my primary choice being Interbank FX (which also seems to have changed since my last visitation).

Anyway, if you’ve been someone like me that has avoided MetaTrader and are looking for a platform that truly has it all I dare say that you really are missing out with this.

Try MetaTrader today.

(I’ll be learning how to code up some systems in their Expert Advisor and will relay my successes/failures over the coming weeks – stay tuned)

Tags: Forex Trading, MetaTrader

Just as I had finished coding up the CancelOrder procedure had I soon discovered that Wealth-Lab does not offer the functionality of flushing its alerts window.

What’s so important about that? I hear you ask.

You know how we created the alerts so that it would accurately showed us how much of a particular order was attributed to closing an already existing position and how much of the other portion was to initiate a new position… well, it seems that if we ever wanted to cancel an order that was split like this the side that was not cancelled would still be shown as active. Allow me to illustrate this by way of an example:

Let’s say we have already bought 5 GBPUSD contracts (therefore we are LONG 5 GBPUSD) and these 5 contracts do not have an attached stop loss order. Now let’s assume that we place an order to SELL 9 GBPUSD contracts. If we open Wealth-Lab and login to our CMS demo brokerage account our alerts screen will show something like this:

Sell 5 GBPUSD
Short 4 GBPUSD

Which is correct.

However, it we click on the cancel button for any one of these two orders the ENTIRE order will be cancelled, even though the alerts window will show one as being active!

eg. If we were to cancel the first order…

Cancelled 5 GBPUSD
Short 4 GBPUSD

Are there any workarounds?

At the moment this is what I’m trying to figure out, BUT if we think about this carefully do we really want “workarouds”? I mean, I don’t know about you, but I’d prefer to have NO workarounds at all if I want to eventually put real money on the line.

However, if we are to integrate this into Wealth-Lab we would need to change the alerts window so that each line reflects one order, continuing with our example above our order to sell 9 GBPUSD’s would look like this in the alert window:

Short 9 GBPUSD

Again though I think this is where things will begin to get messy as we simply cannot refesh the alerts window in Wealth-Lab and as Wealth-Lab needs to be linked to a portfolio if we start amassing too many entry orders (even though they may not be entry orders at all in CMS) it will begin to bog down the entire process.

Could this be the end of the road?

Possibly, and if it is it was still a worthwhile experience.

Tags: Auto Execution, Forex Trading

If you conducted some testing you would have noticed that if you placed multiple orders that tallied greater than its open position quantity you would have seen an output that would have been wrong.

As an example, if you were long 1 mini USDJPY position (with NO attached stop loss orders) and placed 3 individual 1 mini stop sell orders on the USDJPY you would have seen on the alerts something to the effect of:

Sell 1 USDJPY
Short 2 USDJPY

This is incorrect as we need to return each individual order, such as:

Sell 1 USDJPY
Short 1 USDJPY
Short 1 USDJPY

With this new code it seems to have solved this problem.

If you’ve been following and have used the previous code download the latest one here. If you’ve used the code in the part 3 article after this date then you don’t need to worry you would have downloaded the correct version.

Tags: Auto Execution, Forex Trading

Over the last couple of days I’ve been racking my brain over how best to have WLD read open orders.

Think about this for a second:

If I am long 3 mini lots on the EURUSD, and I place a stop and reverse order to sell 6 minis on the EURUSD how should this order register on WLD?

Now before you contemplate an answer remember than CMS and WLD have two different order types. CMS has only buy and sell, Wealth-Lab on the other hand has Buy, Sell, Cover and Short – therefore our alerts are going to need to be a little more precise.

In answer to my question above though, in Wealth-Lab we will need to show 3 lots as being of the order type “Sell” and 3 lots as being of the type “Short” – as the first lot will see the closing out of an already existing position, whereas the next lot will be the opening of a new short position.

Okay, several other things I noticed about CMS’s order types is that they signal whether a position is attached to an already open position. In other words, if you attach a stop or limit order to a trade these stop and limit orders will be different to a limit or stop order that isn’t attached to another order.

CMS do this by simply denoting attached orders as “L” (limit) or “S” (stop) and unattached orders as “EL” (entry limit) or “ES” (entry stop).

This does help as we now know that every order that is denoted by an L or an S is one that is attached to an already existing position, therefore, it can only be a “Sell” order type or a “Cover” order type.

While this seems so much easier in print it ended up being quite a pain trying to get it down into code for orders that are unattached as we still needed to find out whether there were any orders that were open and didn’t have attached orders.

Anyway, here is the new code that you should paste over your existing VC# CMSAPI project.

Don’t forget to change the username and password fields in the script to your demo account’s username and password.

Hit F6 (or Build > Build Solution) and before you open up Wealth-Lab open up your VT platform and login to your demo account and place a few trades (otherwise nothing will register in your alerts screen in WLD).

Enter into a currency at market and then place a stop order for a lesser, or more quantity than the amount you just went at market with.

Try this for other currencies before opening up Wealth-Lab, maybe even place a few stop and limit entry orders with attached stops/limits.

Write down what Wealth-Lab will need to show – don’t forget that WLD uses Buy, Sell, Short and Cover so you may really need to nut out what will happen if you’ve put some complex orders on.

You should notice that when you open WLD and login to your broker that the orders display as your answers should.

You may also notice that attached stop and limit orders to entry stop and limit orders aren’t shown. There’s a good reason for this: these orders aren’t active – they’re an If-Done type of order, meaning that they will only become active if the entry stop or limit order turns into an open position.

Tags: Auto Execution, Forex Trading

What I’d like to do is to just explain myself a little further on why I am undertaking this journey as well as provide some disclaimers to those who are following along.

Firstly, I undertook this task as an adventure.

I have used Wealth Lab Developer for several years and have used the product fairly extensively during those three years. As I feel I know the Wealth Lab platform quite well I thought I could undertake the task of creating a forex broker API to see if I could auto-trade – as this functionality exists (I suppose my attitude is similar to British climber George Mallory’s when he climbed Mount Everest in 1924, when asked why he did it, he responded with, “Because it’s there”) .

So, just as George did, I too am embarking on my own Mount Everest: auto-trading the forex market through WLD… because it’s there.

While I don’t doubt that other platforms, such as MetaTrader, can provide auto-trading functionality I thought I’d rather spend my time learning VB.NET (or VC#) which can help broaden my programming horizons that may possibility add further functionality to WLD or to other things in general.

Which leads into my disclaimer.

I haven’t coded any VB.NET (or VC#) stuff EVER, therefore, if we ever do get to the end of this adventure you should check the code THOROUGHLY before even contemplating using it on a real account.

I know for myself personally that I’ll be stringently testing any system I wish auto-traded for at LEAST 1 month on a demo account before moving it to a real account, and even then I would still be a little skeptical on the process.

So please understand this “adventure” could just be that – an adventure. However I do want to know if I can do this, and what problems or benefits such an adventure can bring to my forex trading skills.

All in all I hope we all learn something through the experience.

I wish everyone the best with their forex trading success.

Tags: Auto Execution, Forex Trading

Now that we have a successfully created a link between our dll file and WLD we now need to similarly create a link between our dll file and CMS’s VT platform.

In this short lesson we will simply connect to our VT DEMO platform and return the account balance and usable margin.

Here’s what we do…

With VC# 2005 Express Edition open and our VC# CMSAPI code open we need to firstly add another COM reference, being VT’s.

We do this by clicking on Project > Add Reference > COM > select VTAPI Library 1.0 > click OK.

We then implement VTAPI’s events into the new code which will make it look like this.

Alright, our idea is to now write some code that will do the following:

1. It will login us in to the VT platform – if it is unsuccessful it should tell us;

2. Return our account balance and usable margin once it is successfully logged in.

Easy.

The procedure we will need to edit will be the Login one, as this is what WLD will call when we click on the “Broker Login” button in the Order Manager section.

If you haven’t already done so you may want to go and register a free demo account from CMS – you will need your newly registered demo username and password to send to the VT servers to login.

Once you have your username and password from CMS Forex you will need to enter these values into your VC# code.

In the procedure that is labelled Login(IWealthLabBrokerUpdate3 Broker, IWealthLabConnection Conn) we will add the code which will check to make sure we have entered the right login info and will then return to Wealth-Lab a successful “Connected” stamp as well as our Balance and UsableMargin values. If it doesn’t succeed we will want to return a connection “Failure” stamp as well as the reason.

This should make our code now look like this.

Once you have successfully changed the code according to your forex demo account’s details you simply need to Build Solution (Build > Build Solution – or hit F6).

Open up WealthLab, click on Order Manager, ensure CMS VC# is selected and hit “Broker Login”.

Hopefully within a matter of about 10-20 seconds you will see the word “Connected” followed by your demo accounts Balance and Usable Margin! If you get any errors check that you have entered correctly your username and password and have accType = 0.

Next we will continue by adding some more stuff into the Login procedure that Wealth-Lab needs to add to the Order Manager screen.

Tags: Auto Execution, Forex Trading

It’s been nothing short of frustrating!

Especially since I’ve never done programming on this level before – just a little bit of VBA.

But… we all need to start somewhere, and I’m a firm believer that if you REALLY want to learn something you either teach it or do something with an intended goal in mind.

At the moment it’s the latter: building a WLD CMS broker adapter.

Okay, here’s what I’ve learnt if you’re interested in doing this yourself or just waiting for me to pass out. Either way by writing this out it in here it allows some of my sanity to return!

Firstly, I can’t get Visual Basic’s 2005 Express Edition to create a foundational WLD broker script. But creating a script in Visual C# 2005 Express Edition was a breeze, and I think it has to do with one small tweak you need to do in VC# that, for the life of me, I cannot find in VB.

But firstly, here are the testing scripts just to make sure we’ve laid the correct foundation:

To create a project in either of them you just click on File > New Project > Class Library > Enter a class name such as VTAPI and then hit OK.

Copy all of the following code into the VB script that opens (copy it over everything).

Now what you’ll need to do is import the WLD COM object and this is done by clicking on Project > Add Reference > COM > select WealthLab Library 1.0 > click OK.

Lastly you’ll need to click on Project > VTAPI Properties… > Assembly Information > select “Make assembly COM-Visible > click OK.

Click on the Save All button (which is the button with three floppy disks – to the right of the normal save button) and save it as “VTAPI”. After when that is done click on Build > Build VTAPI and a dll file has now been created.

Was that easy or what?

Well… not so fast, if you can remember I said that the VB script doesn’t work. We can check that in WLD now, but first we need to create a file so that WLD knows where to look for our dll file.

We do this by simply creating the following file:

WLD VB CMS Broker Adapter

(change the path to wherever you stored the dll file, most people using Windows XP will only need to change the “@@@@@@” section in that file to their Windows XP username)

Save this file in the root directory of your Wealth-Lab Developer folder, for most people this will be c:\Program Files\Wealth-Lab, Inc\Wealth-Lab Developer 3.0\ and save it as BrokerAdapter_CMS.txt (this is important).

Crank up Wealth-Lab click on Order Manager make sure CMS Forex is selected and then click on Broker Login.

Hopefully (or should that be unfortunately?) you’ll come across an error message box that says:

System error. Code: 203.
The system could not find the environment option that was entered

(If you get an error message that says something to the effect of “The specified module could not be found…” it means that you’ll need to open the BrokerAdapter_CMS.txt file up and check that the path you’ve entered is indeed the path that leads to the dll file in the VTAPI/Release folder, if not change it accordingly.)

I have no idea what that error box means, but it’s not good because our adapter didn’t work. After trying a million different things such as regasm (etc) I still couldn’t get it to work.

Thankfully I had VC# installed… and it is here where we DO get the broker adapter to work.

Here’s the process:

Firstly, crank up the program, click on File > New Project > Class Library > Enter a name such as CMSAPI and then hit OK.

Copy all of the following code into the script window that opens – copy it over everything.

As we did for the VB script we’ll need to change some of the settings.

Click on Project > Add Reference… > COM > select WealthLab Library 1.0 > click OK.

Click on Project (again) > CMSAPI Properties > Assembly Information… > select “Make assembly COM-Visible” > click OK

After when you’ve clicked OK click on Build (underneath Application with the active window) then select Register for COM Interop.

Click on the Save All button and save it as CMSAPI and lastly click on the Build menu selection (up the top) > Build Solution.

Still with me?

Alright, we now need to create that file for Wealth-Lab. Which you can find one here, but again you’ll need to change it so that it points to the dll file you just created and make sure you save it as BrokerAdapter_CMSVC.txt (this is important).

Now for the test.

Open up Wealth-Lab, click on Order Manager, change the selection so that it points to CMS VC# and hit the Broker Login button.

Hopefully you should see the words “Connected” in the lower left hand panel with the balances of Cash $1,000.00 and Buying Power $999.00.

Woohoo!

In the next post we’ll connect to the Visual Trading API and get this thing really cooking!

(PS – does anybody know why the VB script won’t work? If anybody can get it to work I’d love to know how.)

Tags: Auto Execution, Forex Trading

One of the great things about the forex market is that enables customers to trade automatically.

Over the past several weeks I’ve dug around to try and find out more about what it takes to create a system that can trade automatically – preferably for the least amount of cost as possible.

Firstly though I had to find out what forex brokers allowed me to trade automatically, as not all forex brokers are created equal.

With some of the more popular brokers I was able to find that the following provided the capacity to allow you to trade your account automatically:

• FXCM
• Oanda
• Gain Capital (FOREX.com)
• CMS Forex

While I realise that there are other forex brokers which offer the ability to trade automatically (such as those that use MetaTrader) I wanted to find out which ones were able to interface/interact with my current backtesting platform Wealth-Lab Developer.

And so the next step began: having the forex broker’s API (which is the techno-speak acronym for allowing users to control the processes (etc) of their forex trading account) interact with the signals of my forex systems.

This left me with two options:
1) I could try and learn how to create the necessary software and write the code myself, or
2) Find a software that already does.

Option 2 sounded waay better, so I set out to try and find such software.

While my journey is still ongoing and incomplete I would like to detail a list of such software providers in case you too are looking for the same thing.

Fabre Factum US$699
Yet to receive a free trial subscription from this mob, but the attraction was the software’s ability to “supports Refco, FXCM, GAIN, Forex.com, FXAdvantage and CMS mini and regular accounts (demo and live accounts)”. Will detail more when I receive a free demo.

Trade Bullet US$35 – US$75 / month
Didn’t support any of the brokers I wanted, but I’ll include this in case some of you are using some of their supported brokers.

Trade Bolt (various costs depending on broker)
Offers trading through Gain Capital, doesn’t seem to support Wealth-Lab Developer.

Trade Robot US$500 – US$750
Supports FXCM only, doesn’t seem to support Wealth-Lab.

HyperOrder FREE!
Supports Interactive Brokers Workstation, Patsystems, MB Trading, FXCM, RefcoFx, MAN FX and MetaTrader. Doesn’t seem to work with Wealth-Lab.

API Trader FXTS US$25 / month (demo accounts) US$50 / month (live accounts)
Supports FXCM only and cross-platform (which could help those on non-Windows OS machines).

SnapDragon (Free?)
They are currently looking for beta testers who wish to trade from TradeStation onto Oanda’s platform.

Anyway, these have been the ones I’ve come across. As you can see not too many were helpful for my individual needs, or maybe they were and I just couldn’t tell.

So I moved on and looked at the first alternative of creating my own forex broker adapter for use in WLD. And to my surprise I found that Microsoft were giving away free Visual Basic, C# and C++ developer environments with their Visual Studio 2005 Express Editions (only until November this year) – which can help immensely with coding the required adapter.

So for now I’ll give it a bash and see how I go. I’ll be sure to report any successes here.

Lastly, I’m testing my crude forex broker adapter on CMS Forex’s API and demo account (all free and no paperwork is needed to sign to grab the API).

If anybody knows of any other forex trading robots or auto execution software that can interface with any of the above add your comments below.

Tags: Auto Execution, Forex Trading

Take for example embroidery and architecture. I have seen buildings created over a process of time and know the basic elements that go into creating such structures, but if I was ever to create such a thing myself I know I wouldn’t have the slightest clue. The same goes for embroidery: I admire the finished product, but as for creating a piece myself I wouldn’t have the slightest clue on what to do or where to start.

This is true for many other things in life: I see them, but I never take the next step in finding out more about it.

So what draws someone to go from a simple observer to taking the next step and becoming more involved in an industry? Especially in reference to the forex market.

Do people focus only on the high returns?

Do people fail to see the high failure rate (around 95%)?

Do people enjoy losing money??

I suppose more importantly we should ask if there even IS a correct “plan of attack” when starting out in the forex market?

Well I believe there is.

See, forex trading should be treated no different to any other business venture and although I personally have never created a physical business I know from the many successful business people I’ve read about a common theme for why they knew they were successful was that they started with the end in mind.

If we apply this same principle to forex trading we start by acknowledging the D in OLIAD first. If you remember D represents Decide – you need to decide whether you wish to stay in the business of forex trading. This may have come as a rather obvious fact for some of you, but many people fail to realise that they actually have the power to make the decision on whether to stay or go in the forex market.

Most generally wait until their account makes that decision for them – and then they have no decision BUT leave!

So how do you know whether you should stay or go?

Well, ask yourself the following questions:

• How much am I prepared to lose in the forex market? With the amount of capital you will be investing in the forex market determine how much you would be prepared to lose before calling it quits – or, at the very least, STOP trading for a lengthy period of time. Not only should this question reflect the amount of capital you originally place into your forex account, but also the amount of capital you gain through profits – yes, that’s right, the profits you make actually IS your money, so treat it like so.
• The other question (which most people overlook) is opportunity cost: How much does the forex market need to return for you to stay? Most people fail to understand that there are many ways to make good money in this day and age and forex trading may not necessarily be the best way for you. Time is something that we can never take back, so we need to ensure that we use our time the best we can. If our forex trading fails to meet our expectations then we can either neglect it completely, or treat it as a hobby (i.e. giving it limited time to other activities).

I would say 99% of forex traders don’t even contemplate those two questions and this could very well be the reason why so many lose money.

I mean just take a look at the average forex beginner’s activity:

1. They observe the forex market and get interested.
2. They learn a few things about how the forex market works and believe they now know it all.
3. They place some funds into an account and begin trading.
4. They lose money, but believe they’ll make it all back.
5. They continue to lose money until they bust.

As you can see the forex beginner FROM THE START is an emotionally charged being. As soon as they hit point 4 they are in a vicious circle of trying to force the market to make back the money they lost, they very rarely succeed and in the end they have no choice but to leave.

So how do smart Currency Secrets readers prevent this from happening to them?

• They start with the end in mind: they know what their account will need to get to before they either give up or, at least, stop for awhile to assess; and
• They understand that their time is a precious commodity and recognise the opportunity cost of their time and capital – if the forex market fails to make expectations within a certain time frame they will consider putting their time and effort into other areas where they can make better returns; and
• They start small – knowing all too well that the biggest drawdowns are likely to occur when starting out.

All of those points will at least ensure the new forex trader has the right non-emotionally charged mindset which will help them stay in the game longer than their peers.

Tags: Forex Trading

This is something I recently devised that I believe is inherent in any successful endeavour (whether it be trading or something non-trading).

But before I begin let’s look at a chart (fancy me creating a chart!) to help illustrate what the basic elements are of those things that make up the OLIAD principle:

Now allow me to explain the elements individually…

OBSERVE

Whenever we begin anything we start as observers. Like window shoppers we are on the outside looking in.

LEARN

When our interest becomes piqued in our endeavour we start our journey by educating ourselves on the processes, participants, and boundaries (rules) on how we ourselves can become involved.

INTERACT

After observing and learning we take steps to interact in our endeavour. And we know from constant blasting on this site that when trading we know we always need to start small. Why? Well, as we’re likely to make the largest amount of mistakes when we start we minimise the effect of these errors we start small.

ANALYSE

We then analyse our results and find ways of improving our interactions/results.

DECIDE

After participating in our endeavour we need to decide whether to pursue our interest in it at the level we have been or whether to cut back – this might be capital or time. We now look from the inside out.

Ok, so what does all this mean for traders?

Well, I’m going to cover that next. For now, stew over it and see what you think it means for us as traders.

Also think about the circles looping around the Learn -> Interact and Interact -> Analyse areas. What makes these two circles different (besides the colour)?

Tags: Forex Trading