Tuesday, August 14, 2007

Trading Economic News Event - A Gambled Bet?

Yes, I am believing it now. My "bet" was spoiled after the release of an important economic data. Any form of obvious gambling is definitely no-go for me from now on.

On the other hand, are traders gamblers? I believe many trading professions do include some degree of gambling, some level of chance. Hence, yes, it is really gambling.

Most people in what they call economics believe actually not in economics: They believe in gambling. It's called a financial system; it's a gambling system. And people understanding that, ever since Galileo came up with this idea about gambling as the basis of discovering how markets would work, everyone has tried to get a better statistical system for gambling. Like breaking the bank at Monte Carlo, making a killing at Las Vegas, probably one's own. And therefore, these guys who are running the financial world today, depend on the assumption that they've got a "better system"—as they used to have at the race tracks, a "better system" for handicapping the horses. And it would really handicap the bettor, in the end, as he found himself on the street without cash—and being pursued by his lenders.

Monday, August 13, 2007

One More Step Towards My Goal

My strategy worked out fine for me today. I scaled in my long positions of USD/CAD at 1.0501 and 1.0491, and just closed them off at 1.0530 and 1.0531. A profit of 70 pips with 2 positions, and hence a gain of 1.75 R.

FYI, I held them long enough (approx. 6 hours) in order to reach to the first price target level. However, I didn't scale out my last position as planned. I just simply exited without giving it a chance to ride further/longer to the next target level. My profit was not under threat at all at the time of exit and the price momentum was still with me.

Was I being impatient? Was I fear that I might lose it back later? Was I not able to follow the exit plan? Was there really a clear exit strategy? How long should I hold? So many questions...

At least for sure, I was not being greedy. Last week, I paid a hefty price for leaving almost 60 pips profit on the table. A gain of 1.75R today was enough to move me another step closer to my dream.

(1 Million Goal: 9/88)

Thursday, August 9, 2007

Ongoing Subprime Woes

Fed Chief Confirms Housing Predictor Forecast - that more than 2 million homes will be foreclosed as a result of the sub prime lending crisis

The Mortgage Mess - STUPID LENDERS making stupid loans to stupid borrowers. What is to be done?

BNP freezes funds in sub-prime shock - "The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating"

Global Liquidity Defined - "What do they mean when they talk about global liquidity drying up?"

Subprime meltdown can cause a massive crash in stocks, dollar, and long bond - Bear Stern’s disastrous subprime investments were just tips of the icebergs

Money is Also Destroyed - If money can be created from thin air, the opposite is also true

Yen rallies as investors spooked again by risk - Low-yielding yen jumps, high-yielding Aussie and NZ dollar crumbles

Are We at The Peak of a Minsky Credit Cycle? - "It is always risky to call an equity market peak and the beginning of a bear market in equities"

Tuesday, August 7, 2007

Real Ways to Grow Your Trading Money

I am still progressing, but slowly. This new week saw my trading account reaching a new high, hitting milestone 8 out of 88 in my quest to grow 1 million pound trading money. An improvement of two levels since my last update. However, the en route journey (so far) is a bumpy one. Nevertheless, I manage to gain some valuable lessons out of this experience.

I will try to sum up my points here:

1. In order to grow your account size comfortably, you need a trading method that can typically generate 1.5 - 2 R, and possibly 3 R in some of the best setup. (R being the reward-to-risk ratio). For example, in forex pips term, you are willing to risk 20 pips to gain 30 pips (1.5 R), 40 pips (2 R), 60 pips (3 R) and so on.

2. The strategy used must capture the essence of trading, i.e. buy low sell high. For swing trading, you are able to understand the swinging price action and hence allowing you to enter positions near the low or high of the day.

3. You have a detailed trade exit plan. In the case of trading multi-lot, you are willing to book partial profit as well as holding the rest of the position for a bigger profit. You give time for the target price to be developed.

4. You have the ability to minimise trading losses. Although you use a stop loss of 1 R, you are willing to cut your losses early as soon as you identify the price action is going against the initial trading plan.

5. The win/lose rate must be better than 50%. The 50% figure is already quite a conservative one. Your trading methodology must give you a real edge, therefore, you must understand where your edge lies.

6. Finally, it is about the trading capital preservation. You should not risk more than 8% on a single trade. My current affordable/emotional limit is a low conservative 5 -6%.

(1 Million Goal: 8/88)

Wednesday, August 1, 2007

Mid-Week Trading Review

6 Trades (3 winners, 3 losers)
0.55R, -1R, -0.35R, +0.375R, -0.8R, +1.275R = 0.05R = + 2 pips

My success rate has dropped to only 50%. Poor execution in some of the trades due to lack of patience. Last week, I only traded four times with 6R return. In this week, I already traded 6 times but with zero return so far. I know I can do better than this...