Trading Rules

I got these "rules" off another site, same old stuff.... throw up a few rules, make them general, hopefully the reader will buy the course they are selling.

Here it is:

Forex trading is really just about buying support and selling resistance. It's easier said than done, but here are some easy rules to follow:

Buy low sell high [ya, OK.]

Do not assume support and resistance even if there is precedence; let candlesticks indicate market sentiment at anticipated levels and act accordingly. When in doubt, let the market test and retest price levels. [and then what do I do?... I watch smaller time frames, sometimes a tick chart....but that if I'm trading off the H1 or H4.]

Apply a moving average as a simple visual way of indicating trend then buy support or sell resistance in favour of the trend [and what time frame are we talking about here? And what moving average period? How about just using higher highs and lower lows? Works for me.]

Retail speculators often get the big picture right but get killed by volatility at the lower time frames; increases chances of success by following the big picture more and this is really about 15 minutes or higher. [I agree with this, just ask Ryan O'Keefe!]


To sum it up, play with the trend, follow the big picture and apply wider stops that are more tolerant. That will really save you from a lot of nasty whipsaws but you will get it right when price reverts to the mean. In terms of strategy, nothing beats a simple one so you can get it right even if you wake up on the wrong side of bed. [I agree with this to, but it's general and doesn't really help a new trader]


Anyone have any comments on these so called "rules" that are more guidelines than anything....

Breakthrough

It's been a while since I posted. Here's what I've been doing, and not doing....

I haven't been working a whole lot on the updated version of Tipster Trendlines but it is close. I sent the code to a reader (David) who is testing it. David had some good ideas to improve the flexibility of the code. For example, the ability to submit a bracket order, or just a buy/sell order, or a buy/sell with a stop. Also, the menu's have changed with everything on a single pane.

Since the beginning of the year I thought I'd concentrate more on actually trading than coding trading systems reading/writing blog posts, and actually gain more experience trading every day.

Also over the past few months my frustration with IB's data feed has grown so I decided to try another broker for forex trading while still not closing the IB account. My issue here is that you cant get tick data. If I use another feed to Amibroker and IB to trade forex the two may not jive enough to scalp and/or place my stops. So I think we are kind of stuck with IB's crappy data feed.

I've opened a new account with MFGlobalFX to trade forex. I think they are an affiliate of FXCM since I can log onto the dailyFX website for news and signals (more on that later).

Their simple little platform is really all I need, I found to my surprise. I plot a few MA's and display a daily, H4, H1, M1, and tick chart to trade. Once I figured out what I wanted to see and what indy's I wanted to on my screen, trading was more simplistic. I only use price, MA's, slow Stochastic, and a table of ATR values. The platform is FXTradingStation by CandleWorks, does anyone else use this? The indicators are written in a language called LUA. I'm not about to dive into another language to port some indicators. So back it is to Amibroker. How do I get this new brokers data into Amibroker? ... more on that later....

Using this little platform made me think a little after I has some successful trades. Amibroker allows us to over complicate things. This simplistic approach helped me get my head around the trading plan that I needed to simplify. My plan was more than 10 pages and I really wanted a 2 pager, something I would memorise without even knowing it, something short. Also during that time I listened to a TraderInterview. This particular trader made up a simple "table", I call it a matrix, of his set-ups. He would detail the set-up for the applicable time frame and how to initiate a trade and possible profit targets. It is well known that a trader needs a few set-ups to draw from in order to flatten the equity curve, and this is a good visual tool to do that. This trader also scored the set-ups for each trade, promoting good set-ups and "firing" the under performers. Promoting just refers to increasing position size for the set-up. So this was my road map to simply my trade plan and my charts.

Back to the new forex account.... After I opened the account, I tried trading on the demo to figure out the platform. Easy stuff. Trade right from the charts. Then I went back to IB's TraderWorkstation and tried demo trading from the chart trader. Again, this was easy but the charts are not as nice but I can see through that by adjusting the colours. The worst part of IB chart trader is the lack of a tick chart. I have found scalping and setting trailing stops as my position moves to be so much easier with a tick chart.

Today I fired up the DDE link to FSXM with Amibroker and the data is now streaming. So at least I can set up some alerts to email me when price is getting close. If you are using FSXM and the FXTradingStation application let me know what you think of it. I was also wondering about sharing templates for that app, haven't found anywhere that does this.

This is the breakthrough. I ready to dump back tests and auto pilot systems for now. I've got risk management under control and I know my limits. A have some set-ups that I'm comfortable using. I have two issues left to solve and one is data availability / easy charting package, the other is to get comfortable with larger stops. The second will come , I think, with a larger account size, its all about percentage on the irsk side. The frst issue, charts, should be completed by Sunday night once the streaming quotes start to come in. I'll probably use Ami to look at tick data and some home grown indy's and use FXTradingStation for all other time frames and to place the trades. Tracking trades on FXTradingStation is also easy. I'd post chart shots bu the app wont open on the weekends when the servers are offline.

I'd be interested in knowing if anyone else uses a combination of Ami and FXTradingStation or Ami and FXCM to trade forex. What has your experience been?

Forex Trade Journal

A Trade Journal is part of my trading plan. A comment was recently posted about journals so I thought I would share part of my journal. I plan to share the excel version once there are a few more trades in it. I started a new journal not long ago when I decided to do forex on the daily chart, explained a bit more below.

In books, on blogs, in the seminars, the experts tell you to keep a trade journal. Notice it doesn't read "trade log". The journal includes all items you would find in a "log" and more. You can read about journal all over the net. I have begun to trade forex daily and 4 hours charts with a simulation account using various set-ups. The only thing better than my little journal would be to actually print out the chart when entering the order and writing your thoughts on the chart as the trade progresses. I don't have a very good printer so I don't do that.

My journal started with a few column's and I have added and adjusted these as I went along. I wanted to not only record the trade details but also the reason I entered (what was the set up), the adjustments along the way as I checked the chart each evening, and once the trade closed I recorded my thoughts and comments on what I did wrong or things to watch out for in the future.

Here are the current columns I use.

Pair
L/S
Order Type
Entry
Reason for entry
Status
Exit
Pips of profit
Date of Entry
Date of exit
Days in trade
Mod 1
Mod 2
Mod 3
Mod 4
P/L
Review of Trade and comment on result

Make the journal your own. I review mine after each week, both the current week and the prior weeks. This makes it stick in your memory.

Globe and Mail and the way forward

This is a look at the past, the present, and the future.

A while back I was contacted by the Globe and Mail and asked to participate in the "Me and My Money" column. The column is below, click to enlarge. The paper version has a fairly large picture of me playing my guitar, very cool.

Larry MacDonald also mentioned me in his own blog, where he discussed day trading on the TSX. Anyone else out there day trade the TSX? Technically, I'm not day trading since I don't watch the screen during the day. I put my order in at night, it could trigger the buy and sell in the same day, thus called a "day trade". Below the article I describe what has changed since then.

Page 1





Page 2



Something has changed since the article was written. I have moved all of the RRSP accounts that hold mutual funds to a discount brokerage. IB does not offer RRSP, LIRA, or RESP accounts so I went elsewhere.

Why did I do this?:

First of all, I had my funds in RRSP's for the same reason most other people do, not enough time to manage it and for the long term I felt the pro's would do a better job. For the most part this might be true. The single issue I have with this is their ability to exit when they smell something rotten, such as a declining 50 day MA, even worse with a declining 200 day MA. Even if they knew a few US firms were about to implode, how could they liquidate a fund of that size? Who cares. I know I could liquidate my holdings in a blink of an eye and not cause any market movement.


The long term plan:
First of all, cash is a position. Decide for yourself when to get in and get out, before your emotions take control. Here is my plan. After reading a book about a guy who purchased solid dividend paying companies, and retiring, I decided to go on my own. I will only purchased companies with that meet certain criteria, the top two are "must pay dividends" and "from the chart". There is more to the dividend research than that, just like there is more to the "chart" than that. Basically, dividend paying companies in an uptrend, or at support.

How has it worked so far? Pretty good. In the past few weeks some of the fund transfer was complete so I went on a search to find some stocks on the TSX. (I wasn't about to buy on the US exchange as the CDN dollar has been beaten up lately). One of the stocks that I set up an order for was BMO. All four stocks had limit orders set up, set up at prior support. I figured it could take up to 4 weeks to get a fill if the market was going to be ranging. To my surprise, the very next day the market got killed. All four orders were filled. Scary you might say. It turned out pretty good. Patience to wait for the price was a key, after all, it's long term. Here's a chart, my fill price is the white horizontal line.

BMO.TO - Weekly


BMO.TO - Daily



Notice that there is a triple bottom, and each bottom on the weekly chart has less volume, that's good. As far as risk management for this trade there are two options.

First, if the price breaks that support - get out quick, usually a fourth test of a horizontal line is like a hot knife through butter.
Second, set the stop at my break even while considering any dividends received, perhaps setting the stop a little lower for breathing room. I'm looking at the close prices before I place a stop order.
Third - never sell. Strange thing to say but at the white line it is 7.5% yield. Better than a sharp stick in the eye.

So lets sit back and see which way the market heads. The path of least resistance is down. To be back in an uptrend we need higher lows and higher highs. Or we could range for a long, long time. If you want to see what a bottom looks like (it's hardly ever a V on a daily chart), check out today's video at alphatrends.net. Also take a look at this Bear Market Post to gain perspective. Yo be your own judge. If your confused, put your money under your mattress and wait for the bullets to stop flying. Cash is a position. If you know what your doing, follow your trade plan.

One more thing - I almost have a working version of an updated tipster trendlines with more bells and whistles. This one has trigger buttons and drop down menus right on the chart. Should be ready in a week or so. Is anybody using version 1.0 or 1.1 of the code to trade with?

Risk Management

Risk is job 1. Patience is job 2. What the hell does that mean?

Patience is important for entries and exits, jumping into trades to early, not waiting long enough for the price to run, can be counter productive to the outcome of the completed trade. I think this goes without saying but it's harder to do in real time than most think. This post is not about patience, I mention it only as a comparison to risk being job 1. Risk can be managed, and should be to avoid your "hope" that price will follow.

There are poeple who make a killing from "pump and dump". The people who buy once its hyped, and do not sell even though the price keeps declining, are 'hoping' and are not controlling risk. You would think that the stock is purchased prior to the pump by the insiders. It is, but it is also shorted at the crest when no more buyers show up. Watch the volume, that shows you how many people are at your party. When the party gets lame, leave and look for a new one. Easier said than done for most. Use bracket order to control your risk, thats one method.

Rather than write about what I mean by risk, here are some posts on the topic.

The 2% Rule
Position Sizing - Bull Trapper
Position Sizing - Trader Mike
Position Sizing Spreadsheet
R-Multiples

Another source is a book called "Trade your way to Financial Freedom", or "Technical Analysis using Multiple Time frames" . To search for books that may be available on the net in pdf, take a look at this post "Tools For Trading Post".

I developed a screen that shows me how much to risk based on the account balance. I use some afl code in Amibroker I developed with the help of some code from the Amibroker Knowledge base web site. The starting code had nothing to do with risk. It is using Amibrokers new graphics commands and allows you to put buttons and graphics on the screen, the same area as the price plot. The code is a bit rough around the edges but I post it so you can at least have basic functionality. I plan on making it much more robust shortly. The final version will not be shared though, unless the is a contibuton made.

There is two parts to this code. First, a chart to draw lines. Second, a pane that has code to display risk, profit, etc. The first chart with the lines writes the static variables of entry, stop, and target as well as the ChartID and order of lines (long or short set up). The second retrieves the variables and some information from your Interactive Brokers account and computes a bunch of information automatically for you.

Here is a video that explains what it all is and the code. I also explain some of the basic of the bracket order; how it triggers, how it cancels, etc.

Part 1 - To use the code, you need to draw 3 (horizontal) lines on your charts to define entry, stop, and target. That code can be found on the post titled "Tipster Trend lines Post"

Part 2 - The second chart, or pane, or code snippet is right here. "Risk Management Code"

Basic Rules

All the list of rules floating around, what do you belive, what do you use? What works? After spending a few years digesting lots of information I can now quickly read an article or blog post and know if it fits me, my style. There are a few very very basic rules that I remember each day. You should do the same. Make a top ten list. Revisted the list every now and then. Put the list on the wall. Modify it as you learn and progress. Here are two rules I have boiled down to one, once I learn to understand the first rule and was burned a few times, the second just made more sense.

Don't chase price. Do not chase price. All the books tell you that, but then they go on to tell you about indicators or other stuff. Want to prove it to yourself, run a system where you buy after a run, say 3 up bars and see what happens. You get hammered that's what happens. Why do we do it? It's not based on logic. This is one of the reasons I want to implement a mechanical automatic trading system to keep me from doing it. Yes, I have done it it and I look back and wonder what the hell I was doing.

Patience. Have patience. If we follow this rule, we don't have to worry about chasing price. This is rule #1.

I think the single most meaningful sentence I have read in any book or blog is "Most of your time trading is spent waiting". I hate waiting. Who likes to wait in line for a ride at the amusement park? Who like to wait in traffic. We are trained to not like to wait.

Learn to WAIT for the opportunity to appear. Sometimes the wait is short, sometimes long. LEARN TO WAIT. BE PATIENT. If you miss your entry, learn to trust that you will get another chance. If you miss your exit, just take what you can and be happy.

"What you do determines whether you lose. What the market does determines whether you profit." (Sun Tzu)

Taking a break, making the plan

I have been taking a break, since work is keeping me busy. I am shifting, or rather opening up to other markets now. I have written a trading plan that includes the pairs I will ONLY trade in Forex. There are three pairs, non correlated and all USD's. I am also opening up to the TSX, trading the ETF's and highly liquid stocks. Prior to using IB, I was with E-Trade, this was a few years ago. I found that the profits I made were all eaten with commissions, that to much, that money could have been in my pocket. Since switching I was intoxicated with the though of auto trading and switched to Forex. Well, here is my long term goal:



Trade the TSX with daily charts and intraday triggers, set up on TWS. At the same time, trade Forex intra day in small lots. As the same time, work on the automated trading system that will trade on a 1 hour time frame, from Monday to Friday, from 11pm to 8am EST.



Does anyone think I should share and post my trading plan?