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 Trading, Forex Trading Courses, Forex Course

In a similar style to Mark’s Thinking Stuff Forex trading software where the user is given a NON-programming approach to automating their strategy this web site similarly provides the ability for the user to test a myriad of trading strategies and to then trade those strategies LIVE via your FXCM account.

What made this web site even more compelling was the fact that all this (so far) is offered FREELY!!

Basically here’s how it works:
1. First you start at the SIGNAL end by compiling your entry and exit signals on selected time frames (you’re unfortunately only limited to the signals offered). If you’ve created some exit signals be sure to create a “Contextual Exit” otherwise your exit signals will not be used when you formulate your system.
2. When you’re happy that you’ve got your signals listed, jump over to SYSTEMS and select which currency pair you’d like to test your singals on, which direction (either Long or Short), what the order type should be once your entry signals are satisfied, and at what times you would want your system to run on (i.e. ALL, or just during the London session, or NY session… etc). Lastly, select your exit strategy.
3. Then move over to TESTS and create a new test. Select the strategy you want to test and the date range of your backtest and hit start.
4. Wait a few minutes and you’ll soon have your results sent to your email address.

Easy, huh?

Okay, so what are the downsides of this service?

Well, I think one issue that some people might have is that your systems are public. I suppose this is a negative and a positive, because on the one hand you can look at other people’s systems and tweak them to suit your own trading personality, yet on the other hand YOUR edge may begin to lose its profitability if others start using it.

Another problem is that you’re only limited to 100 signals, systems and tests per account. This may not sound like much, but considering that you can only test one currency in one direction at a time 8 tests can be chewed up quite easily on one system if the user tests both LONG and SHORT on each of the four majors.

Lastly, I’d prefer if I could access the test results better - maybe an export to CSV file or something of that nature. Ideally I’d like to see something whereby we have a table that has at least the following: ENTRY DATE & TIME, ENTRY PRICE, INITIAL STOP LOSS (IF ANY), EXIT DATE & TIME, EXIT PRICE, MAE, MFE, P/L (IN PIPS).

Anyway, HiveTrader is definitely worth a look and I would encourage you to go over and have a little play.

(If you like you can include my username currsec in the referrer ID when you register your account - I don’t make anything by you doing so.)

Tags: Forex Systems, Auto Execution, Forex Tester, HiveTrader, FXEngines

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 Trading, Forex Systems, Forex Trading Courses

The site offers personal reviews by its owner Cindy on forex brokers, forex signal services, forex managed accounts, and forex training courses.

Now ordinarily I wouldn’t bother recommending something like this as there are a gazillion opinions on these things on the internet nowadays, however, there is something that’s a little different: Cindy provides free forex signals.

Now again, nothing extraordinary here, except for the fact that her signals aren’t half-bad - and she maintains quite a high accuracy (since July 2006 she’s hit 23 winners out of 27 trades!). The only negative with her service is that she doesn’t have any stop losses so some trades can experience large adverse moves against them.

But if you’d like to receive Cindy’s free signals (which she sends by email) then by all means go and register your name and email now!

Tags: TopForexReview, Top Forex Review.com

Having now used Excalibur’s services for over 6 weeks I can provide my opinions on his service.

The things that I liked about Excalibur Forex was its simplicity of signals. Excalibur only trades the 4 major currency pairs, as well as the AUDUSD, the USDCAD, the EURJPY, and the GBPJPY. Each signal is sent out at 0000 GMT (and some times a little earlier) and even though there were days where I’d only access these signals an hour or two after they had been sent I still had no problems getting in (the market isn’t that volatile around that period). I will also add that the majority of exits where either through trailing stops set from the previous day or a target limit orders - with only one trade being exited at market during my sample.

The way in which I tested Excalibur’s system was by risking US$500 on each trade (which equated to 1% on my fresh demo Oanda account). I would then calculate the position size needed using Oanda’s FXMath Profit Calculator based on entry and stop loss prices.

Unfortunately during the testing period Excalibur wasn’t profitable. With risking US$500 per trade the account never went above starting capital and slipped to as low as US$45,022.60 (a tad under a 10% loss). The ending equity was US$46,174.16 (a 7.6% loss) and this excluded the profit/loss of the two open positions as at 30 April 2007.

Now I can understand the unfortunate luck of reviewing a service during a down month, so this isn’t my biggest concern, my biggest concern is whether what was reported as the ending profit/loss for the period was in fact what I had.

Excalibur report that the ending profit/loss in pips for April was -135.

My ending profit/loss in pips for April was +85 pips (BTW my opening balance as at 1 April 2007 was US$46,762.26 - so I still lost money)! Firstly the discrepancy for the difference in pips made lay in several factors: first there was an erroneously placed order on the web site to buy the USDCAD (Malcolm reported a stop loss higher than the entry price) I didn’t place a trade and informed Malcolm of the error, and by the time it was corrected the trade had already hit its stop loss - losing 60 pips). The other discrepancies lay in the EURUSD and USDCHF trades where it was by sheer luck on my part that I entered the order 2 hours late. I still kept the orders active, but the currencies never came back up and hit the entry price each losing 55 and 85 pips respectively.

Which brings us to an even stranger discrepancy: Why did you still lose money during April, even though YOU made 85 pips?? The best way to illustrate this is by using an example.

Let’s say that I have two trades on the GBPUSD and one loses 100 pips and the other makes 60 pips, netting me a loss of 40 pips. If my initial stop loss for trade #1 was 200 pips away, and my initial stop loss for trade #2 was 100 pips way what would my position size have been for each trade if I were willing to risk US$500 per trade?

We can easily do the math as follows:

Trade #1: U$500 / 0.0200 = 25,000 units
Trade #2: U$500 / 0.0100 = 50,000 units

Okay, now what would our net result be:

Trade #1: 25,000 x (0.0100) = (U$250)
Trade #2: 50,000 x 0.0060 = U$300

Our net profit = U$50.00 even though we’re net -40 pips. Even though the currency was the same, the pip value was the same, the risked amount was the same, we were still able to achive a net profit DOLLAR-wise compared to our net PIP losses.

It makes you think twice about forex signal services who provide performance statistics PIP based doesn’t it - especially if you trade their services as I have done with Excalibur by RISKING a fixed amount per trade. You’ll want to make sure that if you do employ a money management strategy such as this for a forex signal provider that you not only analyse their performance but also whether their initial stops are always a fixed distance away, or variable.

Anyway, getting back to Excalibur’s Forex I’d like to thank Malcolm for the opportunity and wish him the very best for the future with his service. If I could recommend one thing for his service it would be the capability to have alerts emailed to the user inbox, but that’s about it.

If you have similarly trialled Excalibur Forex and would like to detail your experience please do so below.

Tags: Forex Signal, Excalibur, Excalibur Forex

If you have used EasyForex’s signals and would like to add your comments, please do so by entering them below and clicking on the “Add Comment” button.

Now that I have finished my review of Excalibur Forex, I will try EasyForex’s system as well, and would encourage others to get in contact with EasyForex so that we all can provide a review (as some of us live in different time zones where we would not be able to access their signals in a timely manner - from what I can gather their signals are sent at 0200 GMT and 1300-1800 GMT [go to World Time Zone if you need to know what this corresponds to in your local time]).

I’m also aware from other reviews that I’ve seen around the place that EasyForex has excessive drawdowns - although I also am of the understanding that EasyForex take positions where interest is earned and this can somewhat alleviate the pain of these excessive drawdowns. With this in mind ensure that if you do test this service that you do so with a demo account first.

Tags: Forex Signal, EasyForexSignals

Unfortunately I was a little disappointed after I had finished reading the book because Dirk did a good job keeping me hooked during the early chapters, but when the meat came round it was just fairy floss.

But let’s first talk about what I liked about the book:

Certain key points that I thought Dirk did well in harbouring on were the importance of fundamentals in a strategy. I know in my trading that there are times when I can get a little too lost in chart patterns, or indicators, or support and resistance lines that when an economic announcement is released it doesn’t pay ANY attention to those things and rips through all technical reasoning.

I definitely liked Dirk’s PET & 4×1 philosophy - I think this is very sound and something that all forex traders should know.

But then that’s about it… unfortunately.

And that’s why the book finished disappointingly. There was nothing there where the user could see Dirk at wirk (ok, I was a little cute there), but with only one chart showing us his trading activity it just wasn’t enough and his book made his system seem very ambiguous.

I mean from what I could gather his method went something like: obtain the fundamental direction of a currency as this will be its trend, obtain a monthly hourly chart, divide it into quadrants, buy low, sell high (if trend signals to go long - inverse if trend is short). Hold mental stops, take a profit (whenever you can??) and partially jump out in bits if the position moves against you and margin gets to be a problem, or exit completely if the fundamentals change.

Being someone who prefers technicals, someone who can code ideas into a computer and have them spit out results it was a little frustrating.

I wouldn’t have minded as much with Dirk’s ambiguity if he had provided a lot MORE examples of trades he had taken. As I said before he gives one such period where he plots about 7-8 trades, but doesn’t really give any good reason for why entry was at those bars. It would’ve been great if Dirk had taken a screen shot of the market prior to entry detailing WHY he was going to initiate a trade (using his methodology that he had outlined in previous chapters), then his thought process when either the position hit its peak or trough during the trade (obviously you wont know the highest or lowest point in a trade, but it would be interesting nonetheless to know what Dirk’s thought process was during some of the trades that he had - especially when a trade moves several HUNDRED pips against you!), and then what the thought process was for getting out.

Although Dirk boasts an above average accuracy with his forex trading, and while I personally DO NOT doubt his track record and performance, I feel that people may not be fully aware that Dirk’s method incurs high drawdowns - which I think is why he’s a huge advocate of extremely low leverage, you’ll need the low leverage to combat the large drawdowns.

Lastly, I also felt that the book tried to lead the reader into taking the next step of discovering more about how Dirk profitably trades by trying to get them to take the next step of getting them involved in his mentorship program. No doubt my concerns of not seeing enough evidence of Dirk’s method in his book would be satiated with the mentorship program… I assume.

So please be aware dear friends that if you do purchase this book and you are of the technical mindset such as myself you will be sorely disappointed with the lack of meat in his book. If though you are starting out in forex and prefer the fundamental approach to forex trading then Dirk du Toit (aka DrForex) wouldn’t be a bad start.

Tags: Forex Ebook, Dirk du Toit, DrForex

One area of Oanda’s site that I particularly like to frequent is their FXLabs site.

Here you’ll see innovations that Oanda are working on to help improve customer experience, which will no doubt help their bottom line.

Several things that interest me at the moment are:

• FXDesktop - Finally! An easier way to access your account by clicking on a shortcut on your desktop! No need to have the trading station open up in a browser.
• FXNewsEffects - Here you can view the effect an economic announcements has on a currency. Quite insightful if you’re starting out with trading the news.
• FXTicks - Want some free tick data? Just simply put USD$1,000 into your Oanda account (unless you wish to apply for academic exemption in which case you don’t need US$1,000 in your account, but you’ll still need an FXTrade account nonetheless) and subscribe to receive free tick data going back since 1st January 2004. Currently you can only order one currency’s tick history at a time, and you can only download data on: EUR/USD, GBP/USD, USD/CAD, USD/CHF & USD/JPY. Also note the following notice on their site:
  NOTICE: Once again the FXTicks service is experiencing overwhelming demand. We have scheduled a major infrastructure upgrade for the weekend of April 21, which will allow us to service this large volume of orders in a timely manner. Order processing will effectively be suspended until the upgrade is complete. Thank you for your patience and for your continued interest in the OANDA FXTicks product!
• FXTradeTicker - If you have Google desktop or Yahoo widgets then you can’t go past Oanda’s Google gadget and Yahoo widget that shows prices for popular currency pairs plus your account balances (including sub-accounts).

Hopefully there’ll be more innovations that Oanda will bring out over the coming years, but for the time being I applaud their creativity and effort at publishing some of these useful tools (I’ll be particularly interested to see how FXTicks develops and keeps up with demand throughout the year).

Tags: Oanda, Oanda com, FXLabs, FXTicks

(Click here for chart)

What do we see?

Well after the Yen strengthened against the USD at the beginning of this month we saw it retrace back to its 50% Fibonacci retracement level, which it failed to break. Another interesting Fibonacci development is that we can currently see over the last couple of weeks the USDJPY’s failure in staying above its 38.2% retracement level (you can see plenty of daily wicks passing through this zone but not too many closes above it).

Add to that the fact that during this congestion period there’s a nice bearish pennant forming.

So what does it all mean? How would I trade this?

Well, for me personally, I’d be looking at opening SHORT positions around the 38.2% retracement mark (around 117.60-5) with stops outside the downward sloping pennant line (plus some breathing space) at 118.15 (giving us an initial ~50 pip stop loss). Otherwise, if the SHORT limit entry is missed I’d be looking to enter SHORT on stops at 116.85 (a break below the upward sloping pennant trend line) my initial stop loss would probably be around 40-50 pips away from entry, but upon it’s breakout I’d quickly move the stop down to the high (+10-15 pips) of the breakout bar.

My target for both entries would be the pole length, being the difference between the 100% Fibonacci retracement point (~121.60) and 0% Fibonacci retracement point (~115.20) on the chart, which gives me a target of 640 pips!

What if I were to get stopped out on the 117.60-5 at 118.15?

If I were to get stopped out I’d stop and reverse my position going LONG with stops back at 117.65 (50 pips). I’d need to be careful here as a pennant formation could very easily turn into a flag and I’d be watching the 50% retracement zone very carefully (~118.50). If we get a successful close above the 50% zone I’d be looking for the USDJPY to hit the 100% Fibonacci retracement on the chart as target - being 121.60.

If the market were to hit my stop loss on my entry stop position I would close all positions and would NOT reverse my position - I’d take the loss on the chin and move on to the next trade.

Please be aware that medium and long-term outlooks may look as though they are going to work in the short-term, however, with the nature of things in this world one event can quite easily unsettle these views/chart formations and throw everything out of whack quickly. Just because I have a long-term view doesn’t mean I keep it for months and months regardless of what is happening. As traders we need to be on our toes. I know my view(s) can easily change in a week or two depending upon price action… but I always hope that it remains for months and months, because then I’d know I’m making money!

Anyway, we’ll see how it goes.

Tags: USDJPY, Currency Analysis

There are several interesting patterns on the AUDUSD that I’d like to share.

Here’s a weekly chart of the AUDUSD.

Notice how we have an extremely large (and albeit ugly) head and shoulders pattern. Add to the fact that the right shoulder didn’t dip as far south as the left shoulder and we have a currency ready to move.

Not only that but we also have an ascending triangle that has formed over the last 3 years.

So what does all this mean? Well I for one am quite bullish the AUD/USD - as this is a weekly chart I’ll be keeping an eye on how the AUDUSD closes at the end of this week, and then how it reacts to any successful close beyond 0.8000 the week after. As an example, if we have a successful break this Friday, yet by the following Friday we see the AUDUSD back below 0.8000 then resistance is still strong and we may get further downside before it attacks it again - provided the AUD/USD doesn’t retrace too far.

Potential targets for this move would be the ascending triangle’s side of about 1200-1300 pips (0.8000 - 0.6800), therefore being, around 0.9200-0.9300. The head and shoulders target is phenomenally higher again giving a target some 3200-3300 pips above 0.8000 (0.8000 - 0.4700) - if this gets reached then we’d see the ol’ 1980 glory days of the AUD!

But is this a strategy that anybody could use? It definitely isn’t one for us small retail traders - our stops would need to be very large making the position size so small we wouldn’t even be able to enter in.

However, by providing a long-term view of where we perceive a currency may go in the future it can help our trading by only short-term taking trades in the long-term direction.

Tags: AUD USD, Currency Analysis

There are a couple of things that I like about Excalibur, but there are also a couple of things that I have concerns about.

I’ll quickly go through my concerns: first, their web site is relatively new (something which they made known in their comment - so new in fact that it’s only been in operation for a couple of weeks!), however, while the age of a signal service web site does draw some concern to me it’s the performance chart they have on their web site that concerns me the most. Automatically this throws up a question: are these performance results ACTUAL or HYPOTHETICAL? If the web site had been in existence since the start of their performance figures I may have been led to believe that the performance figures were ACTUAL, but as this isn’t the case it has led me to believe otherwise.

My other concern is the free trial offered. Excalibur make note on their web site that they do not offer a free trial, so I thank them for politely offering one in here, however, I think it would be far more beneficial if Excalibur offered a free trial period over an ENTIRE month rather than just PART of a month. This can help verify our performance against THEIR performance statistics for that month.

Apart from that the things I liked about Excalibur’s approach were:

Firstly, they only place trades once per day (midnight GMT) on the top currency USD pairs including EUR/JPY & GBP/JPY (and each trade includes a stop loss).

Secondly, if they don’t make 200 pips in a month you get the next month free! Something that I haven’t seen too often with signal providers.

So with my concerns I emailed Excalibur and received a reply from Malcolm who mentioned that he had traded forex for the past 6 years and that indeed his performance results are hypothetical and that he would allow a free monthly subscription. I guess we’ll see how it goes.

If any of you have taken up Malcolm’s offer for a free subscription up until the end of March in the mean time I encourage you to add your comments below on how you have found (or are finding) his service.

Tags: Forex Signal, Excalibur, Excalibur Forex

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 Trading, Forex Systems

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

I suppose if someone were to twist my arm and recommend one there’d be a couple I’d choose from, but most of what you read in forex books nowadays is filler that can be found for free off the internet anyway.

And forex books definitely aren’t cheap these days.

However, all this has recently changed after devouring a new book written by famous forex strategists and authors Kathy Lien and Boris Schlossberg (both work for FXCM) aptly titled, High Probability Trading Setups for the Currency Market.

This book is well written and begins by discussing ten important forex rules that everyone should adhere to should they wish to survive in the forex markets (nothing new for advanced or intermediate forex traders here).

But it’s the second part of the book that excited me the most… they publish EIGHT different trading setups.

Now I’ll admit that none of these are super extraordinary, but that’s due to my experience. Everyone will be different. If you know how some of the more popular indicators work then you may be disappointed as nothing will be a surprise.

But, again, I’ve been around the trading world for over 9 years now and while they used these popular indicators in no new way I was still impressed with how they combined them with other indicators, or simply new where to place stops, and take profits (although there’s nothing revolutionary about their profit taking tactics in most systems) to create a strategy.

So I was impressed with the variety of systems (from reversal to trend following to 5 minute systems to daily systems) that were used and I’m sure that there’ll be one that will suit your trading style.

You can’t go too far wrong with adding this book to your trading collection, and if you focus on trading just one, auditing it every few months, and modifying it accordingly (and then repeating ad infinitum) I’m sure you’ll be well to achieving forex trading success.

Oh, and before I forget they end nicely by informing the reader the importance of economic announcements and which ones to watch out for.

Head over and download your copy now and have a good weekend devouring it.

Tags: Kathy Lien, Boris Schlossberg, Forex Ebook, High Probability Forex Trading

Since then I never really gave Dukascopy a second glance, however, as I soon found out a lot can happen in a space of a couple of years and I was impressed by what I saw when I checked out their forex platform the other day.

Probably the most prominent feature that blew me away was the Level II market depth screen! You could see quantities (in millions) of people who had placed limit entry orders.

Who cares? some of you may be thinking, HotspotFX has had Level II type screens since inception.

And that’s true, but the liquidity Dukascopy had far surpassed that of HotspotFX.

In fact, liquidity was so good that the spreads of the major currencies were often 1 pip (in fact I saw instances of 0.5 pip spreads on the EUR/USD)! Yeah, that’s right, that includes 1 pip spreads for the volatile GBP/USD!

Other things I enjoyed were:

• One click trading

• Economic, Event, and Equity Announcement Calendars (oh, and holiday calendars too)
• Swiss based - now I don’t really feel too much at ease with Swiss brokers (just look at some of the complaints I get about ACM here!), but I will give them (and Switzerland) the benefit of the doubt and add it as a positive.

Unfortunately though there were a couple of things I thought could’ve been better.

For one, they only allow accounts to be denominated in either USD, EUR, GBP, CHF, or JPY - if you live those countries you’ll think this to be fantastic, but for those living in countries such as New Zealand, Australia, and Canada we’re not too overly pleased. Also I haven’t opened

The charting was standard. I’ve seen worse (such as the charting plugin from FXCM), and I’ve seen much better (such as MetaTrader), but it’s good that they’ve at least provided something.

I also noticed that they charged commission on their trades. My initial reaction was “how dare they” (as it has always been with forex brokers that charge commissions), but considering they offered such a great platform and such awesome spreads I really didn’t mind. The commission rates they charge can range from anywhere between US$10 per 1 million traded, to US$30 per 1 million traded - it all depends on how much trading you do throughout the month.

After salivating so much on everything Dukascopy had to offer I was keen to fill out some forms and begin a live trading account.

It was then that it hit me.

Upon clicking on the open a live account I saw at the bottom that you needed a minimum of US$50,000 (or its equivalent in another currency) to open an account.

*sigh*

Oh well, at least there demo account was free and fun to play with. If you would like to have a play of Dukascopy’s demo click here.

Tags: Forex Broker, Dukascopy, Dukascopy Forex, Dukascopy Broker

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 Trading, Forex Simulator Trading, Forex Simulator, Forex Trading Simulator, Forex Tester

And even if you’ve never played any sport at all you’ll likely appreciate the fact that those sporting personalities you see on the TV have got to the position their in through arduous training and practice.

So what does all this have to do with trading profitably on the forex market?

Well, just as kicking a football, or dribbling a baskteball, or throwing a dart requires skill, trading well is an activity that similarly requires skill. And as skills can be learned we can hone them to improve our results.

So how can we improve our forex trading skills?

My personal recommendation to anyone who asks is to tell them to open up a demo account so that they can become familiar with the operations of their chosen forex broker’s platform, and then, once they feel comfortable with adequately using the platform, to open up a live account and deposit the smallest amount they can. I don’t think anything beats trading a live account.

However, there are other ways of improving your trading skill. One method that doesn’t require any money at all is to open up a free demo account. Demo trading provides users with the luxury of trading the forex market with a pretend account.

Another way of improving your forex trading skill is to look at historical data and either manually trade the charts, or generate code to automatically buy and sell (this though would require another skill and that being learning how to adequately code!).

The least favourable out of all of the above is manually paper trading historical data. I know when I began trading I printed out a series of charts and pretended I was trading. After doing this for a while I began seeing something that I had never seen before, it truly was amazing, I found out that…

I WAS SUCH A CHEAT!!

If you’ve ever manually paper traded you’ll know what I’m talking about. Oh yes, I never thought I wouldn’t happen to me, but alas it did. And it was only when I was honest with myself that I noticed how futile paper trading really was (not to mention expensive with all the cartridge ink!).

Paper trading was dead.

Or so I thought.

It wasn’t until I came across Forex Simulator that paper trading was revived!

What is the Forex Simulator?

In a nutshell Forex Simulator is a program that allows you to go back in time and manually test your strategy by buying and selling as you would have. It doesn’t require any knowledge of knowing how to code and you are given access to data going back as far as 1999!

The Forex Simulator allows traders to not only simulate trading an account (which can be set to ANY balance; denominated in any of the following currencies: USD, EUR, GBP, JPY, AUD, CAD, NZD; and set to any of the following leverages: 25:1, 50:1, 100:1, 200:1, 400:1), but it can also allow you to take screen shots of the trades you take so that you can FURTHER analyse your trades to see how you can improve.

I like this feature because as many of you know one of the things I continually harp on in here is for forex traders to constantly review their trading performance. And if you don’t keep records, or screen shots of your trades then how are you ever going to be able to improve your forex trading method?

It’s not until you begin looking at a whole series of charts that your brain will begin noticing familiar patterns with the setups you trade and by logging these charts into your brain’s huge library that you’ll be able to begin seeing common patterns. This is where manual testing has a huge plus over programmatic testing.

So how does the Forex Simulator help?

Once you’ve started trading on the simulator you can look at your trade snapshots and add comments as well as add further filters to each entry to see which method works better.

If you like using indicators in your analysis the simulator contains many of the popular indicators, such as the RSI, MACD, Stochastic Oscillator, CCI, moving averages, even Darvas boxes and daily/weekly pivot points! You can also draw fibonacci retracement and time zones as well as basic trend lines. You also have the ability to plot multiple time frames!

And for those of you who are interested in trading economic announcement releases, you can analyse how an economic announcement behaves by subscribing to Forex Simulator’s data downloader and download 10 second data! You can download data from any and all of the following currency pairs:

• AUDJPY
• AUDNZD
• AUDUSD
• CHFJPY
• EURUSD
• EURCHF
• EURGBP
• EURJPY
• EURUSD
• EURCZK
• EURDKK
• EURHUF
• EURNOK
• EURPLN
• EURSEK
• GBPUSD
• GBPCHF
• GBPJPY
• NZDUSD
• USDJPY
• USDCAD
• USDCHF
• USDDKK
• USDHKD
• USDMXN
• USDNOK
• USDSAR
• USDSGD
• USDTHB
• USDZAR

If you are an economic announcement forex trader by paying for the data download service at US$29.95 per month (or US$14.95 per month if you pay for a year’s worth of data) you’ll be able to gain further insight into economic announcements by taking snapshots and analysing how the currencies move. Other time frames that can be downloaded include: 1 min, 5 min, 15 min, 30 min, 1 hour, 2 hours, 4 hours, 8 hours, and 1 day. This is one of Forex Simulator’s huge pluses, unfortunately though there are a lot of negatives.

Okay, so what about the negatives?

Several things that could make Forex Simulator a stellar product would be:

• Include entry stop and limit orders - unfortunately this isn’t included yet and users only have the ability to enter at market, and exit at stop or limit
• Have the ability to trade in lot sizes rather than in quantity
• Cosmetically I’d prefer if the pause button was a button rather than a tick box
• Custom designed entry/exit columns - currently in the snapshot you are only limited to what the author of this program thinks how you would trade
• Have the ability to import other data external to their data download service
• Easier ways to close out open positions - it would be good if users could just click a button on the active chart window that would automatically close (or partially close) the position
• Allow for partial closes - you can kind of do this by going in the opposite direction to your original position
• Allow news alerts - it would be great if the simulator could store announcements (even if the user needs to find and input the data themselves)
• Automatic addition of new data onto already existing data - it would be great if you could append new data to already downloaded data rather than having to create a new lesson for each download
• Free 14-day trial of the product - unfortunately the only way one can sample this product is to buy it! If this product had a free trial period I probably wouldn’t have purchased it after my demo period (due to these negatives). I also don’t know of too many software vendors that don’t provide at least some demo of their software before purchase, but… I’ve found one here!
• Automatically take trade snapshots when a position is closed - currently only trade snapshots are automatically taken when a position is opened
• Make the screen snapshot trades automatically have the chart snap to the size of the window they are framed in - more convenient
• Better filters for the trade analysis snapshot area - I’d like to have a filter where I can see whether I trade better at certain times of the day, rather than the current date/time filter which just screens trades conducted within a date range
• Randomly choose a starting point and hide the X-axis - after one or two runs of a data series your brain will begin to remember what’s going on and then preempt the moves, it would be good if the simulator could randomly choose a lesson and then hide the X-axis… I suppose it could distort the Y-axis figures too so that you’d never know what you’re trading!

How much is it?

Currently the Forex Simulator costs US$69.95 which ticks me off a little because I purchased my copy for US$149.95! So if you’re looking for a good time to buy I’d say now is as good as any! If John Keister (CEO of Forex Interbank) reads this blurb and takes action on improving his product he could easily raise his price back to the level I purchased it at and it would still be good value!

In conclusion the Forex Simulator is a product that is adequate for new budding forex traders, but probably insufficient for professional forex traders. While the product has some good foundations for professional forex traders seeking to test scalping strategies with 10 second data there is still much to improve on with this product and hopefully these will come to fruition in the not too distant future. When this product reaches its potential it will likely suit all traders alike.

Next, I’ll review another popular forex simulator and will detail it’s pros and cons.

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

However, just as each flag formation has a break point where we know it is likely to continue in the direction of the flag pole it EQUALLY has an opposing break point where when its opposing break point is broken we will see the market retrace back to the start of the pole.

But trading the inverse break does take some knack.

First, we need to know where this break point exists. As a general rule most flag break points occur around the 50% mark of the flag pole, however, experienced traders can sometimes pinpoint earlier entry points and one of these earlier entry points is where the second peak/trough occurs during the consolidation/flag period.

In the case of the GBPJPY and CHFJPY formations yesterday I identified the second peak in both charts. I knew that if these prices were broken it would end the flag formation for how it should normally be traded (being in the direction of the pole).

But what would’ve happened if we’d traded the inverse break?

Entry for the inverse break would’ve been at a move above the 218.31 (+ spread) point, with stops being difficult to place but are generally placed at the low of the flag pole (now can you see why it’s important to have the flag stay within the pole’s range, if we have wicks passing through the extreme it’s hard to not only find entry, but also where to place stops on the inverse). Our target would’ve been the other extreme of the pole being 220.34 which hasn’t been reached on the GBPJPY yet.

GBPJPY chart

On the other chart - the CHFJPY - we would have had entry at the break point of 93.75 (+ spread), with stops either at the low of the flag pole or at the low of the wick that pierced the flag pole’s low. Interestingly the CHFJPY hit its target, being the high of the flag pole at 94.68 (just under 90 pips made).

CHFJPY chart

What tell tale signs were there that the CHFJPY was MORE probable to achieve its target than the GBPJPY?

Tags: Currency Analysis, GBPJPY, CHFJPY

(The EURJPY is forming a bearish flag too but it isn’t as nice - it has already had closing hourly bars beyond the low of the flag pole at 147.83 making entry a little difficult, although having said that this would imply the EUR is weaker against the JPY than the GBP and the CHF.)

So I’ll be a spectator on this one, and will watch to see if the flag formation unfolds.

Several things I like about the CHFJPY in comparison to the GBPJPY discussed previously is that the CHFJPY has only had one snap at the low 93.29.

Okay, what’s the first thing I check after seeing a potential flag? Announcements. And there’s nothing on the announcement front for the CHF or the JPY so if there were to be a break this may take a little longer but also may be more directional (no whipsaws from volatile announcements).

Alright, what’s our risk:reward?

The flag pole distance is… 94.68 - 93.29 = 139 pips

If we place our sell entry stop at the low of the bar that saw it move below 93.29 (being 93.22) where would I place my stops?

Just as with the GBPJPY analysis I’d be inclined to place it above the high (+ spread) of the second peak formation in the flag consolidation period, being 93.75 (+ spread). My risk for this trade would then be…

93.75 - 93.29 = 53 pips

Our risk ratio is 53:139 equating to 1:2.6, and again to improve this ratio I’d probably look to sell a small amount of lots NOW with stops above 93.75 (+ spread) knowing that if the CHFJPY were to get to this level the entire bearish flag formation would be nullified.

But again, I’m not likely to trade this currency pair as I’ve never traded flag formations on it before.

(Interestingly though the high on 31 August @ 95.65 and the low of 5 September @ 93.65 gave us a 50% zone @ 94.65 - the highest the currency got on 7th September last week was 94.68 before it eventually fell its 139 pips forming this week’s flag pole.)

Tags: Currency Analysis, CHFJPY