Tuesday, March 6, 2012

Lindsay Lohan Take Note--This Is How to Mount a Comeback

That's right, I'm back in the swing of things.
My account balance yesterday hovered around $51,000--almost back to my starting value of $50,000.
Following the instructions of my drill seargent alter ego (see previous post), I didn't trade unless all the indicators met my criteria.
What did I wake up to find this morning? A $58,000+ balance. Woohoo!
I left the trade alone most of the day, but the price started stalling and I wasn't confident about which direction it would head next. I cashed in my $7,000+ gain and gladly waited until all my indicators lined up again.
I'm still waiting ... but I'm not as impatient as I once was. There's no sense of urgency anymore. I'm reconciled to the fact that I won't be the world's most successful forex trader. I'm not yet at the level where I can make money regardless of the market/indicator situation. And that's OK. It feels like a victory just staying on track.
There is some room for improvement though. Although I've resisted the urge to look at shorter time frames on my charts, I still need to work on putting my parachutes in place, especially overnight.
Looking at the 1-hour chart tonight, everything looks in place to put in a sell order, but I still need the RSI to lower beneath its previous low of 45 (by the way, I know I'm not explaining this part of the strategy well; I'll work on getting a specialized chart uploaded), and the price needs to drop below the last PSAR lower dot.
I'm getting tired though and I don't feel like waiting around for that to happen. Therefore, it looks like I won't be holding anything overnight.
I'll look forward to trading tomorrow though. I might even get up early.

Monday, March 5, 2012

I Lost My Way

When I recommended this FXCM demo account to a family member, he--unfamiliar with forex--asked me how trading forex was different than gambling.
At the time I thought I responded well. I told him about my chart setup, going with the trend, and making sure my parachutes were in place to minimize risk.
It was a great response, and true at the time I said it.
But while I've been good at keeping myself in line emotionally and with writing this blog, I have completely lost my way strategically. He was right to assume I was gambling. For the past few days, I have been and I've been losing to the house.
As those of you who follow my blog know, I started off so well. In less than a week I earned $8,000 on a $50,000 account.
My balance today reads $54,022.72.
Now don't get me wrong, it certainly isn't a bad balance. I started with $50,000 and could very well be in the $40K region now.
What really disturbs me about the $4,000 I lost is not that I lost it. I fully recognize that some of my trades will be unsuccesful. It's the fact that this streak of unsuccesful trades was entirely preventable.
One of my rules was to stick with a strategy. I was to use three indicators: Bollinger Bands, PSAR, and RSI. It worked for me in the beginning, so there's no reason it shouldn't continue to work for me in the present and future.
So why is there a MACD indicator on my chart now? Mainly becuase I lost my way. After a few trades didn't work with my go-to three indicators, I thought, "Hey, why not add another." The MACD quickly became my new favorite toy; I couldn't stop playing with it. I ignored the others, didn't even pay attention to what they were doing.
I titled my first forex blog post "Regrouping." It looks like I need to do that again. This time though there needs to be more specific parameters in place.
I confess, since learning how to properly put in trailing stop losses (thanks "Paul"), I haven't once done so. Yes, I'm the stupid skydiver who doesn't have a reserve parachute in the jumpsuit. And to make matters worse, I am the one who wrote a posting about the importance of having a second parachute.
Another issue is my indicators. I need to nail down what it is I am looking for when these indicators are in place. Am I buying when the RSI is below 50? No, but yet that is exactly what I've been doing. Am I waiting for the price to pass the last PSAR red dot? In theory, yes; in practice, no.
I admit I'm a little turned off by military training. In my high school sports playing career, I severly disliked coaches yelling at me as a way to bring about my best performance. All it made me want to do is stop and ask them to use their nice voices. You catch more flies with honey than vinegar, right?
But there's something about the structure of the military that appeals to me. You know what you need to do because someone above you tells you what you need to do. I enjoy free-thinking and creativity, but I'm not sure what place they have in forex trading, or money matters in general. Would I hire a "creative" accountant to handle my money? Probably not.
Perhaps I need to approach my goal of sticking with a strategy with some military-like discipline. I'll temporarily split my personality in two: one will be a strict drill seargent, and the other an out-of-shape but determined recruit. Here's how I see the scenario playing out:
Seargent: You will only trade when the following criteria have been met:
  • The RSI has dipped above 50 and risen higher than its previous high.
  • The Bollinger Bands are tunnelling upward--not horizontally or downward.
  • A green PSAR dot is present and the price has passed the last red PSAR dot.
Under no conditions will you execute a trade unless all of these criteria are met. Do you understand!?!
Me: Sir, yes sir!!
Seargent: What time frame will you be using!?!
Me: Nothing below the 1 hour time frame, SIR!
Seargent: Of course nothing below the 1 hour time frame. That would be stupid. Are you stupid!?!
Me: Sir, no sir!!
Seargent: Then why is it that you were frantically switching between the 1, 5, 15, and 30 charts like a chicken with its head cut off!?!
Me: Well, you see, I lost my way a bit. Had an emotional few days--
Seargent: WHAT!?!? Emotion, who? Lost, what? This isn't Oprah, cadet.
Me: Sir, yes sir!! I was stupid, but I won't be moving forward.
Seargent: You better not be. Now what parachutes will you put in place?
Me: I will use trailing stop losses. Forty pips below or above the entry price.
Seargent: And when will you take the profit?
Me: When the stop losses are activated or when I see signs of a price reversal in the charts.
Now, unlike in the military, I will not use physical exercise as a punishment or behavior correction technique. I also will retain my right as a free thinker to amend my stop loss parameters if I feel they are detrimental to my earnings.
Let's see how this new approach of mine works. Soldier, fall out!

Thursday, March 1, 2012

Trading on a Bad Day

My overall account balance reads $55,957.72. Oh, how nostaligc I am for the $58,000+ balance of yester-week!Today was rough for me work-wise. I'm self-employed and work for a few California publishers as a copy editor. The year is off to a very slow start. I didn't make enough in February to cover my expenses, and my bank account is not in a strong enough state to play safety net.
This is almost the position I was in last July, when I decided to abandon my blog--this blog--to focus on work. I'm not throwing in the towel this time though.
"Sticking with it" may be the right decision, but it certainly isn't the easiest. I'm faced now with many questions and concerns, chief among them, Should I be trading when the cards are down? When I am down?
Trading on emotions--fear, excitement--is no way to go. But what about trading when dealing with day-to-day emtions? If the answer is no, then I might as well change my position about throwing in the towel. I'm a Pisces. We're emotional by nature.
The only way to unearth the answer to the question is to run a little experiment. It's not really my money (all hail the FXCM demo account), so what's really the downside?
I stayed in the game today and did lose some money. I'm not jumping to the conclusion though that today's loss was due to my emotions. Yesterday I wasn't emotional and I still absorbed a loss. (Have I mentioned recently my longing for the $58,000 of fake money I once had?). For the record, I started off this morning with a $1800 loss and ended up making a few good trades after that. All trades occurred when bummed. No pattern has emerged
Needless to say, the results are inconclusive. It is something I want to revisit though. Knowledge is power after all.

Wednesday, February 29, 2012

Patience Is a Virtue ... and an Exercise in Willpower

Last night and today were uneventful ... and it bored me about as much as this post might bore you. Sticking with my Bollinger Band-PSAR-RSI strategy per my rules, I didn't see anything in the charts that induced me to take a short or long position in the EUR/USD exchange.
Actually, that's only partly true. Last night, I put in a buy order shortly after closing out a previous buy order for a profit. Doesn't make sense, you say? Well, you're absolutely right. In hindsight it doesn't make sense to me either.
It probably won't surprise you then when I confess that I sold that second holding for a loss about an hour later. This all happened late last night, so I started the day in the negative. Never a good thing with anything in life.
The second trade wasn't just out of boredom. Something in me felt I should be able to create a successful position everytime I look at a chart.
With some immediate self-reflection post-loss, I decided I shouldn't put in another order, especially to hold overnight, if I wasn't entirely confident. And I wasn't. I switched between so many timeframes desperately searching for a clue as to whether the price would soar or sink--all to no avail. I was leaning towards a long position, because the EUR/USD on the day timeframe has been trending upward. But I couldn't find chartology merit to support this inclination of mine.
Selling, or going short, didn't seem appealing either. There was no overwhelming price divergence that would've hinted at the possibility of a sharp reversal in price movement.
I'm pleased with my decision to not go long overnight because I would've woken up today with a loss. For most of the night, the price did creep upwards, but when the stock market opened this morning, the EUR/USD really started to move down in price. It might not have been a substantial loss, but it would've been a negative yield nonetheless.
I'm also glad I didn't go short. I thought it showed some restraint on my part not going against the current. It wasn't listed as one of my rules, but going with the flow/trend was always something I wanted to keep in mind with all of my trades. It's no coincidence that my most successful trades so far have been long ... since, surprise surprise, the trend on the day chart is up.
I have to admit, though, not trading is pretty darn hard. Willpower takes effort, and this little lady is pretty out of shape as far as mental toughness is concerned. When I wrote my rule about emotional neutrality in my forex trading, it never occurred to me that my toughest day emotionally would involve resisting the urge to trade.
In high school, I never took speech and debate as a class or an extracurricular activity. I don't enjoy the sound of my own voice or speaking in public. Small group discussions, without an audience, are more to my liking. I do have some a newfound respect for debate champions though. One in particular from Harvard, who was also a contestant on the Apprentice, said something that struck a chord with me: "Every good debater knows that there's a time to listen and a time to speak." I'm paraphrasing, but you get the gist. Perhaps I ought to get used to the idea that a good trader knows that there's a time to trade and a time to sit it out.
I've been checking back into the charts throughout the day--1 hour timeframes and higher--and I saw an opportunity for a short-term trade a few hours ago. I put in a sell order--going short--and eeked out a $250 gain. That now puts my account balance at $56,408.72, which is a little bit down from $58,058.72, my balance yesterday.  I'll view the $1,650 not as a loss, but as my tuition for my education in the importance of patience and willpower in forex trading.

Tuesday, February 28, 2012

Preparing to Crash and Burn

I'm no pessimist. But I'm also no eternal optimist. When someone asks me if I see the proverbial glass half full or half empty, I want to answer "both" (I never do because the few times I have I was accused of dodging the question and then the conversation became awkward and strained).With my third day of trading almost behind me, I should feel mighty optimistic about my future in the forex market. In just three days (I took a day off for my 30th birthday weekend trip), I turned $50,000 into $58,058.72. Instead of bouncing off the wall, rejoicing in my success, I'm focusing on the "half empty" side of the glass. I'm worried about the "down" after the "up" for one reason and one reason only: I don't yet have a second parachute to back up my first one.
The first parachute in this scenario is me--my eyes watching the forex charts and getting out when things don't look to be going my way. Obviously this parachute needs her eight hours of beauty sleep and occassional breaks for food and my actual job. The thing about parachutes and skydiving is this: For the most part skydivers will only use first parachutes their entire skydiving career. Not having a second one on hand, though, is just plain stupid. When you need the second one, you really NEED it. I won't die if I only have first parachutes in place my trading career, but I would view a loss of all my hard-earned money as an equally crushing "game over" situation.
FXCM, the broker through which I have my demo account, has a stop limit / trailing stop loss option to orders. I just can't figure out how to use it. I thought working with pips would be the same as working with dollars and cents. Fidelity has a stop limit / trailing stop loss option and I use it quite a bit, so I thought FXCM's would be a piece of cake. Now the few times I've set up a trailing stop loss--in pips--I was almost immediately closed out of the position. Not the plan at all. Generally speaking I like a pretty loose buffer because I know everything market related comes with dips and pullbacks that are mere bumps or respites on the road up.
Am I doing quite well with my one parachute? Yes. Am I the stupid enough to continue without a second "parachute"? Hell no! So tomorrow I'm going to do something I haven't done once since entering the stock market game. I'm going to ask for help.
I received a welcome call on Saturday from a sales broker at FXCM I'll call "Paul." He left me a very nice message welcoming me to FXCM and offering himself up as a point of contact for all my forex trading-related questions and concerns. He may not be accustomed to newbies like me actually taking him up on the offer, but the sucker left his email address and phone number in a follow-up email shortly after the missed phone call with me. He'll be getting to know this newbie!!

Friday, February 24, 2012

Long Term Great, Short Term Bad

Last night I almost went to bed defeated. Yesterday started off wonderfully trading wise. I woke up and found that my position long in the EUR/USD yielded a $5,000+ gain. For a $50,000 account, I thought that was pretty darn good. I took a look at the charts and sensed a pullback was inevitable. I didn't want to forfeit my 10% gain, so I sold all my shares and took the profit. For most of the day I avoided trading. Then some downtime in the nightime got the best of me, and I decided to apply my strategy to some short-term positions. What a mistake that was! Not only did I lose the $5,000 I had previously gained, but I also lost an addition $6,000.
I was all set to trot off to bed with my account sitting around $46,000 and no positions long or short for fear I would lose more. Then, I remembered Rule 1 (see Regrouping post): (1) Emotions, whether positive or negative, will be confined to the footnotes section of my trading story (i.e., although present and inevitable, they will not determine my trade actions). Combine that with my other rule, not giving up on a strategy until I make it work, and I had no excuse for not regrouping and reentering the game.
I switched out of the 1-minute chart and into the 1-day time frame. The trend was up. There was a green PSAR dot under the price. And the RSI was at 64, moving up, and had not diverged with the price. It wasn't a guarantee, but I felt good about going long.
I put in the order, had a great night's sleep--emotions in check--and woke up this morning to a wonderful sight: $9,000+ yield on my position. My account balance (equity) read $54,000.
Not wanting to repeat my previous day's mistake, I left my position alone throughout the day, with the exception of taking an $8,000+ profit around 1 pm. (I saw no reason to hold a position over the weekend.) Throughout the day I kept saying "no short-term trading." It wasn't an emotional decision. I merely wanted to reflect on why it was my strategy had been working great for me long-term but not short-term.
A bit about the strategy I employ: I'm trading on chart information--mostly because I want to. The idea of reading up on what's going on with the Euro, Greek bailout, strength of the dollar, etc does not appeal to me. I also think, as an emotional girl, it would be hard to squash my instinct to react to good/bad news and follow the emotional rollercoaster journalists unwittingly build for viewers. It's not always the case, but I assume that most charts, if set up with the right indicators, will contain some visual clues of a loss/gain of momentum before the price crashes/soars.
The indicators I use are: bollinger bands (default setting), RSI (default setting), and PSAR (default setting). When do I buy (or go long) a position? When the RSI is above 50 and moving upward AND there is a green PSAR dot under the priceline AND the price is hugging the upper bollinger band. It's not an exact science and I doubt any rock star chartologists are salivating at my technique, but for the past two days, on my long-term (i.e., overnight) positions, it's been working.
So what explanation is there for why long-term I'm kicking butt and short-term I'm getting my butt kicked? I'm really not sure. Perhaps it's that short-term trading requires more focus and attention on the price movements. And even with my rule about emotional detachment, I'm still susceptible to panicking when prices drop and feeling lucky and greedy when prices soar. At this point, it's probably a benefit to my bottom line that I'm stepping away from the computer after setting an order. One day, I hope to conquer the short-term trade. But for now, I'll stick with my long-term strategy and continue to analyze what's holding me back short-term.

Thursday, February 23, 2012

Regrouping

It's been awhile since my last posting. How long, you ask? I'll let you do the math on the dates below. Like with my bank account and taxes, that sort of arithmetic is depressing.

The good news--aside from my absence--is that I'm preparing to get back into the stock market game. I signed up for a demo account on FXCM.com, and for the past two days I've been practicing trading currencies.

My goals have changed a bit since my first post. Making money is important, of course. Like others, I don't want to consistently lose my hard-earned dollars and cents. But I find that goal in the context of the stock market too vague. Instead, I've been thinking of what goals and parameters I can implement on a day-by-day and trade-by-trade basis.

Here they are: (1) Emotions, whether positive or negative, will be confined to the footnotes section of my trading story (i.e., although present and inevitable, they will not determine my trade actions). (2) For every entry, I will have a clear and precise exit strategy, and I will stick to it no matter what. (3) I will stick to one strategy and will not abandon it and jump around until I've demonstrated some mastery of it. (4) I will devote a certain amount of time to my trading daily, but I will not let it consume too much of my daily time. And (5) I will also devote at least 15 minutes per weekday to updating this blog. Writing is just as important to me as learning this new skill.